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September 30, 2022
In challenging economic times, corporate restructuring may be the only way to address financial and operational distress signals. Public or platform company spinoffs and strategic acquisitions after a downturn represent opportunities for private equity restructuring and turnaround undertakings.
Restructuring a company generally means significantly modifying a company structure — consolidating, shifting, reducing or eliminating business units — to improve the earnings before interest, taxes, depreciation and amortization, better known as EBITDA and a key financial performance indicator. Every private equity restructuring and turnaround faces challenges. Depending on company size, restructuring could take years. Outsourced expertise accelerates the process by bypassing the time and resources required to hire.
The financial reshaping of a poorly performing company for the long term or preparation for mergers and acquisitions is in private equity’s wheelhouse. After a record year, private equity credit has been flexing its historic levels of dry powder to fund strategic acquisitions of distressed companies. One problem is that competition for qualified managers has created a talent shortage. GPs increasingly turn to outsourced services and consulting to see a company restructuring and turnaround through the business cycle.
Restructuring and turnaround undertakings seek impartial, outsourced services in critical areas for their expertise and results.
Corporate restructuring typically means bringing up or bringing in new leadership, which doesn’t happen overnight. The organization requires significant change when private equity brings on a chief restructuring officer or advisor. A CRA leads the restructuring process and has the experience to approach the project like an investor evaluating a portfolio. They can develop a plan that meets the level of transformation, including rapid turnaround, rescue, recovery or contingency. Outsourced restructuring advisors are adept at negotiating with stakeholders.
Companies with significant revenue loss need a business redesign. Restructuring in times of ambiguity and uncertainty requires strategic management analysis, revenue modeling and tools to track the right key performance indicators of revenue generation and financial health. Outsourced CFO services are a cost-effective way to gain in-depth FP&A. An experienced interim CFO can set you on the right path and an appropriate level of engagement once operations and revenues are on a sure footing.
Private equity restructuring and turnaround strategies ask a lot of human resources, from setting up payroll and benefits to implementing new processes to recruiting. The new team is critical to rapidly improving operational performance and meeting the financial goals required to turn around from poor sales and troubled balance sheets. Restore talent using outsourced services and resources to handle human resources, payroll, benefits, compliance and recruitment — keeping improving working capital and liquidity management top of mind.
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Distressed companies suffer from significantly reduced competitiveness in their market. Private equity restructuring could mean an overhaul of the product or service offerings, new supplier contracts, and refocused marketing and promotions. Alternatively, it could mean creating new product lines and breaking into a market. To keep the focus on stabilizing EBITDA and preserving value, outsourcing the company’s back-office operations helps to keep costs down while operations contract or expand.
Increasingly, private equity is seeking to create value by transforming unsustainable businesses. Some 57% of investors in China, Western Europe, the U.S. and the U.K. polled by Global Custodian and Intertrust Group consider ESG a high priority. GPs must address LP concerns about decarbonization, sustainable sourcing and an ethical supply chain in the long run. Outsourcing to accelerate a company’s transition is a cost-effective way to engage expertise that delivers without the lengthy process of hiring in-house.
Engage third-party expertise as needed. Consulting and essential business services are available on a project basis or continually through a full-service firm. Sometimes, the in-house team can integrate new processes and technology; all that may be needed is an interim CFO to oversee the restructuring and communicate with stakeholders. A more complex restructuring could require a specialist in product development, an expert in cross-border M&A regulations and a change management consultant to work with leadership on creating an ESG culture.
Remember that with private equity outsourcing choosing the right engagement level is straightforward. Services, scope and pricing should align with your expectations. Skilled outsourced talent will be able to build trust with in-house teams and quickly demonstrate their value to stakeholders. Outsourced solutions specializing in private equity will speak your language and have the resources, relationships and experience to see a turnaround through the business cycle. When done well, outsourcing critical operational services like finance, accounting, recruiting, compliance, human resources and payroll should feel like an extension of the business.
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