Corporate Restructuring Strategies
Restructuring to resolve financial distress
A corporate restructure is usually undertaken when a business is in financial distress and files a petition for a Chapter 11 bankruptcy. This type of restructure usually involves debt reorganization and reconfiguration of the workforce, which can include furloughs and layoffs. The aim is to produce a plan whereby the business can continue operating while paying off creditors over time.
However, it does not always need to be a last ditch attempt to save a company. Corporate restructuring can also be a strategy for optimizing the performance of companies that aren’t insolvent.
Restructuring to improve business performance
All businesses have been reshaped in some way by the pandemic. Those that have remained solvent throughout the Covid-19 crisis may be able to achieve competitive advantage and greater profitability by adopting some restructuring processes.
These sorts of companies might want to rethink their supply chain, embrace digital transformation, or divest an unprofitable subsidiary. This approach is more about seeing the opportunities that small changes can bring, as opposed to total business overhaul.
Benefits of proactive corporate restructuring
Depending on the reasons for restructure and the type of strategy deployed, one or more of the following benefits can be realized:
- Improved collaboration & breaking down of silos
- Better alignment with competitors and/or the market
- Optimized systems, operations and productivity
- Improved company finances
- Business growth or expansion
2 types of corporate restructure
We can generally categorize most corporate restructuring strategies into two camps:
- Financial restructuring
- Organizational restructuring
Financial restructuring is focused on the reorganization of a company’s finances, including costs and debts. Organizational restructuring covers activities more related to the business’ structure and status.
8 corporate restructuring strategies
1. Mergers and acquisitions
Mergers and acquisitions (M&A) can include joining different parts of the business or being absorbed into a larger parent company.
2. Turnaround
Turnaround restructuring is a broad term that encompasses any activities designed to ‘turn around’ an area of the business that is underperforming. Such activities include replacing unprofitable product lines and outdated business models.
3. Repositioning
Repositioning is a restructuring strategy whereby companies transform their business model or redirect the focus of their business. This includes diversification.
4. Cost restructuring
Cost restructuring covers activities designed to cut the costs of a business, and includes things like employee layoffs and reorganization of department budgets. This restructuring strategy is generally associated with final attempts to save a company as a result of insolvency.
5. Divestment/divestiture
Divestments and divestitures refer to the sale of parts of the business that aren’t expected to contribute to the organization’s future success.
6. Debt restructuring
Debt restructuring is an essential activity for businesses that have become insolvent. It can involve renegotiating payment terms and installments with creditors to facilitate manageable repayment of a business’s debts.
7. Legal restructuring
Legal restructuring can include making a company its own legal entity, as well as forming structures to ensure each department adheres to legal practices.
8. Spin-off
Spin-off restructuring is when a company turns a division into its own business entity by selling or distributing new shares of its existing business.