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What Bankruptcy, Mergers, and Acquisitions Mean for Your Company & How to Manage the Change

What Bankruptcy, Mergers, and Acquisitions Mean for Your Company & How to Manage the Change

It’s no surprise that the pandemic has caused major shifts for several companies and industries, forcing them to restructure to adapt to a new, turbulent business environment. While many companies have struggled through the last year, we’ve seen plenty of bankruptcies, mergers, and acquisitions open new opportunities for business owners and investors alike. Some have found success after reorganizing, while some have not due to a lack of preparation and foresight.

If you are one of the companies backed into a corner and considering restructuring your business, take great care with your next decisions and preparations. Understand first what this would mean for your business and how you could manage the mammoth of a change that is to come.

Bankruptcy, Mergers & Acquisitions: An Overview

There are no guarantees in business, and this couldn’t be truer than in recent times. Due to drastic changes since last year, many companies were forced to think of new ways to operate and generate revenue, such as adopting a remote set-up for their staff. Those who failed to adapt to the ‘new normal’ struggled to stay afloat.

What can struggling companies do to increase their bottom line? Reorganization. Business reorganization or restructuring means overhauling the current company set-up, strategy, and operations, including the staff, ownership, products, services offered, and business name..

There are three types of business reorganization methods:

1. Bankruptcy

Bankruptcy reorganization involves financial restructuring and changes in strategies, management, and more.

Restructuring through bankruptcy gives the company a chance to pay down its debts. In the US Bankruptcy Court, a chapter 11 bankruptcy filing allows businesses to operate and reorganize their debts through special agreements with their creditors. Bankruptcy creates a second chance for businesses by forgiving debts they cannot pay but still gives creditors a portion of repayment.

2. Merger

In a merger, two or more businesses combine to form one new company to improve overall performance. There are three types:

  • Horizontal, where companies at the same stage in the same industry merge, typically for cost reduction, product offering expansion, or reduced competition;
  • Vertical, where a company purchases a business at a different stage in the same industry, such as a firm buying a supplier to gain more control over manufacturing and supplies; and
  • Conglomerate, where companies from unrelated industries combine to decrease risk and stabilize sales. Many mega-companies have gone through conglomerate mergers to diversify into different businesses.

3. Acquisition

Acquisition occurs when an investor group or corporation purchases a company. The acquiring party may have varied motives for buying the target firm, such as company growth, financial restructuring, product line expansion, control over marketing or product development, technology or talent acquisition, or securing a new market. Most acquirers see hidden potential in reorganizing the target company.

What These Business Restructures Mean for Your Company

Despite the perceived negative connotation, restructuring via bankruptcy (Chapter 11 Bankruptcy) is often the best way for struggling companies to become profitable again. Drafting new plans for boosting profitability and cutting costs offers businesses a fresh start.

Mergers and acquisitions require drastic reorganization because radical changes take place. Both merged and acquired companies may need to develop a new identity, explore other strategies, change management, or lay off employees during the restructuring process. Changes may go as far as developing new processes and employment benefits and raising concerns about your team members’ performance and futures.

Nonetheless, it is possible that during an acquisition, the buying party is focused on cultivating its financial portfolio and allows the purchased party to continue operating as it did before the transaction.

All three restructuring scenarios can increase your company’s profit, boost operational efficiency, bring up better and more effective strategies, extend the business’ lifespan, and provide a stable, improved financial structure. However, such significant changes may reduce staff morale, confuse customers (especially if there is a change in branding or business name), and create more cash flow setbacks. They also demand a significant investment of time and resources without a guarantee of success.

Managing Reorganization Changes

Bankruptcy, mergers, and acquisitions demand a lot of work and adjustments for the business to stay afloat. Managing this structure change requires you, the business owner and decision-maker, to be proactive and reactive. That is, you should strategically plan, recognize potential challenges before they arise, and stay adaptable to changing circumstances.

Above all, business leaders and owners should remain calm and set an example for their employees during the upheaval.

When deciding on reorganization, bankruptcy should be your last resort. If your attempt at restructuring through a merger fails or no acquisition offers were made, only then should you try to reorganize your business structure to Chapter 11 bankruptcy.

Final Thoughts on Business Restructuring Changes

At times of crisis, business reorganization is one of the many solutions business owners can use to generate profit, improve overall operational efficiency and fiscal management, and of course, stay in business.

Restructuring your business will not always yield a successful outcome, but being well-informed and planning strategically can significantly increase the chances of success. It is important to ensure that your reorganization efforts are carefully considered and planned, and it is crucial to be adaptable to unforeseen situations and soldier on when faced with a setback. Consult experts and lawyers beforehand to understand all your options and decide if reorganization is what you really need.

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