Companies frequently undergo restructuring to improve their competitiveness by reducing costs, increasing efficiency, and increasing profits. Corporate restructuring can be a challenging, sensitive, and tedious process that needs to be managed with extreme care. Corporate restructuring comes in a variety of distinct forms, each with its own characteristics and goals. In this blog, we will discuss what corporate restructuring is as well as the best practices that can be applied for the same.
What is Corporate Restructuring?
Corporate restructuring involves rearranging a company’s management, finances, and operations in order to increase the company’s effectiveness and efficiency. By making changes in this area, a business can boost productivity, improve the quality of its products and services, and lower expenses. They can also assist a business in meeting the needs of its shareholders and clients, while underperforming or unprofitable business units may be also closed as a result of it.
Why Corporate Restructuring is important?
Corporate restructuring stems from a desire to maximize the use of existing assets, reorganize finances, organization and a few more reasons while opening up new opportunities.
Below are few reasons why such a restructuring is important for companies:
Boost Profit: Restructuring efforts may be initiated to put an organization on a more stable financial footing if it is not using its resources effectively to maximize profit. The corporate strategy that makes the best use of the available resources will determine the company’s restructuring course.
Cash Requirements: The sale of underperforming or unprofitable divisions or subsidiaries may provide the company with liquidity that it would not otherwise be able to secure. It may be possible to increase cash flow through the sale of some assets while also reducing debt, necessitating a restructuring of the company’s debt. Thus, making it simpler for the company to negotiate favorable terms for financing.
Changes in the Business Plan: In addition to raising money to help it advance, a corporation may decide to remove subsidiaries or divisions that don’t fit with its core strategy and long-term goal. Furthermore, business strategies can be used to improve tax advantages or increase flexibility.
Reverse Synergy: The idea behind reverse synergy is that a single unit’s value might exceed the value of all its components. This is a typical reason for the company to sell off its assets. The concerned company may decide that selling a division to a third party would be preferable to keeping it in-house as it would generate more revenue.
Types of Restructuring
Financial Restructuring: A severe decline in overall sales because of unfavorable economic conditions may necessitate this type of restructuring. In this case, the corporate entity may change its equity holdings, debt-servicing schedule, and cross-holding pattern. All of this is done to maintain the market and the company’s profitability.
Organizational Restructuring: The term “organizational restructuring” refers to a change in a company’s organizational structure, such as lowering the level of the hierarchy, redesigning the job positions, eliminating positions, and altering the reporting structures. This kind of restructuring is done to reduce costs and pay off outstanding debt to continue operating the business in some manner.
Restructuring Strategies that you can consider
The best way to restructure a corporation depends on both the reorganization’s goal and the company’s unique circumstances and characteristics. Here are five company reorganization strategies that could be employed to generate profitability:
Mergers and Acquisitions (M&A)
A merger occurs when one business is acquired by another, or when two or more businesses are combined to form a new company. Even though M&A deals are frequently used by businesses in financial trouble, most mergers and acquisitions are the result of business synergies rather than financial insolvency.
Reverse mergers enable private companies to go public without the need for an Initial Public Offering (IPO). In a reverse merger, a private company buys a majority stake in a publicly traded company and as a result takes over the board of directors.
The act or process of giving another party ownership of a company’s non-core assets is known as a divestiture. A significant reorganization occurs when a company sells one or more of its subsidiaries, divisions, or other business units.
The joining of two or more companies to create a new business is known as a joint venture. Each of the member companies consents to contribute resources and divide the costs, profits, and control of the new company that is created as a result of the partnership.
By collaborating through a strategic alliance, businesses can achieve commercial synergies while still maintaining their individual identities.
Corporate restructuring services are often advantageous to businesses because they can make it more difficult to come up with the best plan of action for a given circumstance if asset values are unknown. Executives can make the best decisions possible with the help of a thorough analysis of the business and its assets.
Even the most prestigious companies rely on our specialists to provide expert value opinions when it comes to effective risk management strategies and asset valuation. If you want to take advantage of our professional services for your corporate development and finance restructuring, you can contact Rahy Consulting and discuss your specific circumstances so that we can determine the best strategy for your company.