It's a kind of magic
Steps to reconstruction
Dawson, based in Deloitte’s Manchester office, says he is usually working on three potential turnarounds at any one time and reckons to handle 20 to 25 every year. Two thirds he describes as ‘stressed’, where the danger signals have been spotted in time for remedial action to be launched in an orderly way, while the other third are ‘distressed’, where problems have been allowed to rise-up and it is a question of
managing stakeholders, with all hands to the pump. ‘If the cash is going to run out in three months, it can be a struggle,’ he warns. ‘Beyond that, you’ve got a fighting chance.’
At MyTravel, he recalls, there was ‘an element of surprise because the company’s accounting policies at the time did not set warning bells ringing in time. We looked at MyTravel’s cash reporting and its strategy and we had to deal with stakeholders and the Civil Aviation Authority.
‘Cash is more often than not the cause of the problem,’ reflects Dawson, ‘though management can often be a problem too, especially in family-owned businesses. The company may be in breach of its loan covenants and suppliers may be nervous.’
The first priority is to help the business in question create a ‘stable platform’, and that involves, say, handling cash using three-month outflow projections, something most companies are not used to doing. ‘That establishes a two to three month platform, what we call “the burning platform”, when we get onto it.’
These days, he says, banks can help a company trying to turn itself around by bringing in asset-based lenders. These will lend against stock, intellectual property, receivables and debtors, and use invoice discounting. Lenders, along with other stakeholders including venture capitalists, will usually insist on an urgent reconstruction to set the company on an even keel after the emergency measures are in place. This pressure often leads to the appointment of a chief reconstruction officer (CRO) to push it through.
Dawson says that Darlington, known for his Bulmers success, came into MyTravel as de facto CRO and the turnaround gathered momentum. Deloitte has teamed up with London-based consultants Iain Lynam and Mike Grant, whose Aaronite Partners provides a pool of CROs as long as the company, or more usually its lenders, are prepared to pay for him or her.
Clearly, this process can be riddled with sensitivities, suspicion, bluffing and bruised egos. ‘Knowing how to handle situations is as important as knowing your company’s sector,’ insists Dawson. He is clear that, however difficult turning a company round may be, the alternative of going insolvent is rarely in anyone’s interest. ‘Debt restructuring and finance is much more popular nowadays than insolvency,’ he suggests, pointing to the rise of ‘distress funds’ and innovative lenders in this field, such as Sun Capital or the Endless group.
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