Shared by Gregg Yorkison of Clare York Group.
A distressed merger and acquisition (M&A) occurs when a company is in a financially difficult situation. While it may seem like a bad starting point, distressed M&As make up a large portion of M&As, and a turnaround is still possible with the correct handling and strategy. We asked Gregg Yorkison of Clare York Group Los Angeles to share his insights on distressed M&A turnarounds with us.
The experienced Managing Partner and Chief Restructuring Officer (C.R.O.) has 24 years of practice with successful distressed M&A turnarounds for middle-market companies. Gregg Yorkison’s Clare York Group clients usually reach out to him when there is distress or crisis. These crisis situations typically have little to no advance notice. Yet, Mr. Yorkison has successfully managed turnarounds in the midst of them by stabilizing operations, implementing appropriate reporting, advising the Board of Directors, and setting strategies to move those businesses forward in a positive and financially sound manner. His biggest reminder to businesses:
“When it seems like the least opportune time to attempt a turnaround, that is probably the precise moment at which it is most needed – and possible if action is taken quickly enough.”
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The situation
According to Gregg Yorkison of CYG, there are several scenarios that are likely to lead to the need for a distressed M&A distressed turnaround. The most common causes include:
- Tension within the cap table (capitalization table)
- Lender’s loss of confidence in management
- Equity’s loss of confidence in management
- Lender’s loss of confidence in Equity
- Cash flow deterioration leading to potential bankruptcy
- Sales declines
Getting Started on a distressed M&A turnaround
BCG dove into an analysis on 1,400 M&A-based turnarounds and found that the single biggest factor that contributed to a successful turnaround is the willingness to act quickly:
“The single biggest factor in a turnaround deal’s success is a willingness to take bold and rapid action. Buyers that launched a turnaround in the first year after a deal closed generated 12 percentage points more in TSR than those that waited until later. Engaging quickly generates momentum and frees up capital, both of which can spur longer-term initiatives. Early action also helps boost investors’ confidence, which is a key factor in turnaround success. Successful CEOs treat speed as their friend.”
The Process
The first step to a distressed M&A turnaround often involves bringing in a third party who can handle the process without bias and with the intention of achieving the best possible outcome for all involved. Gregg Yorkison of Clare York Group Los Angeles has been that trusted third party for more than twenty years.
Once someone is in place to manage the distressed M&A turnaround, the process will require a series of steps:
- Assessment
- Cash flow planning
- Revenue & Margin testing
- Productivity testing
- Supply chain testing
Image credit: Fauxels
It also requires the right management techniques for this type of turnaround. There is a need to drive change with a steady hand and focused approach that involves:
- Righting the size operations, staff, and wages
- Changing stale performers and practices
- Re-negotiating supply agreements
- Vendor rationalization
Combined, the actions within this approach will prepare a company for sale or recapitalization. The only thing left to do is take that first step.
