Corporate restructuring is the procedure of bringing about changes in the organisation of a company’s multiple business portfolios so that they become a moreprofitable venture. In simple terms, it is changing the order of the structure of the business to gain more profits from its processes that are conducive to the present situation.
The decision-making panel involved in corporate restructuring appoints legal and financial advisors to watch over the transaction details and the conciliation. In some cases, a CEO is appointed specially to take these decisions for the company in order to save the company if it’s not yielding profitable results. Financing debt, selling parts of the company to shareholders&investors and reducing operations of the company are some of the most important decisions he has to make in order to save the organisation from going into a complete loss.
Key types of corporate restructuring
- Mergers and Amalgamation:
When two companies join together as one on mutual terms, it is known as a merger. Indian laws call this merger process as amalgamation. Amalgamation works in such a way that the assets and liabilities of amalgamating companies become the assets and liabilities of the amalgamated company.
An acquisition is when one company takes full control over another company without combining any of the companies. Sometimes, in an acquisition, the companies remain independent and have separate legal entities, but there may be a change of control in the companies. In situations where there is a forced acquisition of a company, it is called a takeover.
It is when the company sells all of its assets or any of its business undertakings or divisions. This is usually done for cash and not for shares. Divestiture isnormally used to mobilise resources for core business or businesses of the company by realising the value of non-core business assets.
- Buy back of securities
Excess cash can be returned to shareholders and capital structure berevised accordingly. This will be viable only if the company doesn’t need the cash in the medium term (3-5 years) and is pacified with this type of arrangement.
- Joint Venture
This is when two partners come together and restructure the equity and operational structure with their individual contributions.
Why the need for a consultant?
Corporate restructuring involves a lot of complexities and variables. One needs to carefully analyse all variables and their role in the restructured entity. For this, you need a corporate restructuring consultant. Theyassess the root of the problem existing in the organisation and suggest the best possible corporate restructuring resolution to overcome the issue.
From an HR point of view, when two entities merge to become one, there is a huge overhaul of the leadership team, unit managers, and aligned executives. A corporate restructuring consultant will work with the stakeholders to come up with the best strategy to retain the best talent and also optimise costs.
With the new entity, a consultant can help imbibe the refreshed values and mission of the company to get a competitive edge. Additionally, a consultant has domain experience across industry verticals, which helps suggest strategies that can deliver desired outcomes to the restructured corporate entity. Hiring a consultant when restructuring an organisation is not only important but essential as they provide an end to end solution factoring in all aspects related to the business, its employees, leadership etc.