He is a Certified Turnaround Professional (CTP), Certified International Turnaround Manager (CITM), who brings over 35 years of senior operating leadership, $85M+ asset and investment recovery, 45+ M&A transactions worth $1.2B, and $80M fund management expertise to advise companies. John is the Past Chairman of the Turnaround Management Association (TMA), Past Chairman of the Association of Interim Executives, Senior Fellow at the Turnaround Management Society, serves on public and private boards of directors, and advises companies, and private equity investors. He’s enshrined in Turnaround Management, Restructuring and Distressed Investing at the Industry Hall of Fame and frequently writes articles on turnarounds and outside leadership.

We speak with him on all things turnarounds over the next pages.

What is the most important step to turnaround success?

Obtain leadership guidance early. Turnarounds and the Zone of Insolvency are fraught with risk. Businesses fail because of mismanagement – sometimes it is denial, sometimes negligence, but it always results in loss. There is a different set of skills required.

I recommend hiring outside independent directors and advisers to help shape the process. You need these guys to increase cash flow, provide valuable guidance, contacts, and credibility. Install a board with transition and turnaround experience in value-building situations.

Companies committed to going through significant business change (turnaround, transition, generational ownership transfer, entering new markets), anticipating a major liquidity event, need guidance.

Outside directors often increase cash flow and business growth. According to a Forbes/Lodestone Global survey, 97% of companies reporting increased revenues and EBITDA, since adding a board with outside directors. They bring a new set of skills and ideas to produce benefits, while you maintain control. They provide an external source of accountability and add credibility. When it comes time for a liquidity-seeking event, outside directors send the message that you are an organisation with leadership, guidance, and stability.

Benefits of Outside Directors

Create a culture and structure that will withstand third-party accountability to add value to the business. Start thinking as a rebuilt and growing company and prepare for a potential future life as a public company or increased scrutiny of investors.

What should you expect during the turnaround?

The process goes through five stages: changing management focus (leadership), analysing the situation and developing plans (viability), emergency action (crisis control), restructuring business (change), and return to normality (going concern). It is key to coordinate the functions and focus of the company to complement each other.

Can you detail the key steps that are involved when turnaround services are required?

You need clear thinking to quickly determine what is wrong, develop strategies that no one else has tried before, and implement plans to restructure the company. The problems are rarely obvious. Instead, there are often two or three underlying systemic ills that must be fixed. You can’t focus on the symptoms but must find the real causes.

There is a process for guiding an entity through corporate renewal. It involves using a transferable set of skills to revitalise the property and restore it to a sale-worthy state. Then, you sell the entity and realise returns.

Bring Leadership. Change Management Focus

In times of crisis and transition, who can handle the crisis management role? This is a predicament. If there is a qualified leader within the company, then delegate the job of ‘turnaround’ to that person and provide proper support. If there is not a qualified leader in the company – and there often isn’t – don’t hesitate to go outside the company to locate a professional for this job.

The leader must get directly involved in making decisions to achieve the ultimate goal — turnaround and sale at increased valuation. They must be held accountable for performance and timely results. Most importantly, they must get things moving. On the revenue/sales side, look at where and how revenue is generated and keep it coming. On the throughput/production side, get the product or service out the door. How else can you bill for it?

To complete the turn, hire a marquee manager to lead the enduring team. This permanent team adds to value equation.

Set Strategy

An effective strategy is key to implementing change. You must establish a new vision, distil this direction into concrete goals and objectives, and create a guide for all stakeholders to follow. Rebuilding momentum is critical to success.

Focus on a new perspective of what is going on and fix it. Question:

• Is the business viable? Turnable?
• What is the purpose of the business?
• Should it be saved? Why? Are these reasons valid?
• Is there a core business that can be the foundation for the emerging business?
• Are there sufficient cash resources to fuel the recovery?
• Are there existing managers capable of leading parts of the company?

Remember, not all companies are salvageable.

Identify effective turnaround strategies. Operational strategies include increasing revenue, reducing costs, selling and redeploying assets, and establishing competitive repositioning.  Strategic initiatives include adopting sound corporate and business strategies and tactics and setting specific goals and objectives that align with ultimate stakeholder goals. Too often, goals are misaligned with the ultimate direction and lead to confusion, wasted time, false starts, and employees sent in the wrong direction.

Build a Quality Management Team

The value of a company increases sharply with a strong, permanent, credible team who can demonstrate their ability to produce consistent sales, profit and cash-flow results. Establish continuity in the organisation to allow everyone to expect orderly change and opportunity.

Capitalise on available under-utilised human capital — those remaining middle managers. Chances are they are dedicated to the company and its success. Guide them to their next level, and they will take the company to the next big step.

Acquire New Business/Sales

There are only two ways to increase sales: 1) sell new products to existing customers, and 2) sell existing products to new customers. Most under-performers have forgotten, or never had, the basics of marketing and promotion. Clearly promote what your products and services can do for your customer to satisfy their needs; differentiate why your product stands apart from the competition.

Become market driven, adapt to changing conditions and improve your competitive position. Deliver only what customers are willing to pay for.

Establish a Sound Capital Structure

Create reasons for investors to invest and for buyers to buy. A sound strategy with a viable marketplace, efficient delivery and production vehicles, high probability of future cash flows — coupled with a cohesive marketing-oriented management team — will entice the investment community. Securing new capital becomes much easier when investors see high probability of return and a viable exit strategy.

As important to infusing cash for working capital needs, is to make certain cash won’t be diverted into past sins. Establish relationships with creditors so they will work with the new management team — give them upside when the turn is complete. Consider a “creditor’s committee” approach to keep them plugged in and participating. Pre-packaged bankruptcies are also available to ensure cooperation. You can always purchase assets out of bankruptcy to ensure a clean structure, a strategy being utilised more often as buyout funds get more comfortable with the process.

Implement Processes

Use systems and processes to drive the business and control the day-to-day environment, which allows management to run the critical elements of the company. Many managers waste time on tasks where results would be essentially the same, managed or not. Focus on the important things — controlling cash and costs, increasing sales and enhancing value creation. Manage these.

Processes define guidelines and expectations — watch for the benefits derived from communicating what is expected. This will re-establish delegation of authority and expectation to those who can turn the events of the company. When results are recurring, this stimulates value.

Nurture Resources

Leverage all resources —people/facilities/advisers — to complete the turnaround. Set up an incentive structure that pays only when they accomplish the goals set forth in your long-term strategy. A robust incentive structure shares the risk; if successful all will gain. If not, you’re not subsidising poor performance. Incentives should be based on performance that will take a company beyond its sale. After all, they are a key asset your buyer is looking for.

What’s your final word of advice?

Do not expect miracles overnight. A turnaround can take years of hard work to achieve. Outside advisers are a catalyst to speed and direct the process and increase probability of success and returns. Owners must make hard decisions and commitment to enabling the process to take place. Ultimately, the success of a turnaround rests upon the shoulders of a business's most valuable assets; owners, advisers, leaders, creditors, lenders, its management and employees, all dedicated to turning around the company – get buy-in. Good luck.

Strategic Management Partners, Inc.

522 Horn Point Drive, Annapolis, Maryland 21403

Telephone: 410-263-9100   

Facsimile: 410-263-6094

Web Site: www.StrategicMgtPartners.com

Email: Strategist@aol.com or John@StrategicMgtPartners.com

Steve Swayne, Chair of the Institute for Turnaround (IFT), describes the steps embattled businesses can take to stay afloat.

To state the obvious, while the playbook constructed through the 2008 global financial crisis may provide a guide for responding to the current situation, businesses across the world are facing unprecedented challenges. The combination of health, operational and financial tests will pose challenges for previously stressed sectors, and for successful businesses and talented management teams alike. At the end of 2019, the Institute for Turnaround, the accrediting membership body for turnaround professionals, estimated that some 130,000 businesses were distressed, and mid-pandemic, the challenges are even more acute.

On average some 300 plus companies fail every week in the UK, with multiple effects: employees lose their livelihoods; customers lose access to services; suppliers, creditors and shareholders lose money. Not every company can or should be turned around, but there are many stressed businesses that, with professional time-limited expertise, can reverse their decline and prosper. In 2019 we conservatively estimate that our members saved more than 200,000 jobs and protected £2 billion in enterprise value. In 2020 and for the medium term we are likely to see even highly competent leadership teams, with heretofore successful business offerings stressed and challenged.

What is turnaround?

Corporate challenges that lead to failure come in different forms, whether internal factors such as the wrong governance, the wrong people, the wrong financial structure – or from external factors that are harder to control: asset damage, competitor innovation – or black swan events such as the COVID-19 pandemic.

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Turnaround occurs when a business takes successful actions to correct a period of declining financial performance or shock, which may threaten its solvency. A typical turnaround business:

• Is stressed but not fatal, situated on the spectrum between underperformance and distress;
• Is experiencing a decline where a failure to remedy will lead to business failure;
• Has a viable future, with a solid business offering, which may need to be adapted.

The first measure in turnaround is crucial: stepping in early enough to address both immediate and underlying issues and rejuvenate the business. The sooner a business engages in a turnaround process when they are on the distress curve, the greater the prospects of success and the better the outcome in terms of jobs secured and value saved. Just as you would call in a lawyer or an IT specialist for expert help when required, so too do businesses call on turnaround experts when the outcome is the difference between a business rescue or collapse.

Over the typical 18-month period of a successful turnaround, there are core phases.

1. Diagnosis: involving an urgent, high level analysis of the problems the business faces, to determine whether there is a pathway to success.
2. Build stakeholder confidence and support: getting everyone on board with the plan: shareholders, lenders, investors, suppliers, employees and customers.
3. Stabilise the finances: get cash flowing into the business, reduce debt, extend credit, reduce inventory, cut costs
4. Rehabilitate: restructure finances, cost base and cost controls. Refresh leadership skills. Develop strategic vision and turnaround plan.
5. Articulate a strategy for growth: develop a sustainable business strategy for future growth.
6. Exit: turnaround should be a situational intervention: once a normalised state of affairs has been achieved it is time to move on.

Turnaround professionals combine specific situational financial and operational restructuring skills with the experience, often having been CEOs of running businesses at the sharp end. They are united by a single motivation: a deep-seated desire to resuscitate viable but stressed businesses.

The IFT is the accrediting membership body for turnaround professionals. Every IFT member has undertaken a rigorous accreditation process and signs up to transparent professional standards. The IFT can recommend turnaround professionals directly to business.

Mia Drennan is the Founder and CEO of GLAS - a global provider of third-party agency and trustee services in the institutional debt and equity markets. The firm’s offering focuses on restructuring and special situations, direct lending, capital markets and leveraged finance. Here, Mia speaks to Finance Monthly about setting up her company and restructuring trends in the UK.

What was the idea about GLAS born out of?

I have always been an entrepreneur at heart and prior to starting GLAS, I leveraged my entrepreneurial skill set for my previous clients and employers. I spent a large proportion of my career in the trustee and agency space working for a large American bank. My success was based on the standard of service my team and I provided to our clients, picking up the phone and returning emails in a timely fashion and being able to be solution driven. Following the crash in 2008, this mentality changed, and these institutions became hard to deal with. After leaving the bank, I had always wanted to establish my own agency and trustee business. The lightbulb moment came at the time of the credit crunch and the need for institutional debt to be restructured. Banks were selling loan portfolios to credit funds and looking to exit from the ancillary roles and that was the angle. It took three months and 400 meetings in the City of London to get our first deal but it was worth the effort and I have never looked back. Today, we are a global business across all continents with over sixty-five employees.

What are the typical clients that you provide loan agency and trustee services to?

Since our inception, we have always tried to differentiate ourselves from our competition, we want to provide a ‘front office approach to a back-office service’. Our focus is on developing expertise in different sectors, which covers the sticky end of the scale, restructuring, work-out and special situations, direct lending – the alternatives and funds we work with, love the fact that we are totally independent and we see the delivery of our services as an extension of the lenders. Within the Capital Markets, we can provide a more commercial and pragmatic approach on Institutional Transactions and Loan Services working on large syndications which we can do more efficiently and partner with the arranging Banks. Our client base is wide. We work with lawyers, advisers, corporates, institutions, accountants, banks, debt funds and institutional investors. The great thing about our business is that is has many touch points and we have many stakeholders and clients.

Which sectors would you say are faced with restructurings more than others in the UK? 

The sectors which are under stress now are those which are (I) real estate heavy; (ii) over leveraged and (iii) have not invested in technology. Retailers have suffered specifically and companies which over expanded and have not kept pace with the consumer trends towards online retail for example. The challenge for creditors is the lack of covenants in the credit agreement which provide creditors with a trigger, making it difficult to carry out a debt restructure. There is still a lot of money searching for good businesses and management teams and these tend to go down an ‘amend and extend’ route and have new money or equity invested. Additionally, we are also seeing Company Voluntary Arrangements (CVAs) as flavour of the month right now.

As CEO, how do you ensure you are directing the company in the correct direction?

The journey for any true entrepreneur is all about growing something. It gets hard when you go beyond the football team size!  I am lucky to have an amazing business partner and that I have assembled a great executive team around me. We are constantly reviewing and aligning our plans, so we can keep growing and maintain a position as a trailblazer in this space.

How do you advise your team to make the correct decisions for the company alongside clients?

We have invested in our central function which comprises, risk, compliance and product development. We have various governance processes and procedures which allows us to remain nimble and solution driven but doesn’t put the business at risk.

What challenges would you say you and the firm encounter on a regular basis?

The main challenges are around keeping the competitive edge, delivering innovation and preserving the family feel culture. I spend my time working on our culture to ensure that our original values and the mission we created live on in throughout the organisation. I strive to do this through communication channels and ensuring new joiners are made aware how we got here and where we came from. Coming into this business today is very different to what is was like in the first year! 

Contact details

Direct:        +44 (0) 20 3764  9318

Mobile:      +44 (0) 7917 446580

Email:          mia.drennan@glas.agency

Website:           www.glas.agency

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.

Phone: +39 346.4708468 - Tel.: +39 02.89013129

Fax: +39 02.72015926

Email: roberto.dilauro@business-support.it

Website: www.business-support.it