Croatian first Unicorn

Croatian first Unicorn

Last week’s announcement that the US private equity firm One Equity Partners is partnering with Infobip in their $200 million Series A round at a $1 billion valuation may not seem groundbreaking in the international technology market yet for a small mostly tourism-driven country like Croatia it certainly is. It is a sign for the global investment community that substantial growth on a global scale can be achieved by Croatian companies, and can pave the way for more capital commitments to Croatian equities. 

The three founders of Infobip have not just proven that global Software companies with thousands of employees can be built on the beautiful coastline of Croatia, but are a symbol for the resilient entrepreneur, as they have silently built a global powerhouse without any funding or help by the institutions which were intended to do so. Infobip’s founders have spotted the need for a Full-stack Communications Platform as a Service (CPaaS), as they describe their product, early on in 2006 when it was far from obvious that billions of SMS would have to be sent daily from Uber, Lyft, and other mobile Apps 14 years later. Today the company operates its direct communication SaaS globally with virtually every major telecom operator, offers a wide range of messaging services, and boasts clients with the likes of Uber, Burger King, and Strava. 

The funding comes a bit surprising, as the founders intended to go public without prior fundraising.  In comparison Twilio (NYSE: TWLO), Infobip’s main competitor has raised $263 million from 24 investors, amongst those global leaders such as Salesforce, Fidelity, and T. Rowe Price since its inception 2009 when they first went through the Techstars Accelerator. Today Twilio has a market cap of $38.59 billion, the $1 billion Infbip is valued at seems small compared to its biggest rival, although it is their first-ever funding round and we expect more money to be drawn to the company. 

The round’s only investor One Equity Partners, invested in Croatia for the first time, the middle-market private equity firm has $10 billion assets under management and was formed at Bank One in 2001, today it operates under the JP Morgan Chase umbrella after the latter was acquired by JPM. Interestingly One Equity Partners acquired a majority share in Ericsson media solutions in 2018, which is the media business of Ericsson composed of many previous acquisitions, yet a small part of Ericsson, which of course has its roots in the global telecom market and could pave the way for a symbiotic relationship between the two. 

The future will show how this Croatian success story will unfold, we at VentureXchange are happy that Silvio Kutic, Roberto Kutic, Izabel Jelenic have shown the world that Croatia can produce Unicorns, and hope that many more will follow their path. Congratulations Infobip.

Vrijeme je da gradimo

Vrijeme je da gradimo

Svaka zapadna institucija je bila nepripremljena usred koronavirus pandemije. Taj monumentalni neuspjeh institucionalne efektivnosti će se odjekivati skroz do kraja ovoga desetljeća, međutim nije pre rano da se zapitamo zašto, i što bi trebali učiniti po tom pitanju.

Mnogi od nas bi htjeli podmetnuti uzrok problema jednoj političkoj stranci ili drugoj, jednoj vladi ili nekoj trećoj. Ali surova realnost je da su svi podjednako pali ispit – niti jedna zapadna država, općina, pa čak niti jedan grad nije bio spreman – unatoč krvavog rada i truda pojedinaca u tim institucijama. Znači da je problem dublje ukopan u srž društva da bi se našao u omiljenom političkom protivniku ili u domovini.

Jasno je da je dio problema manjak predviđanja, neuspjeh maštanja o budućnosti. Međutim drugi dio problema je ono što mi kolektivno nismo *radili* prije ove situacije, i što ne uspijevamo raditi ni sada. A to je neuspjeh djelovanja, i prvenstveno naša rasprostranjena nemoć da gradimo.

Vidimo to danas sa stvarima koje hitno trebamo ali ih nemamo. Nemamo dovoljno koronavirus testova, ili materijala za testiranje – uključujući, za čudo, pamučnih briseva i običnih reagensa. Nemamo dovoljno ventilatora za disanje, soba negativnog pritiska, i bolničkih kreveta. I nemamo dovoljno maski za operacije, oklopa za oči i medicinskih haljina – dok pišem ovo, grad New York City izbacio je očajnički zahtjev za kišne kabanice, kako bi se koristile kao medicinske haljine. Kišne kabanice, u godini 2020, u Americi!

Također nemamo terapije ili cjepivo – opet, unatoč svih upozorenja i studija o opasnom koronavirusu rođenih u šišmišima.

Naši znanstvenici će nadajmo se izmisliti terapije i cjepiva, ali onda možda opet nećemo imati dovoljno tvornica za proizvodnju istih tih na masovnoj razini. I čak i tada, moramo vidjeti da li mi ljudi možemo uopće proširiti dovoljno terapija i cjepiva da bi bilo uopće značajno. Pet godina je trebalo znanstvenicima da bi dobili dozvolu testiranja s regulatorske strane za novo cjepivo protiv Ebole, nakon što je izbila 2014. godine i uzela mnoge živote.

U Americi ne postoji ni prava mogućnost podijeliti državni novac za potporu ljudima i poduzećima koji ga hitno trebaju. Više nego deset milijuna otpuštenih radnika i njihove obitelji, i nekoliko milijuna malih obrta, su u ozbiljnim nevoljama u ovome trenutku, a ne postoji direktan način kako im država može poslati novac bez mogućeg katastrofalnog zakašnjenja. Države koje skupljaju novac od svih građana i poduzeća svake godine nikada nisu napravile sistem kako distribuirati novac nazad kada ga trebamo najviše.

Zašto nemamo te stvari? Medicinska oprema i financijski cjevovodi ne obuhvaćaju nikakvu atomsku fiziku ili doktorat kvantne znanosti. Barem terapije i cjepiva jesu teška za napraviti! Proizvoditi maske i slati novac uopće nisu teške stvari. Mogli bi imati te stvari ali smo se odlučili ih ne imati – specifično smo odlučili ne imati te mehanizme, tvornice i sisteme da proizvodimo takve stvari. Odlučili smo se ne graditi.

Ne vidi se to prosto samozadovoljstvo, to pomirenje sa “Status Quo” i nevoljom za proizvodnjom, u pandemiji, ili općenito u zdravstvu. Vidi se u cijelom zapadnom društvu, i specifično u Hrvatskoj. Vidi se na zgradama i fizičkim otiskom stopala naših gradova. Nemojmo ni blizu popraviti propale zgrade ili napraviti nove u poželjnim kvartovima naših gradova – što rezultira u suludim cijenama stanovanja u starim zgradama koje se raspadnu kada dođe do potresa u Zagrebu. Kad smo se izborili za našu državu smo maštali imati svjetlucave nebodere i spektakularne arhitektonske projekte za stanovanje u svim našim lijepim gradovima na nivou daleko iznad onoga kojeg danas imamo; gdje su?

Vidimo to u obrazovanju. Imamo dobre fakultete kao na primjer Medicinu, da, ali s kapacitetom primiti mikroskopski postotak novih 18-godišnjaka svake godine. Na svjetskoj razini imamo 120 milijuna novih 18-godišnjaka, svake godine – zašto ne educirati svakog od njih? Je l’ nije to najbitnija stvar koju bi uopće morali raditi?

Zašto ne napravimo veći broj fakulteta, ili proširimo one koje imamo? Zadnja velika inovacija u 12-godišnjem školovanju je Montessori, koji je zamišljen nazad u 1960. od tada se bavimo istraživanjem u polju obrazovanja od kojeg ništa nije došlo do praktičnog korištenja u 50 godina; zašto ne napravimo više škola sa svime što u današnje doba imamo?

Znamo danas da predavanje jedan-na-jedan može povećati ishod obrazovanja za dva standardna odstupanja (Tzv. Bloom Two Sigma Efekt); imamo internet; zašto nismo napravili sisteme da spojimo svakog mladog učenika sa starijim učiteljem da bi dramatično popravili uspjeh studenata?

Vidimo to u proizvodnji. Zašto smo dopustili da skoro svaka tvornica u Republici Hrvatskoj bankrotira zbog korupcije i malverzacije sredstva? Znamo kako graditi visoko automatizirane tvornice. Znamo i za izuzetno visok broj novih visoko plaćenih radnih mjesta koja bi se stvorila kroz konceptiranje i gradnju i rad u tim tvornicama.

Znamo – a ipak vidimo sada u ovom trenutku! – stratešku problematiku kad se opustimo i samo živimo od uvoza strano proizvedenih proizvoda.

Zašto ne gradimo skoro 100 posto automatizirane tvornice, koje proizvode sve moguće proizvode, na najvećoj mogućoj kvaliteti za najnižu moguću cijenu – diljem cijele Hrvatske? Zašto imamo samo jednu firmu Rimac a ne 5.000?

Vidimo to i u transportu. Gdje su supersonični avioni? Gdje su milijuni dronova po nebu koje razvoze sve moguće stvari? Gdje su nam ultra brzi vlakovi, mostovi i tuneli koji spajaju svaki hrvatski otok s kopnom? Da li problem leži u novcu? To mi se čini teško za povjerovati dok imamo novac za financiranje besmislenih državnih agencija, spašavanje davno zastarjelih firmi, ili za kupnju naftnih polja u Siriji. Također su hrvatski mirovinski fondovi preplavljeni novcem svih građana- koji se na kraju ulaze u državne obveznice bez ikakvog značajnog dobitka.

Ja sam na strani Nicholas Sterna, kada kaže da je definicija kapitalizma način kako se brinemo za ljude koje ne znamo – sva navedena polja su već danas visoko lukrativna i trebali bi biti glavni teren za lov od ulagača. Dobra su za Investitora i za krajnjeg kupca koji bi imao bolju kvalitetu života. Da li je možda problem tehnička kompetencija? Jasno je da nije, inače ne bi imali kuće, nebodere, škole i bolnice, aute i vlakove, računala i pametne telefone.

Problem je želja. Mi moramo *željeti* te stvari. Problem je inercija. Problem je lijenost. Moramo željeti te stvari vise nego što ih želimo spriječiti. Problem je regulativa koja drži inovaciju zarobljenu na lancu. Moramo željeti nove firme da proizvedu te stvari, iako to etablirani ne vole, pa iako da prisilimo etablirane firme da se pokrenu napraviti te stvari. I problem je želja. Mi moramo izgraditi te stvari. I moramo podijeliti nužnost da izgradimo te stvari od ideologije i politike. Obje strane trebaju pridonijeti izgradnji.

Desnica kreće iz njoj više prirodnije, iako komprimirane pozicije. Desnica je generalno za proizvodnju, ali je često korumpirana od sila koje zaustavljaju kompeticiju tržišta i izgradnju novih stvari. Desnica se mora boriti žestoko protiv uhljebova, regulatornih okova, oligopolista, riskantnih prodaja domaćih firmi (INA) i uvoza, kako i prijateljskim uslugama prema etabliranim firmama.

Vrijeme je za punomasnu, beskompromisnu, političku podršku desnice za agresivne investicije u nove proizvode, nove industrije, nove tvornice, u novu znanstvenost i velike korake naprijed. Ljevica kreće s većim prednaponom prema javnom sektoru u puno od tih točaka. Čemu ja kažem, dokažite bolji model! Pokažite da javni sektor može napraviti bolje bolnice, bolje škole, bolji prijevoz, bolje gradove. Prestanite štititi staro, ukorijenjeno, ne relevantno; javni sektor od ljevice se mora kompletno predati budućnosti i graditi na njoj. Milton Friedman je davno rekao, da je velika greška javnoga sektora da sude zakone i državne programe po njihovim namjerama  a ne po rezultatima. Umjesto da ljevica to primi kao uvredu, neka uzme kao izazov – izgradite nove stvari i pokažite rezultate. Pokažite da novi modeli od zdravstvenog sustava javnoga sektora mogu biti jeftiniji a efektivniji – kako bi bilo početi s Virološkim Agencijama? Kada dođe idući koronavirus, oduševite nas!

Ja vjerujem kako kroz gradnju može zaživjeti tek hrvatski san kojega ni nemojmo još sanjati. Stvari koje na svijetu proizvodimo masovno, na primjer TV i računala, brzo padaju u cijeni. A stvari koje ne, na primjer kuće, škole i bolnice, se dižu u cijeni. Što je točno hrvatski san?

Mogućnost imati dom u svom vlasništvu, i obitelj za koju se možeš brinuti. Moramo smanjiti visoko rastuće cijene za domove, jelo i piće, i dobro obrazovanje i medicinu, da bi omogućili svakome živjeti hrvatski san, a jedini način je da počnemo graditi.

Graditi nije lagano, ili bi sada svi već to radili. Moramo zahtijevati vise od naših direktora, naših političara, naših poduzetnika, naših Investitora. Moramo zahtijevati više od naše kulture, od našeg društva. I moramo zahtijevati više jedan od drugog. Svi smo potrebni, i svi možemo pomoći graditi.Svakim korakom na tom putu, svakome oko nas, moramo postaviti pitanje: Što ti gradiš? Što ti gradiš direktno, ili pomažeš drugima da grade, ili učiš druge kako da grade, ili se brineš za ljude koji grade? Ako posao kojeg radiš ne vodi nečemu što se gradi ili pomaganju drugima direktno, iznevjerili smo te  i moramo te ubaciti u poziciju, posao, karijeru gdje možeš pomagati graditi.

Uvijek postoje izvanredni ljudi u najviše slomljenim sistemima – mi moramo dobiti sve talente koje možemo, da rade na naj većim problemima koje imamo, i da rade na odgovorima na te probleme.

Očekujem da će ovaj esej biti meta kritike. Ovdje je skroman prijedlog mojim kritičarima. Umjesto da se bacite na moje ideje što napraviti, stvorite svoje! Velika je šansa da ću se složiti s vama.

Naša domovina i naša kultura su građene na izumima i produkciji, na samoj izgradnji, bez Kravate, Vegete i Sumameda ne bi postojala Hrvatska. Naši preci su izumili struju i kemijske sastojke, i tisuće drugih stvari koje danas koristimo bez da razmišljamo o njima, koji su uvijek oko nas i definiraju nas život. Postoji samo jedan put da živimo u čast njihovog nasljedstva i da kreiramo Hrvatsku koju želimo za našu djecu i unuke, a to je da gradimo.

Original: Marc Andreesen
Preveo i adaptirao za Hrvatsku: Ivan Mišković

Market Analysis South East Europe

Market Analysis South East Europe

During covid-19 pandemic, over 16,000 people tested positive in South East Europe. However, market analysis for South East Europe shows a slowdown in the SEE economies. Those heavily rely on trade with investments from European countries, especially Germany and Italy. Unemployment in the SEE economies may rise again and labour market conditions may deteriorate further, as a significant share of the workforce lives abroad (between 20-25% of the population).

Moreover, within the domestic markets SMEs, manufacturing and tourism sectors will be among the most affected. Some SEE governments have already introduced stimulus packages. As an example, the government in Croatia raised support from HRK 3 250 per worker to HRK 4 000.

All SEE economies have closed their borders crossings to the movement of people while allowing the flow of goods and medical equipment. Due to the lockdown measures, educational systems in the SEE region have started conducting classes remotely. The lockdown also affected cafes, restaurants, and retail store, as well as large-scale cultural events. These measures have triggered a rapid expansion of e-commerce services in the SEE. That triggered many firms to seek new ways to conduct business during the crisis.

Furthermore, a covid-19 pandemic is taking a heavy toll on the economy which will affect South East Eruope. In this market analysis, South East Europe is leading to much lower economic growth compared to other European countries.

Economic impact: Market analysis South East Europe

 

First and far most affected due to the covid-19 pandemic will be domestic supply. Although macroeconomic policies can aid the recovery of demand, they can not completely offset the economic consequences.

Summer season for tourism is not looking good either. Albania and Montenegro tourism revenues exceed 20% of GDP.

Third, exports across the region will fall due to depressed demand, as well as disruptions in value chains. Moreover, the manufacturing sectors contribute most to their economies in terms of value-added and employment.

Source: World Bank Data from the OECD report

 

The contributions of foreign direct investment (FDI) to the Western Balkan economies were relatively sizeable over the last years. With FDI investments over the past years, we could see more economic growth and job creation. See the chart below-showing investments for South East Europe region. Romania shows growth in FDI investments with a net flow of over 7 billion US$ in 2018.

Source: World Development Indicators

 

The economic slowdown will also come at a bad time for Albania and Croatia, as both economies have been recently hit by earthquakes. No argue that this will add an additional burden to already stretched budgets to counter the coronavirus outbreak.

Unemployment in SEE region

 

In South East Europe there is a constant outflow of human capital. According to available data from the United Nations, in 2019 there were almost 4.6 million people living abroad from the five Western Balkan economies. In particular, young, skilled workers seek job opportunities outside the region. Also, many health professionals leave for Western EU countries and Switzerland.

Moreover, in the context of current covid-19 crisis, two thirds of people have no prior experience with teleworking. On average, only about one third of individuals aged 25 to 64 with high formal education have at least once worked from home in 2018.

All Western Balkan economies have taken measures to limit physical interaction, and the workplace was the first focus of those measures. Existing regulations have already been relaxed and new options for teleworking have been introduced.

What to expect for SMEs?

 

In the Western Balkans, over 99% of all firms make up SMEs, which generate around 65% of total business sector value-added. SME’s account for 73% of total business sector employment according to OECD.

There are only few implications on how covid-19 could impact on financial losses for SMEs. However, we can only assume that the reduced customer demand will lead to cash -flow problems.

Private Equity in CEE overview

Private Equity in CEE overview

Private Equity in South-East Europe is alive and well. There are few talks in media on the recent acquisitions in the South-East region. One of them includes Nikos Stathopoulis, chairman of BC Partners’ portfolio management committee. Moreover, Nikos is also a chairman of Serbia based United Group and leads media and telecoms. Last year, there were two major acquisitions in the region. One was Tele 2 Croatia for an enterprise value of €220 million. While the other one was for Bulgarian service provider Vivacom for a reported enterprise value of €1.2 billion.

Meanwhile, a Pharmaceutical company Zentiva Group completed the acquisition of Alvogen’s CEE business in Romania, Bulgaria, Croatia and several other countries.

Private-equity (PE) investors own companies but are not like those that raise money by selling their shares in stock exchanges. There is a big difference. Public companies are those that shareholders list on publicly available registers. Secondly, listed companies make regular announcements. If they’re backed by private equity, there’s no need to do so: it’s all private. Therefore, Private Equity backed companies tend to value that freedom.

Private equity investments in CEE companies

Private equity and venture capital investment into companies in Central and Eastern Europe (CEE) reached a record €3.5 billion in 2017, according to data from Invest Europe.

Source: Invest Europe / EDC

From the Invest Europe, 2018 Report, 3,750 European companies exited in 2018, a 3% decrease on the previous year. By the amount of former equity investment (divestment at cost), the total value was €32bn, a year-on-year decrease of 28%. The most prominent exit routes by the amount at cost were trade sale (32%), sale to another private equity firm (31%) and public offering (10%).

Buyout funds in the region raised a total of €1.1 billion, whilst CEE venture capital funds attracted over €500 million of investor cash for the second year in a row.

The number of private equity and venture capital-backed exits in CEE reached an all-time high with a total of 128 companies divested in 2018. With an exit value of €575 million, Poland accounted for nearly half of all exit activity. The biotech and healthcare sector took the lion’s share of CEE private equity investment, making up just over 30% of the total value for the year. Consumer goods and services companies also fared well, receiving 27% of the overall funding.

What is private equity looking for in 2020?

According to online media, private equity markets are looking for technology companies where covid-19 is not worthy of mention.

It will be some time yet before the bargain hunters are searching for opportunities in manufacturing industries with complex, international supply chains. Meanwhile, creditors will be more focused on a conservative business plan for the underlying companies.

Overall we maintain a positive outlook for the performance of new commitments to private equity in 2020. Investors’ emphasis on ESG will increase further in 2020. That also aligns well with private equity’s long timeframes and higher engagement. This is becoming especially important for private equity in CEE; Central and Eastern Europe.

As we mentioned in the previous article on ESG growth, heightened awareness of climate change are important drivers of change. Nevertheless, the European Commission’s Sustainable Finance initiative is as well, highly important driver.

According to Pitchbook, private equity is on a long-term growth trend, and there seems to be little that will stop it. Private equity has long been an important contributor to value creation in the real economy and for investors’ portfolios alike.

How financial advisors add value

How financial advisors add value

You only use an expert if you believe that they can add value to you. That said, you may not be good at social media, but you most certainly know someone who can help you with this. When it comes to financing, lots of people can look after their own financial affairs and that is fine. But there are also people who need expert advice. Financial advisors add value to your business and we will point out some of the key examples. Also, a lot of entrepreneurs are looking to spend more of their time focusing on running the business and prefer to pay someone to look after their finances.

According to one of the industry studies from Vanguard funds, clients who worked with a good financial advisor will receive on average 3% increase in the value of their portfolio each year. The majority of this increase will come during periods of heightened crisis and fear in the markets when advisors can step in and help their clients maintain an even keel and keep their long-term objectives in sight. That said, a financial advisor will add more value than what it costs on the long run.

How financial advisors add value
Vanguard Group

So, how financial advisors add value?

Industry studies showed that professional financial advisor can add on average 3% increase in value per year. That includes portfolio companies for the long term, depending on the time period.

The financial planning process includes a definition of your business goals. Moreover, financial advisors focus to understand your current business situation. Next, they identify the key steps to take to move forward.

Asset Allocations

Asset allocations are very important to create and balance a portfolio. All strategies should use an asset mix that reflects your goals and should account for your risk tolerance and length of investment time. A strategic asset allocation strategy sets targets and requires some rebalancing every now and then.

The first step in aligning someone’s investment portfolio with their goals is creating an investment policy statement. A policy statement determines how a person invests their money and the appropriate asset mix, referred to as asset allocation. It can be a very time-consuming, detail-oriented task to do without the assistance of a financial planner. That said, many don’t put as much effort into it. Vanguard estimates that the creation of an Investment Policy Statement and the resulting asset allocation can add value annually, but does not provide a specific amount.

Cost-Effective Implementation

More measurable value additions begin with a cost-effective implementation of one’s investment portfolio. Conscious financial advisors can add value and will help their client to utilize low-cost investment positions. That meets the criteria of their policy statements. This keeps more money in a person’s portfolio as less is passed through to a fund or money manager.

Rebalancing

How does rebalancing work? Primarily, portfolio rebalancing safeguards the investor from being overly exposed to undesirable risks. Secondly, rebalancing ensures that the portfolio exposures remain within the manager’s area of expertise. 

In short, rebalancing is the act of adjusting portfolio asset weights in order to restore target allocations or risk levels over time.

While there is no required schedule for rebalancing a portfolio, most recommendations are to examine allocations at least once a year. The initial creation and implementation of a properly conceived policy statement and investment portfolio involve extensive attention.

Tax Management

One significant complicating factor in successful investment decision-making is navigating the impact of taxes. The utilization of balance between taxable and tax-advantaged accounts can be a daunting task. The cost of improper utilization is higher taxation.

Vanguard’s research notes that a 0% to 0.75% annual return value-add is possible with proper asset location, depending on the investor’s breakdown of assets between taxable and tax-advantaged accounts.

Financial planning provides additional value to your investment portfolio. Employing a financial professional saves you time. A priceless commodity on its own, but sound strategies can also provide you with tangible, real-world benefits.

To sum up, consider to hire an advisor and consult on your situation prior to making any major investment decisions. In this article, we provided you with some examples of how financial advisors add value. Past performance is not a guarantee of future results. The rates of return do not represent any actual investment and cannot be guaranteed. Any investment involves the potential loss of principal.

Restructuring Plan – Your Business Guide

Restructuring Plan – Your Business Guide

During the covid-19 outbreak, many companies are suffering from financial disruption. Companies are contingency planning to ensure they survive with a positive outcome. In this restructuring guide, we will provide you with the right principles and steps to help you develop a restructuring plan.

The adverse consequences of the virus could be broad. That includes the reduction of consumer demand and supply chain disruption. Also, consequences include an increase in risk aversion in financial markets (driven by an overall downturn in business). Local subsidiaries of multinational enterprises (MNEs) in affected regions, could be experiencing a substantial reduction in profitability.

Restructuring experts are finding themselves in demand, anticipating that companies will not be able to make good on their promises on time. They may also seek to negotiate new terms with lenders, vendors, employees, and other parties.

Companies that depend heavily on consumer spending are especially troubled. Restructuring advisers expect retailers to run into further trouble as people cut back on shopping.

Energy companies, which loaded up on debt in the past decade, are convulsing because of low oil prices as demand falls because of the pandemic. Hoteliers, cruise lines, restaurants, event sponsors, and mortgage lenders are among those suddenly short on cash. Furthermore, with travel and outdoor activity at a standstill and unemployment soaring.

In anticipation of demand, many law firms are redirecting their lawyers into restructuring and bankruptcy-related assignments from other areas. Corporate failures are inevitable in the current crisis, especially given that there is $6 trillion in U.S. corporate debt that remains outstanding.

Meanwhile, several private equity and hedge fund firms, including Fortress, Apollo, and Avenue Capital, are seeking opportunities to finance companies with riskier debt profiles.

Restructuring advisers expect the real estate sector to hard-hit as homeowners and businesses are unable to make mortgage payments.

Options and current issues

Many businesses suffer a dramatic and immediate drop in turnover caused by the Covid-19 outbreak. Meanwhile, the Government has already rolled out what is assumed as the first wave of financial support measures.

In the first instance, anyone suffering from cashflow or other solvency issues should take professional advice from their accountant as to what support is available.

Even with a financial support package, some businesses may struggle to survive in their current form if, for example, they have liabilities that they cannot meet today or in the future.

The directors can conclude that their company is insolvent, which can be on a balance sheet or cash flow basis. That said, they are under a duty to consider the shareholders and the creditors of the company. The directors will have to act in the interests of both.

In such circumstances, the directors should take professional advice from an insolvency specialist, not just to identify the best options for the company and its creditors but also to protect themselves from future criticism should the company enter Liquidation.

What do you need for a restructuring plan?

You should start planning. A business restructuring plan usually takes time to prioritize financial aspects.

The planning stage requires the formulation of detailed operational and strategic plans. Anticipate that the diagnosis and planning parts of the process will require a minimum of several months and often more than a year.

Three of the most important parts of any business restructuring are the participation of corporate stakeholders, adherence to any legal restrictions, and flexibility during implementation.

Often companies do not allow enough time for planning and implementing the restructure. A restructuring involves details concerning vendors and consumers, stockholders and financial relationships, employees and inventory, quality control and environmental impact, equipment and technology, and management and marketing. All of these areas need careful thought and consideration to determine how company restructuring will affect each one.

Developing a Restructuring Plan and Timeline

The restructuring is likely to impact various sectors of the business. Therefore, you need a plan and a timeline.

Possible organizational structure scenarios that will position the company for future growth:

  • A new or existing legal restriction or required financial investments that should get done before the restructuring takes place
  • Implementation timelines
  • Key hires or the creation of new roles

Restructuring activities should be communicated among the leadership team, as well as with employees.

The company should communicate restructuring plans to employees so that they hear about them from company leaders first, rather than in the media or through the rumor mill.

There are no specifics in the law of what restructuring plan should contain.

Key elements to include in a restructuring plan are:

  • A description of the subject matter and scope of the task
  • A summary and analysis of the business environment
  • An analysis of the causes of the crisis and the stage it has reached
  • A model for the restructured company
  • A program of measures
  • An integrated restructuring plan
  • An assessment of the restructuring viability
  • The content and steps covered in a restructuring plan depend on the stage and scope of the crisis and the specific stakeholder structure.

Small steps throughout the process

While the documentation and analyses are profoundly necessary during the restructuring process, the center is on the information.

In addition to the analysis process, keep the transparency for your employees, and other people included in restructuring. The results of all analyses and restructuring measures should show the integrated business plan. In addition to the business plan, income statement, balance sheet, and cash flow should also show the complete restructuring plan.

Design the plan so that the measures and objectives meet within a reasonable timeframe.

Moreover, consider designing a plan where actions and procedures can follow the same timeframe. You should look to establish measures as a realistic objective.

The practice has shown that it is not sufficient to set out the restructuring measures that the company management proposed in a restructuring report. For the latter in particular, you will have a significant position with an experienced restructuring advisor. Depending on the stage of the crisis, this applies to measures focused on liquidity. Similarly, that applies to adaptations to organizational structures and processes through to setting a new focus and designing business models to give a competitive advantage.

Conclusion

Corporate restructuring is a natural part of business life, but it doesn’t have to slow business productivity or create havoc on the company’s structure. Many companies are more successful than their rivals because they are able to take advantage of new technology. They are able to provide services and products more efficiently. Try to plan restructuring activities carefully, taking into account key positions, people, and processes.

The more closely a restructuring is focused on the key issues for survival, and the more realistic the measures are when drawing up the plan, the greater the chances of success. Every restructuring needs the liquidity, debt maintained on time, and cost-cutting achieved. Efficiency changes also have to be held in improved cash flow and profitability.

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