Approach to Turnaround or Business Rescue

Our services are aimed at:

• Company boards who acknowledge that their business is distressed or operating below expectations; and
• Finance providers who wish to establish or manage their exposure to the debt or equity of a company.

Formal business rescue has a much higher direct cost than a pre-packaged or creditor workout process.  Legal and professional costs are high, but potentially more damaging are the other indirect costs brought about through public knowledge of financial distress resulting in loss of prestige, goodwill  and possible credit lines. Employees and customers will also tend to move if a formal signal of distress is sent out.  Turnaround INQ prefers earlier-stage interventions that can be implemented before the formal Business Rescue provisions of the new Companies Act are triggered. In our opinion, this provides greater flexibility and a greater chance of success.  The record of success for later stage business rescue initiatives is not good.

Formal business rescue places the board and the employees under the direct control of a business rescue practioner.  This practitioner may delegate any power or authority, remove from office, appoint to office, and is solely responsible for the development and implementation of the business rescue plan.  Management is obliged to operate under the strict instructions of the practitioner.  Turnaround INQ believes this to be a difficult situation and the competition between affected stakeholders may threaten the success of a rescue.

Formal business rescue does have a part to play. It carries certain advantages that can buy a distressed business some valuable breathing space. These include:

• moratoriums over creditor action and enforcement of sureties and guarantees
• the right to suspend and cancel contracts
• the suspension of any legal enforcement action in relation to property belonging to the distressed business or in its possession

Turnaround INQ believes that these are useful tools in negotiating with unruly creditors and forcing a workable prepackaged turnaround plan. Formal business rescue can then be entered, utilising the above protections with a good chance of effecting acceptance of the plan and moving quickly to implementation.
Every business is different. We do not attempt to force a one-size-fits-all methodology onto every assignment. Our approach is instead to insert the correct team with the right mix of skills and experience to do justice to each challenge in order to arrive at a solution that benefits all stakeholders. Turnaround INQ prefers a hands-on involvement and face-to-face interactions and we avoid long and detailed reports.

Approach to a Turnaround assignment:

Turnaround INQ will conduct a diagnostic review that will establish the true position of the business from a strategic operational and financial perspective.  The methodology will assess the options available to the business and the viability of these options.  The stakeholder positions and their level of support for the business rescue plan is also gauged at this time and a full assessment of the management team is undertaken.

This review requires good impartial analytical and technical skills combined with experience.  The manner in which the review is undertaken is extremely important as it impacts on the quality of information provided and the chances for a successful turnaround.  It is vital to listen and communicate with all employees and to learn from the experiences and concerns of the staff.  Very often a climate of fear exists and this must be managed to ensure trust and a truthful and accurate flow of information.

The skills necessary for this exercise are closely aligned with CEO type appointments and are not typical consultant interactions.  A blend of strong persuasion and negotiation skills that can only come with experience in “steering the ship” is required as the relationship building exercise between all concerned becomes paramount.  Turnaround INQ associates have these skills as is evident through the individuals work experience and individual positions held.

The diagnostic review and delivery of the resultant solution must engage the buy in of the stakeholders.  If accepted Turnaround INQ will move from the analysis phase into the emergency phase of operation.  This is ultimately followed by the strategic change or recalibration phase and the growth and renewal phase of the turnaround.

Seven keys to turnaround success:

New Leadership
A change of management is very often the only way to kick-start a turnaround.  These tough decisions are often necessary to deliver a message, energise those that remain and provide a break with the past.  Whilst a despotic approach is often called for, a solid grounding in driving organisational change and the understanding of the nuances in persuasion and negotiation in this process is extremely important. Stakeholder approval and the ongoing relationship building that is required to continue the leadership process determines a specific skill set only acquired through experience.

Turnaround INQ will make an entrance, take control, meet the team, build a new team and communicate with the workforce.

Crisis Stabilisation
Stabilising a crisis is about grabbing the control levers.  Controls must be established and targets set in order to achieve results.  Open and tangible measurement of these results and continuous unrelenting vigilance is needed to ensure that the quick wins required to entrench the new team’s position are met.  Dissent must be dealt with swiftly and effectively.

Stakeholder Management
At this juncture the turnaround professional must show credibility, clarity and courage.  Effective negotiation skills are paramount as stakeholders are identified and their rights addressed.  Separating perceived and actual rights and understanding their interconnection requires a careful approach.   This exercise involves balancing perception with reality.  The identification of alternative strategies and the extent to with which these alternatives will influence the support of one or more groups of stakeholders is the essence of the turnaround professional’s skill.
Turnaround INQ’s team has this experience, learned and honed at the helm of some large and medium sized businesses in South Africa.

Strategic Focus
Articulating the “where” and “how” is the hallmark of a leader able to communicate strategy effectively.  Turnaround strategies call for a balance between being radical and inventive and maximising an enterprises strengths and competitiveness. A company that exits a turnaround or rescue without a competitive edge will have no durability and building this edge is a key output of any successful turnaround. Given the precariousness of a turnaround situation, a walk before run approach is typically adopted.   

Changing Critical Business Processes
This is one of the most important functional areas in a turnaround. Discerning critical from non-critical processes in order to best use limited time and resources often means the difference between success and liquidation. Turnaround INQ’s team has specialists in business process re-engineering, statistical analysis and information technology. 

Leading Organisational Change
In simplifying structures Turnaround INQ will build a commitment to change.  Following through on accountability and performance will ensure that the turnaround plan is successful.  Communication during change is important - misinterpretation can kill change.  Turnaround INQ will initiate and lead the organisational change process and our associates include specialists in this field, allied with strong hands-on experience.  

Financial Restructuring
In a distressed situation, this frequently involves rescheduling or restructuring of debt and raising of new capital. This is a specialist task attempted by many and seldom successful in its execution. It is normally undertaken by the financial lead. Part negotiation and part big picture visionary, the turnaround professional must during this exercise exhibit not only exceptional analytical and technical skills, but the ability to negotiate a standstill agreement that will bear up under pressure. Maximum tolerance needs to be extracted from often adversarial creditors, shareholders and other stakeholders and this entails a fine balance of stakeholder agendas with corporate financial and strategic needs.

Turnaround INQ team includes highly experienced CA’s and financially astute associates who have operated at the top levels of commerce and in some of South Africa’s top companies. Our range of experience includes extensive abnormal business situations in credit, business workouts, cultures of non payment, asset recovery and mitigation, balance sheet restructuring during crisis and turnaround scenarios.