Over 1.5 million new bankruptcy cases were filed for 2001. This is not surprising given this country’s general economic downturn combined with the events of September 11. So we thought for this month’s article, we would look at what options might be available to companies experiencing financial difficulties in these uncertain times.
There are four basic alternatives to turning around an underperforming company:
- Restructuring your Company through new ideas, staffing, etc. This should be the line of first defense. Restructuring can be a powerful tool and should also be considered on an ongoing basis in even the best performing companies. However, it may not be powerful enough to reverse a continuing negative trend in your business.
- Court-Ordered Bankruptcy Protection may provide an excellent way for upside down companies to restructure and reorganize their business by giving them a little economic breathing room on their accounts payable and other protections.
- Merging or selling a distressed company can offer a solution. While this can be the best of all solutions if it works well beware of the “dark side” in that things can quickly go from bad to worse.
- Total Liquidation of a failing company is the option of last resort. Make sure you have explored all other survival techniques first.
Mergers and bankruptcies are a time of uncertainty and stress and all impacted need to be informed to control the chaos. Be honest with all involved but make sure you are prepared for these statements to end up in court. Follow these steps:
- The Business’ Story. Make sure you have communicated the story of your downfall correctly to your attorney and that he understands it. He will need to effectively convey this to the bankruptcy judge. This is key in protecting your company’s value.
- The Critical Path. Develop a plan and critical path for the proceedings is almost as important as the bankruptcy itself. Everyone needs to be informed and know their part. This will prevent more stress and chaos.
- Communicating. Do not leave any important parties guessing. Be consistent with your messages. This will keep confidence and credibility levels higher and preserves as much of the companies value as possible.
- Last Minute Surprises. Be prepared for the unexpected. It will happen.
Mergers and acquisitions have slowed down due to the fact that Wall Street continues to punish companies whose growth is driven solely by acquisitions. However, one would be a fool not to look into the opportunities presented by bankruptcies.
It is a fact that nearly half of all mergers fail. Haven said this; the most important process to under take is due diligence of both companies. Take a hard look at everything and question everything. Ask yourself these:
- Will our core vision or strategy be changed with the merger?
- Will we be able to accurately analyze our return on investment objectives and how soon will we meet them?
- What response will we be met with from key players, such as vendors, customers, employees, etc.?
- How will divesting of certain products, services or employees affect future success?
- Will the lines of authority and responsibility be clearly articulated throughout every level of the organization?
Clear expectations from the new management team can help prevent disaster during and after the merger. Make sure all the issues are resolved before inking the deal.
To keep a bad situation from going worse in a merger or acquisition, do your homework and stay true to your original business model and strategy. If bankruptcy is your only option always communicate honestly to all involve and be fair. This is a truism that keeps all areas of life easier.