Strategic Restructuring: How PE Firms Use Consultants for Rapid Turnarounds

January 4, 2024 Joe Jordan

In the ever-evolving private equity (PE) landscape, the ability to nimbly implement turnaround strategies is paramount. These strategies are critical for unlocking value in underperforming or distressed portfolio companies, which can significantly impact a PE firm's overall success. As such, strategic restructuring processes have risen to the fore, becoming essential tools in the hands of private equity managers. Integral to these procedures is the partnership with specialized consultants, which can mean the difference between a swift recovery and a prolonged struggle. This blog delves into how these consultants are utilized for rapid turnarounds, shedding light on their transformational power within strategic restructuring.

What is Restructuring and Turnaround Consulting?

Restructuring and turnaround consulting involve engaging external expertise to analyze a company's operational and financial challenges and devise strategies to overcome them. Consultants in this field possess the experience and acumen essential for rescuing distressed companies and steering them back to profitability. Their importance cannot be overstated; they provide objective assessments, enhance decision-making, and shepherd companies through complex restructuring processes that ultimately preserve value for stakeholders, including PE firms.

Turnaround Strategies in Strategic Management

Strategic management within PE firms includes a suite of turnaround strategies, from cost reduction and asset divestment to optimizing operations and refinancing debt. These strategies are meticulously tailored to match the unique circumstances faced by each portfolio company. Notable success stories within the PE landscape often feature a dramatic makeover of operations and finances, leading to recoveries that exceed market expectations and validate the strategies employed.

Factors for Successful Turnaround and Operational Restructuring

For a turnaround or operational restructuring to succeed, there are three critical factors that must be in place:

  1. Strong Leadership and Management: Potent leadership is the linchpin of any successful turnaround. This includes installing seasoned executives who can make tough decisions and inspire confidence among employees and investors.

  2. Clear Strategic Direction and Vision: A well-defined strategic path provides a roadmap out of distress. It ensures that all stakeholders are aligned and that the company is moving towards a common goal.

  3. Adequate Financial Resources and Support: Sufficient liquidity facilitates operational changes and allows time for the turnaround strategies to bear fruit. It can often include new capital infusions, either from existing owners or fresh investments.

Corporate Restructuring Strategies

PE firms apply a variety of corporate restructuring strategies to resuscitate distressed companies. These can be as simple as renegotiating terms with creditors in a debt restructuring, or as complex as a complete overhaul of the business model. Each strategy demands intense scrutiny and careful implementation, often alongside diligent monitoring of key performance indicators to gauge success. Real-world examples, such as the remarkable transformation of large retailers or the restructuring of major industrial firms, bear testament to the efficacy of these measures.

Private Equity Firms Hand Over Distressed Companies to Rivals

In a unique twist to the turnaround tale, some PE firms choose to transfer the baton by selling distressed companies to competitors. This strategy hinges on the recognition that a rival firm may be better positioned to extract value due to synergies, proprietary technologies, or more effective management. These transactions can provide a win-win outcome: the seller is relieved from the continued financial drain, and the buyer can capitalize on the potential upside.

EY-Parthenon Restructuring: An Effective Approach

EY-Parthenon stands out as a heralded consulting firm, with a distinguished track record in turnaround and restructuring. Their approach is multifaceted, encompassing deep industry analysis, rigorous financial review, and strategic business insight. By employing such a thorough methodology, EY-Parthenon has facilitated rapid and effective turnarounds for numerous distressed companies within PE portfolios, showcasing the impactful role of consulting in contemporary restructuring practices.

EY Restructuring Guide for Private Equity Firms

To assist private equity firms in navigating the complex terrain of restructuring, EY has compiled a comprehensive guide. This resource aims to equip PE managers with the knowledge and frameworks necessary to oversee successful turnarounds. It covers everything from early warning signs to detailed operational and financial restructuring tactics, encapsulating key insights that could prove invaluable for any PE firm facing the challenge of reviving a distressed company.

Drive EBITDA and Value Creation With ShipSigma

The journey through strategic restructuring is fraught with challenges but, when navigated correctly, can lead to remarkable recoveries and enhanced portfolio value for private equity firms. The role that consultants play in this endeavor is indispensable, providing the expertise and outside perspective required to turn around struggling companies efficiently. As such, being well-informed and leveraging resources like the EY Restructuring Guide can empower PE firms to approach restructuring with confidence and clarity.

Ultimately, strategic restructuring demands not only the smart deployment of tactics and resources but also the ability to secure optimal terms across all operational facets. This is where ShipSigma steps in. We specialize in equipping private equity firms with the tools and insights to maximize buying power across their portfolio of companies. Our suite of services, which includes contract analysis, contract engineering, and contract consolidation, is designed to ensure significant savings, fortify carrier relationships, and eliminate stress in negotiations. Our pledge to bolster your EBITA within 60 days is not only a testament to our confidence but also our commitment to your success. Trust ShipSigma, as many others have, and join the ranks of leading global manufacturers who have realized substantial savings and strategic benefits through our partnership.

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