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The A – Z of Turnaround Transactions and the Importance of “SID”

For some reasons turnaround transactions always seem to start with a call on a Friday afternoon. Why not Monday morning when one has the whole week ahead and access to decision makers to pull a plan together? The answer seems to be as elusive as, “why can’t transactions close during daylight hours?”

Whenever the call comes in there is a need to work quickly but in a structured manner.

“The Turnaround Playbook“

The playbook for a turnaround has three elements; Stabilise, Identify and Deliver. Whilst it will inevitably be a rapidly changing picture, the light at the end of the tunnel is when all the spinning plates have been brought safely to land.

Before getting into the issue of why a company is in need of help, the first port of call is the cash flow budget and a review of the underlying assumptions. At the same time, the immediate cash needs of the business should be appraised with a reconciliation of the business bank accounts and sight of any immediate payments that need to be made. With the benefit of this knowledge one moves on to understand the attitude of the Company’s lenders. Are they supportive if further funding is required? Finally the supply chain is key, especially if the creditor days with suppliers have been stretched and supplies of raw and other materials are in jeopardy or payment terms with suppliers have been put on to “payment on delivery” basis. In the same way with retail operations, credit insurers may be threatening to withdraw support that can damage the turnaround plan. The management team needs to be briefed on resilience, and the part this plays, as matters change quickly over the short term during the implementation of any plan.

“Stabilise the Business“

Through this phase, one is working to stabilise the situation. Meeting with all board and key management members one-to-one to hear from them one seeks to draw out the problems that have created the crisis. With these issues on the table what steps can be taken to correct these; what is the time line for implementation of these corrective issues; is funding required whilst these measures are put in place; and what are the risks of successful implementation?

In light of the discussions with board and key management team members it is important to ensure the team is stable. This may require doubters to be identified and turn in to believers. This may involve targeted incentives. This exercise may also conclude that the team needs new leadership. If so then contacts with executive search or headhunters are important to identify replacements.

Under stabilisation we would highlight IT. Often the crisis may result from an IT failure or a hack. So being able to access IT, which can support in-house teams, may also be a key part of the immediate actions to be taken.

“Identify Corrective Steps“

Having identified the corrective steps and the context in which these are to be implemented, what structure (if any) needs to be wrapped around the turnaround to mitigate identified execution risks.

“A 100 Day Plan is Vital“

To ensure that management has the road map for the actions required to successfully conclude the turnaround, a 100 day plan is vital. This should be written by the management team and signed off by the team. The plan must spell out the KPIs of the plan and the periods for review.

“Delivering the Plan Requires Teamwork“

The implementation of turnaround actions requires close teamwork amongst the advisory team, solicitors, the Company’s financial advisors (fairness opinions, new funding introductions and strategic advice), lenders and accountants. Round table explanation and reporting meetings on a regular basis are essential.

Whilst operating under Covid conditions virtual meetings are the standard operating procedure but on the plus side this does facilitate decision making and quickens the time tabling of meetings.

In addition, during Covid there are Government schemes that can be the low hanging fruit in terms of immediate cash. The schemes are varied in terms of type and industry sector. These schemes range from; CBILS, Bounce Back Loans, Business Rates Relief for businesses in the hospitality and nursery sectors and the Coronavirus Future Fund. So access to grants, Government and local government support should also form part of the immediate steps to be taken once the turnaround is underway.

“Advisors are key“

Whether it is a legal team with good litigators and restructuring lawyers, financial advisors able to source funding, perhaps secured on floating charge assets and to lead the structural aspects of the turnaround, new funding, rescheduling lenders and M&A, if subsidiary or business sales is part of the strategy, appointing the right advisor is key.

To learn more about ’The Turnaround Playbook’ and turnaround management please contact James Stocks & Co at info@jamesstocks.com or click through to the James Stocks & Co website at www.jamesstocks.com.