Roberto di Lauro is Partner at Business Support SpA – a Milan-based boutique financial advisory with additional offices in Singapore. The firm specialises in corporate and financial consultancy services for businesses, banks and investment funds, with a special focus on the SME market. Below, Roberto – head of the Bank Agency & Financial Services practice – tells us about the restructuring and turnaround services that Business Support offers and the firm’s approach when advising clients.
Can you detail the key steps that are involved when turnaround services are required?
It is not easy for an entrepreneur to admit that his company is experiencing difficulties. The first step, when facing the process of debt restructuring and business turnaround, is to do so promptly, critically identifying the factors that led to these difficulties and evaluating every possible solution, before adopting the most suitable one.
The assessment and management of the business in distress usually follows four main phases: diagnosis, planning, negotiation, execution.
The diagnosis allows the company to learn about the genesis of the factors that caused their financial difficulties. Timeliness of intervention and absolute criticality in reading the assessments are key factors during this phase.
The business planning is the key tool of the turnaround process: through the business plan, the company reaffirms their mission, highlighting the assets that are able to generate life blood for the core business, while eliminating everything that is no longer necessary or unproductive, with extreme focus on cost savings.
Negotiation is the most delicate phase of the entire process: at this stage the company needs to convince all stakeholders and, in particular, the creditors, of the soundness of the business plan, its ability to generate income and relaunch the company.
Execution is the end of a long period of evaluation, negotiation and hard work and represents the beginning of the process of relaunching the company.
What are the typical timescales for restructuring/turnover plans to start to have a positive effect? How is progress monitored?
Generally, there is a 10/12-month time span between the identification of the state of crisis and the start-up phase of the turnaround plan. The turnaround plan, depending on its underlying hypotheses, can begin to demonstrate its beneficial effects almost immediately. Very often, the early stages of the plans are characterized by important transactions: asset disposals, cost savings or partial repayment of loans. All these operations aim to deflate the financial tension and allow the company to activate a virtuous cycle of positive results. The monitoring of the execution of the plan usually involves periodic detection of key performance indicators. Monitoring of results must be the compass that guides the company. Since the early performance can often fail to meet expectations, this is a very delicate chapter of the restructuring process, where it might be necessary for the company to make small adjustments to their course of action.
What are the refinancing options available for Italian businesses in financial difficulty?
Today, the main restructuring and turnaround operations involving Italian firms in difficulty take place within the scope of the legal framework set by Italian bankruptcy law. As such, debt restructuring is an operation in which financial creditors allow companies to review repayment plans for their loans on the basis of a business plan prepared by the company assisted by a specialised adviser. The feasibility is assessed by a chartered accountant expert and, in some cases, by the Court of Law. When the turnaround plans manage to reach specific performance targets, many firms are able to refinance their residual debt, involving in the process the original lenders or even new ones, thus completing the restructuring process and opening the full-relaunch stage.
In the last few years in Italy, investment funds specialised in Non Performing Loans (NPL) and credit securitisation vehicles have started trading on distressed debts.
What is your advice regarding handling financial difficulties?
It is very important for any company to recognize early symptoms of financial distress, choosing the appropriate professionals to assess their financial soundness.
Considering that all companies and organisations are different from one another, the same goes for each crisis, turnaround process and solution. It is very difficult to create specific clusters and only a successful track record demonstrates how any consultant was actually able to make an impact, assisting the client in transitioning into a new phase of their business life cycle. Companies that have been through a turnaround process will be more likely to learn from their sorrow, gaining extensive experience and the tools to finally achieve their targets.
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