Top Corporate Restructuring Strategies

Corporate restructuring is a process that every company goes through, and it plays an important role. Typically, corporate restructuring occurs when a company is faced with declining profits, changes in the market or the company’s strategy, and when it plans to increase profits. Restructuring focuses on a company’s strengths to improve its performance. Regardless of the goal, corporate restructuring is a time-consuming process that serves to evaluate a business enterprise and its constituents. In this article, we will talk more about the concept of corporate restructuring and its strategies.

Reasons for corporate restructuring

As mentioned before, companies restructure when they want to improve their fortunes, and below we will describe in more detail the main reasons why this happens:

  • Increase profits – If the use of the company’s assets has not been effective, corporate restructuring can be done, which will increase the company’s profits many times over. But for this to work effectively, the right strategy must be developed
  • Changing business strategy – the company may want to get rid of subsidiaries or assets that no longer fit its competencies, and then extract capital to support the core plan
  • Reverse synergies – you could say it’s the reverse of mergers and acquisitions, sometimes companies individually have more value, but together consume more costs and operate at a disadvantage
  • Cash flow requirements – liquidating redundant assets and divisions can make it easier for a legal entity to access financing or other more favorable offerings

Common features of corporate restructuring

Regardless of the reason for restructuring, most restructuring strategies share the following common features:

  • Significant improvements in the company’s efficiency and productivity
  • Saving on tax costs
  • Successful divestiture of assets that no longer bring you value
  • Outsourcing of certain functions
  • Transfer of operations
  • Formation of new marketing, sales, and distribution strategies
  • Renegotiation of labor contracts
  • Refinancing of debt
  • Public relations repositioning or rebranding

Corporate restructuring strategies

Different types of corporate restructuring strategies will be considered optimal for each company, as the strategies depend directly on the reason they are to be undertaken. Below we describe the main corporate restructuring strategies:

  • M&A is a process in which one company either merges with another and exists as an equal, or is absorbed and subordinated to it, creating an entirely new legal entity. Sometimes these transactions are done to improve a company’s financial position, but more often it is done to improve a company’s efficiency and competitiveness in the marketplace
  • A reverse merger is a process whereby private companies become publicly traded and listed on a stock exchange without the need for a first public offering. Thus, the private company buys a stake in the public company and gains control of the board of directors of the public company
  • Sale – a sale may be limited to the sale of lost subsidiaries, other assets, or intellectual property, or it may mean the complete withdrawal of a company from a business or a particular industry by selling its company in a public auction
  • Joint venture-this strategy means that two or even more companies create a new business venture, committing to contribute their resources and equally share the costs of profits and management of the newly created company
  • Strategic alliance -this move allows two companies to form a successful tandem and benefit from each other without depending on each other