What Is Restructuring?

Table of Contents

What Is Restructuring?

Let me explain what restructuring really means for a company. It's about making big changes to your debt, operations, or overall structure when you're facing financial trouble. You might consolidate your debts, tweak how you run things, or even sell off assets to get back on solid ground. This process can set you up for selling the business, merging with another, or shifting ownership, all with the goal of running smoother and more efficiently.

Key Takeaways on Restructuring

Here's what you need to know: restructuring means overhauling your company's financial or operational setup to tackle difficulties. You often do this to gear up for a sale, merger, or new business direction, aiming for more efficient operations overall. Expect things like layoffs, selling assets, and refinancing debt as you work to boost your financial health. Costs can add up from canceling contracts, shutting down facilities, and repositioning for success. Take Savers Inc. in 2019—they slashed their debt and changed ownership, which strengthened their position.

Reasons and Conditions for Corporate Restructuring

You might decide to restructure for various reasons, like shaky finances, bad earnings, low sales, too much debt, or tougher competition. It's also common if you're preparing for a sale, buyout, merger, changing goals, or passing the business to family. For instance, if your new product launch flops and you can't cover payroll or debts, restructuring becomes necessary. With approval from shareholders and creditors, you could sell assets, rework debts, issue equity, or even file for bankruptcy while keeping operations going.

How Companies Restructure: A Detailed Process

When you're restructuring, start with internal changes—modify your operations, processes, departments, or ownership to integrate better and boost profitability. You'll want to negotiate plans by hiring financial and legal advisors. If needed, sell off parts of the company to investors. Bring in a new CEO to lead the changes, then implement alterations to procedures, technology, and locations. Finally, manage your workforce, which might mean dealing with overlapping roles and unfortunately leading to layoffs.

Important Aspects of Restructuring

Remember, companies restructure finances or operations, especially in a crisis. It can be tough, adjusting internal and external structures, and yes, it often results in job cuts. But if done right, it leads to smoother, more sound business operations. Once your team adapts, you could hit goals with better efficiency. That said, not every restructuring works out—sometimes you have to face facts, sell or liquidate assets to pay creditors, and close up shop.

Financial and Strategic Considerations in Restructuring

Costs can skyrocket in restructuring—from cutting product lines, canceling contracts, eliminating divisions, writing off assets, closing facilities, to relocating employees. If you're entering new markets, adding products, training staff, or buying property, that piles on expenses too. Expect new debt levels, whether you're expanding or shrinking operations.

Case Study: Savers Inc.'s Restructuring Journey

Look at Savers Inc., the biggest for-profit thrift store chain in the US. In late March 2019, they agreed to a restructuring that cut their debt by 40% and handed control to Ares Management Corp. and Crescent Capital Group LP. This out-of-court deal, approved by the board, refinanced a $700 million loan and lowered interest costs. Existing term loan holders got paid in full, while senior noteholders traded debt for equity.

What Are the Different Types of Restructuring?

You can restructure in several ways: legal restructuring, turnaround restructuring, cost restructuring, divestment, spin-off, repositioning restructuring, and mergers and acquisitions. Each type fits different needs, but they all aim to fix what's broken.

Does Restructuring Mean Layoffs?

Usually, yes—when you restructure, you often lay off employees. This happens because you're downsizing, closing groups, merging others, and focusing on efficiency to cut costs.

How Many Times Can a Company Restructure?

There's no legal cap on how many times you can restructure. You can change operations as often as needed to get more efficient and reduce costs. But keep in mind, it's a complex process requiring time and strategy, so don't take it lightly or do it too frequently.

The Bottom Line

Restructuring is a key move for companies in financial trouble or seeking better efficiency. By changing debt, operations, or structure, you aim to improve prospects. This might involve debt reduction via consolidation or asset sales, and possibly new leadership. It can mean tough job cuts and operational shifts, but the point is long-term stability and efficiency. Not all succeed, though—some end in liquidation if things don't turn around. If you're involved in this, consider how it affects businesses and employees.

What Is Restructuring?

Highlights