Corporate restructuring is the process of changing the structure of a business with an aim to make it more profitable. It is considered as an essential part of successful business acquisition and growth. Many companies reorganize their business to improve efficiency and increase profits. There are others also who perform restructuring as a way of reviving a financially distressed business. The management of a company facing liquidation will make a slew of changes to its operations in order to achieve the desired objectives.
Corporate restructuring comes in mainly two core forms:
Financial restructuring: The businesses with debt burden need to carry out financial restructuring to reduce liabilities and increase profitability.
Organisation restructuring: This type of restructuring is performed when a company’s organisational structure becomes ineffective due to various reasons like complex employee structures.
The following are some of the reasons that force a company to consider restructuring:
The following are the main types of corporate restructuring:
An ideal way to increase profitability in a business is to merge an existing company with the other. This process involves buying a business, merging with one and acquiring their assets. M&A will result in increased revenue, market reach and production capacity.
In Divestiture, a business unit of a company is sold to another company. Companies use this form of restructuring in order to focus on its core units that earn the most revenues and solve financial issues.
The main forms of divestiture are spin-offs and split-offs. Spin-offs refer to a business unit that is lifted out of the parent company and operates as a separate business entity. But in case of split-off, a subsidiary of the parent company is split off from the parent company.
If one is facing growing debt in a business, it’s mainly because of the high running costs. In these situations, reviewing corporate structure can reduce the overall costs. This involves restructuring departments, removing unnecessary management costs etc.
Debt restructuring is one of the main reasons for business restructuring. At a time where the very existence of the company is at risk, debt restructuring process can reduce its liabilities. Here the company can restructure debt and continue its business operations by creating a Company Voluntary Arrangement (CVA), which is a legally binding agreement between the company and its creditors.
Legal restructuring is done not because a business is financially struggling, but simply because there is a need for change in legal structure. This may include the introduction of new investors or a change in the ownership structure in case a business entity leaves.
Corporate restructuring helps a company revitalize its operations and achieve desired business goals. Company management will plan and implement all possible measures to keep the business safe. Even when there are deep financial troubles and uncertainties, the corporate restructuring process will help a company stay resilient and return back to profitability.
