We constantly hear from our clients that the big challenges facing business management teams in 2010 are; decreased sales, cash flow problems, reduced access to capital and credit, budget cuts, strategic initiative freezes, declining confidence, resistance to change, lack of skilled people and attracting the right talent. In actuality these are external factors. Management is not powerless in the face of these factors; innovation can still influence and change the business landscape. What is certain is that inaction, delay and business as usual thinking carries a heavy price.
Alan Sugar opined that 85% of businesses requesting funding actually need an administrator. We hear too many examples of management continuing to present un-investible plans to banks and capitalists demonstrating no clear return or exit for an investor. A significant proportion of these businesses are potentially investible and attractive to new investors, but only with the right business model and support to achieve it.
In 2010 (or any other year) it’s very tough for management to find the courage to admit they need help. What is even tougher is to identify and engage the right type of support. Recessions have a way of weeding out stale, ineffective business models and even the most capable management teams can be left marooned as control of the business is gradually eroded in favour of the major creditors.
A Real Example: Our corporate finance partners recently introduced us to a business that was running at 80% of historic revenues; leading inevitably to slightly misguided pressure from its bankers. The management’s re-financing strategy was an offer to investors involved a negative cash flow projection to be offset by optimistic revenues. The investor offer was £1m for a 25% equity stake – this was not going to fly! We applied our best people and in only 2 days collaboration with the client we underwrote a plan with management to achieve £2.7m cash return in 12m on a £700k net purchase with ABL, to enable the bank to withdraw and still achieve a very attractive exit for the new investor. This is what the incumbent MD said:
“I first met with Icebreaker on 28 August 2009, when our ability to trade through the next 6 months looked bleak. Over the last few months we have had a very constructive dialogue with icebreaker and I have been very impressed with the quality and focus of the team. They developed a proposal to re-engineer our business model and commercial proposition to deliver an attractive investor proposition and exit. At that time we were facing significant pressure from our bankers and the board therefore deferred engaging with Icebreaker whilst we sought investment capital.
In hindsight, given their access to VCs and seasoned turnaround skills I wish now that we had gone ahead and engaged Icebreaker to support our funding requirements at that time. With their support we could have delivered the turnaround plan to enable an investor exit within 12m. I am convinced that, had we engaged with Icebreaker earlier we would have succeeded in securing the necessary investment. With their support the incumbent management could have retained control of the business, aligned and managed stakeholder expectations and delivered shareholder value through this difficult time.”
Good news: We find that whilst it’s difficult to engage with outsiders in a crisis, IF management and business owners DO ACT by getting the right support in a timely way they CAN retain CONTROL. But if they fall into denial they rapidly pick up speed down the slippery slope to insolvency.
The 2010 paradigm… The longer the delay the more expensive and difficult is the recovery. Many good businesses requiring turnaround also require funding. Icebreaker pulls these elements together to make it happen. We have just successfully launched our service into mainstream banking to evaluate and turnaround their positions. What’s different is that we can identify the deliverable plan, impartially resource, implement the change and build the business back to recover value.
Our engagements are devised so that our targets and goals are fully aligned with the immediate requirements of our clients; we share the risks and we both benefit from the rewards of a successful turnaround.
Tom Pickering, E: email@example.com T: 0207 193 5518.