 “The CRO is the best job in the world...” says John Darlington, MD of restructuring services with KPMG.
Is it? I don’t believe that private equity investors would necessarily agree with this statement. And a cynic might add that it all depends if the job works out better than expected.
In the context of annus horribilis 2009 it is fair to say that many investment directors have turned their hands to taking on the CRO / Turnaround Director role in portfolio businesses themselves, often with considerable success given the unwillingness of banks to behave consistently.
And then some stressed businesses have had the capability to handle a restructuring largely by themselves.
There are only a small number of highly skilled independent CRO’s operating in the UK and Europe right now – in my view no more than 100 of them are out there in and out of recessions.
They do not suddenly emerge into the market when times get tough, although there are many interim managers who will present their CV’s to me with significantly changed histories when it suits them.
Handling and aligning the disparate needs of all those involved in a restructuring is complex. The challenge demands serious expertise and strength of character.
Who are these paragons? What qualities separate the good from the very good? Here is my instant check list when I am asked to provide a CRO:
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Technically strong with a track record of success in consensual restructuring
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Credibility at building relationships with management and lenders, which will win early trust and stand up to pressure
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An ability to understand where quick wins can be made and to focus on the tough issues quickly
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A truly professional approach to resolving intractable issues in a non-adversarial, balanced, measured and structured manner
To avoid an insolvency process and a further write down of debt, the banks often facilitate the appointment of a CRO to support the incumbent management team rapidly to deal with the issues of running a stressed business.
It is clear that the banks’ attitude to customers in stress and their own exposure has now shifted to seeing them work through their problems wherever possible. A CRO is key to this process and invariably appointed as a condition of support and to ensure that the company delivers on the pain involved.
In the same breath the CRO has to create the optimum solution for the business, the lenders and other creditors.
The outcome, if successful, will ensure the survival of the business and jobs saved but probably considerable hurt for stakeholders and creditors. Even though the banks encourage the appointment of a CRO he/she must exercise a high level of independence and have an overriding duty of care to the company.
Early intervention with the right CRO leadership in place is essential to increase the options available to stakeholders. Private equity is good at this; banks are not necessarily as quick off the mark given the volumes of declining businesses sitting in workout groups at present, slowing up decision making.
Worse still, company management, often in various levels of denial, will often baulk at letting a CRO anywhere near the business until all other options have faded.
 The CRO’s remit will cover four core areas of activity:
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Stabilisation and management of cash;
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Restructuring the balance sheet to handle the debt issues in the business;
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Operational restructuring – usually unpleasant, but critical for survival, and
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Managing the expectations and issues of stakeholders and actions of management.
However, not all projects will require all of these core activities, especially if there are other advisers on hand.
In some cases, there is just one issue that could potentially tip the company over the edge. Something as simple, yet all the while crippling, as the renegotiation of onerous leases.
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