With a large amount of uncertainty in the world due to the COVID-19 pandemic, businesses have had to take a close look at their business model and make quick adjustments. Consumer buying habits have changed rapidly. With no guarantee the markets will return to normal anytime soon, corporate restructuring efforts have been expedited. Investors need to look closely at the type of corporate restructuring taking place as well as the company valuation to determine whether there’s the potential for a good restructuring investment.
Financial Restructuring vs. Organizational Restructuring
While there are several types of restructuring, financial and organizational restructuring are the most common. With financial restructuring, the company decides whether their current business model is bringing in the cash flow to boost shareholder returns. In situations where a company has more debts than equity, they may refinance at lower interest rates or negotiate different options with their creditors. During the COVID-19 pandemic, creditors are more willing to understand that these financial challenges are likely temporary. Because of this unusual situation, they are more likely to relieve a company’s cash stress in the short-term in order to help them continue their business growth.
Organizational restructuring typically involves re-allocating investments and resources to other parts of the business that are more profitable. Sometimes this means significant reductions in low-margin areas and automating processes when it makes the most sense. How a company handles organizational restructuring is critical to its future success. Since employees are directly involved in the process, clear communication is a must. The team needs to fully understand the reasons behind the restructuring so performance does not decrease as a result.
Corporate Restructuring Does Not Happen Overnight
No matter if the restructuring is occurring to only one sector of a business or the company as a whole, the process is usually not a quick one. In the event of organizational restructuring, a clear plan and timeline should have been developed. This includes learning:
- The potential benefits and consequences of the restructuring
- Legal restrictions
- Financial investments required
- A plan for internal communication with employees and shareholders
Having goals and expectations clearly stated and aligned with other members of the organization is critical, which can take some time to reach that point.
Most Corporate Restructuring Efforts Yield Positive Results
Corporate restructuring has become more common in recent years, and especially now during the uncertain times we live in. As an investor, looking at the company valuation before the restructuring is important. If there is great potential for restructuring to increase the company valuation to the point where the market will recognize the positive change, then there could be a good opportunity for a restructuring investment. With companies worldwide restructuring their organizations rapidly today, analyzing the company valuation, potential improvement of returns and share prices must be studied thoroughly before investing.
Stock Investing Info is here to help you sort through the different elements of corporate restructuring. If you’re interested in seeing how a corporate restructuring opportunity could fit into your portfolio, contact us and we will reach out to you as soon as possible.