Marc Cooper emphasizes the importance of “smart restructuring” in the current economic landscape

Smart Restructuring: The Subtle Art Of Charting Corporate Comebacks
by CEO Marc S. Cooper

With the era of generous Federal Reserve monetary support and easy money behind us, companies will find it harder to mask operational challenges. Now, more than ever, clients need trusted advisors with a holistic understanding of their businesses to guide them through the complex terrain of restructuring and balance sheet remediation.

What Is Smart Restructuring?

Corporate restructuring is often associated with organizations facing a deep crisis, or even on the precipice of bankruptcy. Such a narrow definition greatly underplays the expansive range of services that restructuring bankers provide.

A full-spectrum restructuring practice encompasses everything from debt restructuring, capital raising and asset sales, to strategic advice, operational analysis and stakeholder communication. Restructuring, in the broadest sense, is a multifaceted specialty within modern finance.

Smart restructuring extends far beyond helping distressed companies navigate bankruptcy court. Ideally, it will never come to that. Restructuring bankers are often enlisted to help clients strengthen their balance sheets, revitalize their business portfolios and chart new strategic directions.

What To Look For In A Restructuring Advisor

Constructing a calibrated and creative revitalization strategy requires bankers with a deep reservoir of industry expertise, and a proactive approach to client relationships. Experienced bankers know the warning signs—declining profit margins, persistent underperformance, high debt levels and liquidity issues—that suggest that a strategic reset, rather than a minor course correction, may be needed.

One of the most significant challenges that restructuring advisors face is convincing clients to acknowledge that they need to rethink their business operations in the first place. Financial conditions have tightened over the past year, yet there is still a tendency among some management teams to hope things get better.

A restructuring banker should possess a comprehensive skill set encompassing financial analysis, strategic thinking, negotiation prowess and effective communication, as they navigate complex financial scenarios, devise restructuring plans and engage with various stakeholders to restore a company’s financial health.

Above all, experience and judgment are paramount to chart the best possible course. To draw a parallel, if you hire a surgeon, they are inclined to recommend surgery. However, the best restructuring practitioners prioritize value creation above all else—including investment banking fees. That requires carefully assessing all available options, before entertaining the more dramatic ones, such as a signature asset sale or a bankruptcy filing.

Complex Problems Require Custom Solutions

I distinctly remember the case of a retailer whose board received advice from a restructuring team strongly advocating bankruptcy as a solution to their performance problems. While a bankruptcy filing may have allowed the company to shed liabilities and start anew, it would have wiped out shareholder equity.

Solomon Partners stepped in with an alternative plan that bolstered the client’s financing and brought in an investor with a vision for the future. My team understood that the company’s chief problems were operational against the backdrop of a more agile rival which was fixable, short of heading to bankruptcy court.

Our advice was elegant in its simplicity: Emulate the best practices of your successful competitors. The company recovered, and its stock soared, illustrating the importance of coming up with considered and customized solutions to complex problems.

Stronger In The End

Constant vigilance is a must. It is essential for company leaders to remain alert to subtle structural changes in their industries, operational issues within divisions that strain liquidity and other telltale signs of impending trouble. No company should ever assume long-term immunity from competitive shifts and sudden shocks. The objective is not just to survive adversity—but to learn how to thrive in the face of it.

Make no mistake: There are situations in which the best option may well be a bankruptcy filing. The common perception that bankruptcy is a death knell is misguided and counterproductive. A well-designed bankruptcy strategy can, and often does, give companies a second chance to rehabilitate a business and preserve jobs.

Working with companies to rethink and restructure their businesses is a complex, intellectual endeavor. The ultimate goal is not just to help clients work through difficult times—but to come out stronger on the other side.

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