Business restructuring is an unavoidable process in any M&A deal, in which significant changes are made to the resulting company that can affect its strategic, organizational, or financial structure.
Causes of business restructuring
The aim of restructuring is to improve the company's profitability or efficiency, adapt it to market changes, or make it more competitive. It therefore involves reducing costs, reorganizing its internal structure, or diversifying its activity.
Business restructuring differs depending on its purpose. It isn't the same in a merger as in an acquisition, for example. A merger requires a consolidation restructuring that improves competitiveness, and teams usually need to be reorganized and the workforce adjusted because of inevitable departmental overlaps. An acquisition, on the other hand, can take various forms, such as expanding the business by entering new products or services, geographic markets, or customer types. What is certain is that they all go through the following stages.
Types of restructuring
Broadly speaking, the following types can be distinguished, although every transaction requires an ad hoc restructuring:
- Internal: suitable for making all departments more efficient.
- Technological: essential if the resulting company has become outdated in light of new developments affecting the industry.
- Financial: one of the most common. It's carried out to rebalance the SME's accounts so that they reflect reality.
Stages of business restructuring
As outlined by specialized M&A advisory firms such as Lazarus Management and Inverbac, we can distinguish five stages in business restructuring processes.
1. Diagnosis
At this point, the company's current situation is diagnosed. The goal is to draw up a highly structured, short-term action plan. To do so, an inventory is made of the company's resources, and its financial structure, its competitiveness relative to other companies in the industry, and its human capital are assessed. This makes it possible to determine the type of restructuring that will be needed.
2. Change of management team
This stage may not happen, since many family businesses have good management teams. However, if the organization is poorly managed, or if the merger or acquisition leaves no way to fit senior management into the new strategy, it may be necessary to replace them to avoid unexpected management problems that could lead to a loss of trust.
3. Analysis
The goal of this strictly economic stage is to optimize the capital in circulation. This means identifying the areas that are working well and delivering good results, to determine which ones are fit to keep competing in the market, and to stop investing in unprofitable ones. In this regard, it becomes important to keep tight control over revenue and expenses to avoid higher costs.
4. Stabilization
At this stage, you need to take a long-term view and ensure that the capital allocated to the company's growth through the restructuring starts generating a return.
5. Return to growth
This is the time to ramp up production and sales capacity to the maximum, protect the company, design strategic plans to make the most of material and human resources, and so on. The focus must be on the business's planned viability over the long term. To achieve this, it's important to focus on retaining customers and finding new ones, now with an innovative stamp and a new identity. Returning to growth means a business rebirth. If everything is done well and the right decisions have been made, this is the stage where the return on investment comes.
In short, whether you're undertaking a merger or an acquisition, business restructuring is necessary to ensure the survival of the new company. It's a complex process, but if it's done well, the resulting company will come out stronger.
