The Delicate Art of the Restart
A Restart Can Be A Jump Start
There are a number of ways a healthy, profitable business can change hands — succession, sale of the business — which can happen myriad ways such as asset purchase agreement, asset sale, stock sale, change in control, partial sale, e.g. Equally, there are many options and structures via which a business that is distressed is sold — some of which are similar to healthy companies, but others that are unique — Article 9, 363, prepack, ABC, lots of mutually exclusive and sometimes overlapping terms and structures.
While the devil is in the details as far as a successful transaction is concerned, what’s more critical long-term is how the business is restarted.
It might very well be a long-established business with a history of stability and earnings, that hit some bumps in the road — supply chain issues, COVID-19, market competition, radical changes to the industry, bad leadership, bad governance, 3rd or 4th generation family member with a taste for private jet travel and motoryachts and Ferraris.
The distress is usually rung in with the sound of a shift — something changes. Shift happens.
Along comes a new owner with plans to restart the business. If it’s a distressed investor, while they may have picked it up on the cheap — usually by purchasing or backstopping some debt — but that often means it is the proverbial “fixer upper.”
Some acquirers acquire for specific reasons — do they wish to get the business for strategic purposes — client list, customer relationships, facilities, distribution, contracts, key people? Sometimes it’s a “flip or flop” strategy where the acquirer will spend a minimum of dollars to acquire and try to quickly assess whether it’s flippable in some period of time, or it’s best to fold the hand.
I don’t understand this strategy and have seen distressed acquisition groups blow millions in a week, only to take on WARN obligations, financial liabilities, even labor union problems — for a 50/50 bet the odds don’t make it worthwhile.
A better strategy and execution trajectory, which my firm and my team have had the good fortune to participate in, is a renewal approach where the business, once determined to be a worthwhile acquisition, is carefully nurtured back to health.
In order to accomplish the renewal of the business successfully, there are many key things to keep in mind, and every restart is unique and different, but here are a few examples:
-Love the customers of the business. Make sure they stay with you. Explain what the changes mean, and positively, will mean, for them.
-Keep the key employees. You will need people to run this ship. You will need key people with critical relationships that the business’ customers rely on.
-Maintain clarity and objectivity in the process. Trust, but verify. Figure out who does what and what the critical functions and priorities will be going forward.
-Solidify vendor relationships. Vendors can be your lifeline when things get tight. More so than ever, it’s not a time to take supply chain relationships for granted.
-Figure out quickly how you’re going to make money. What are the dollar sources and uses? Where are your labor costs? Who is direct/indirect vs. SG&A? Where do sales come from?
-Cut costs, drive productivity. Easier said than done, but it’s very hard to shrink to profitability, without heavy lifting. I’ve done it, and it’s a huge effort.
-Be communicative with all of your stakeholders. Everyone that your organization interfaces with should have a clear, consistent and realistic picture of what your plans are for this business.
I recall being on one project in a COO role and it was a restart of a company that was bought and sold 9 times in 40 years. One employee asked at a town hall meeting, “Please explain why this time it’s going to be different.”
Make sure you have an answer, and a plan.
Paul Fioravanti, MBA, MPA, CTP, is the CEO & Managing Partner of QORVAL Partners, LLC, a FL-based advisory firm (founded 1996 by Jim Malone, six-time Fortune 100/500 CEO) Qorval is a US-based turnaround, restructuring, business optimization and interim management firm. Fioravanti is a proven turnaround CEO with experience in more than 75 situations in more than 40 industries. He earned his MBA and MPA from the University of Rhode Island, and completed advanced post-masters research in finance and marketing at Bryant University. He is a Certified Turnaround Professional and member of the Turnaround Management Association, the Private Directors Association, Association for Corporate Growth (ACG), Association of Merger & Acquisition Advisors (AM&MA), the American Bankruptcy Institute, and IMCUSA.
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