Point of departure –Quartz+Co's approach from working with more than 200 private equity-related companies Safeguarding of creditors' capital – IBRs are a key tool when worries regarding corporate customers arise Determining business concept viability – conducting an IBR is the first step to determining suitable actions Areas to investigate – financial and managerial aspects as well as market dynamics must be taken into consideration Time frame – with a focused effort and good data quality/availability, an IBR can be completed in 4-6 weeks
Independent Business Reviews for creditors Restructuring of portfolios and companies
Executive summary
• Quartz+Co's approach to Independent Business Reviews (IBRs) is based on experience from more than 200 private equity-related projects over the past four years and can be applied in situations where a creditor is unclear on how to act vis-à-vis a corporate customer • The IBR covers structural and dynamic business conditions as well as financial considerations and will clarify whether the customer's business concept is viable – and if so – what is required to succeed and ensure repayment • A qualified IBR can be completed in four to six weeks
2
Quartz+Co's IBRs for creditors service line is based on the experience and skills developed in our private equity practice from reviews of more than 200 companies during the past four years Number of companies during the past four years Construction/ building materials, etc. Energy
26 11 12
Food supply Hardware suppliers
5
Industries
Industrial
14* 7
IT/technology
8
Offshore/wind industry Retail/consumer goods
63 11
Service industry
15
Telecom and media 12
Transport Waste management
Total: >200
5
Other
3
Examples
* Mechanical engineering, automotive and chemical
11
IBRs can be key in safeguarding a creditor's capital when worries regarding a corporate customer arise Description
Healthy
Concern
Problem
Takeover
Bankruptcy
• Well-performing
• Unfavourable development
• Problems to carry loan burden
• Unable to pay interest
• Liquidation of assets
• High gearing
• Refinancing needed
• Bank ownership
• Balanced gearing • Suitable buffer
• Weak balance sheet
Bank focus
Tools to use
• Close monitoring
• Actions to prevent problems
• Maximising value
• Protect rights
• Creditor
• Creditor
• Creditor
• Equity
• Equity
• Asset management
• Asset management
• Independent business review
• Independent business review
• -
• Turnaround plan
• Turnaround plan
• (Equity upside)
• Corporate
• Corporate
– Large
– Large
– Mid
– Mid
– SME
– SME
• Regular financial/ risk assessment
• Independent business review
• Restructuring unit • Bad bank
• Restructuring plan
4
• Often low trust in management
• Regular financial/ risk assessment
Bank relation
Bank unit responsible
• Turnaround
IBRs should cover structural and dynamic business conditions as well as financial considerations Quartz+Co IBR
Management consulting companies
Accounting firms
Law firms
5
Commercial review
Financial review
Legal review
Conducting an IBR is the first step to determining suitable actions Quartz+Co framework
Quartz+Co project examples
Is the business concept viable?
1. Independent business review/ due diligence
• Develop indicative improvement potential and key levers
Yes, also on a standalone basis
Yes, but only in a changed owner setup
No 6
• Establish overview of key business elements, e.g. granular financial performance, competitive strength, market conditions and consumer trends
Turnaround of existing business
2. Turnaround execution plan
• Determine baseline, improvement initiatives and ambition, including detailed targets for business areas • Develop turnaround execution plan – person responsible, activities, targets and timing
Restructuring (of portfolio)
3. Turnaround support
• Determine areas with the highest improvement potential • Accelerate execution through analysis and executionplanning
Exit/new owner
Consolidate/ merge
Bankruptcy
4. Pre-exit plan
• Identify and document key business parameters and improvement opportunities • Develop list of potential buyers and describe synergies
5. Consolidation perspective
• Describe industry dynamics and document rationale for consolidation/mergers • Develop list of potential buyers and describe synergies
Financial and managerial aspects as well as market dynamics have to be taken into consideration when completing IBRs IBR Areas to investigate
Financial performance
Key issues to cover What is the expected financial performance and the ability to service its financial obligations?
Company health check Industry dynamics and consumer trends
Competitive position
Execution and operational power
How will the market dynamics and emerging consumer trends impact the company within the next 1-3 years?
How strong is competition in general and in key segments, and how well is the company positioned?
How strong are the company's execution and operational procedures, and how can they be strengthened?
How well-positioned will the company be after turnaround and who are the likely new owners? Exit opportunities
7
RETAIL EXAMPLE
With a focused effort and good data quality/availability, an IBR can be completed in 4-6 weeks Week 1
Week 2
Key activities Financial overview and performance gap Market conditions and consumer trends The company's market position Store performance Merchandise performance Chain performance Financial plan and final report Key meetings Kick-off/alignment meetings Review/SteerCom meetings Management Q&A
8
Data requests can ideally be sent to the company 1-2 weeks before project start
Week 3
Week 4