Corporate Restructuring Guide

What is corporate restructure?

Corporate restructuring is when a company makes significant changes to its financial or operational structure, often in response to financial duress.. Corporate restructuring aims to restore profitability. Restructure is covered by Chapter 11 of the US Bankruptcy Code.

Reasons for corporate restructuring

There are many reasons for corporate restructuring, including deteriorating financial performance, poor revenue, overwhelming debt, or the company no longer remaining competitive in the industry. Some drivers of company structuring include: 

• Insolvency

• Lackluster revenue from sales

• Insurmountable debt

• Difficult market conditions

• Failure of a product or service

Debt reorganization is common during a recession, as companies may experience greater financial hardship and tougher market conditions.

Corporate restructuring can also be a proactive approach to improving overall business performance.

6 types of corporate restructuring

Corporate restructuring can look very different depending on the particular strategy taken by the business. Common corporate restructuring types include 

• Mergers & acquisitions: a company is acquired by or merges with a competitor or adjacent company to expand market reach and diversify offerings. M&A can be a route to business exit or the continuation of the business as part of a new combined company. 

• Turnaround: replacing or changing elements of a company, for example, the company culture, business models, organizational structure or product lines. 

• Repositioning: updating the brand positioning can expose a business to a new market segment and increase revenue. Repositioning also considers public relations and how the public perception of the organization may be influenced. 

• Cost restructuring: updating department budgets, layoffs, and reducing overall costs and debt are all part of cost restructuring, which often occurs ahead of or in response to a recession. 

• Divestiture and spin-off: selling or spinning off particular business units that sit outside the core business or are underperforming can streamline operations, prioritize profitable areas and reduce complexity, while releasing capital. 

• Legal restructuring: revising the legal structure of an entity can help manage liabilities, improve compliance, restore liquidity or enhance tax efficiency. 

When a company restructures, it typically lays off employees as part of downsizing. Some business units may close, merge, or become more efficient and strategically oriented. 

Restructuring can be undertaken as often as required to turn the company's performance around. It’s worth noting that corporate restructuring is an involved and intensive process that should not be undertaken lightly.

Corporate restructuring principles

These four principles can guide a smoother corporate restructuring process. 

1. Pre-emptive restructuring delivers better outcomes 

Many companies initiate corporate restructuring only as a reactive measure. Delaying a restructuring strategy may mean less value can be realized through the process, and can negatively impact reputation and stakeholders, including employees, investors, and other business relationships. 

For example, companies are often widely criticized by the media for mass layoffs. Such drastic action is usually only necessary because the company has taken insufficient pre-emptive measures before that to address its financial problems. 

Taking action to restructure sooner can generate more value and better outcomes than reactive restructuring in response to an immediate threat of bankruptcy or a hostile takeover. 

2. Align the new structure to the strategy

Understanding the root cause of the business’s struggle can help organizations select the most appropriate and effective new structure. The goal should be to reduce complexity and to provide a pathway forward that addresses the issues at hand and sets the company up for a positive outcome. 

The best structure depends on the driving factors for change. If the primary driver is the threat of bankruptcy, the priorities might be restructuring debt and costs, streamlining operations, and focusing on enhancing revenue drivers. 

3. Execute strategically

The goal of execution is to realize as much value as possible. But corporate restructuring is complex, with many potential pain points and legal entanglements. 

For example, in bankruptcy restructuring, the objective is to reduce the firm's debt pressure. Companies must be mindful that the cancellation of debt creates taxable income. 

Other types of restructures will carry their own challenges. Corporate downsizing can present significant challenges, such as how many and what type of employees to lay off, and the timetable for it to happen. Where this is part of a merger, these decisions can impact the integration process and how the stock market values the merger. 

4. Communicate effectively

How the restructuring is marketed or communicated to investors will have a direct impact on the stock price of a publicly listed company or the valuation of a private company. Internal communications and media relations must be carefully managed. Effective communication may be complex where leadership's compensation is linked to the financial success of the restructuring, so a strategic communication plan is essential.

How Ansarada can help

Manage sensitive information and gain visibility of your core data with a platform designed to support businesses in change

When faced with sudden or significant organizational change, having your data and documentation in order can help to smooth the process and enable effective change management. From capital raising, to M&A, restructuring, spin-offs, post-acquisition integration, and efficient procurement workflows, our virtual data room and project workflow tools are secure and simple to use.

With over fifteen years of experience on 24,000+ critical deals and over $1 trillion in deal value transacted on our platform, your corporate restructuring couldn’t be in safer hands. Features include: 

• Facilitated restructuring workflows: Plan your business restructure with clarity and confidence. Use Ansarada’s Workflow tool to get total oversight of financial performance. Analyze your business’s greatest threats efficiently and in depth. Understand your next steps, feel guided, and reassured. All features are completely free to use until you execute a deal

• Secure collaboration & data sharing: Collaborate with creditors, Directors, insolvency practitioners, and other interested parties using clear and up-to-date information, with no dispute or confusion as to data sources. Remove the stress and uncertainty of spreadsheets; restructuring is stressful enough. 

• Streamlined deal execution: Ansarada facilitates corporate restructuring and bankruptcy proceedings with the world’s most advanced Virtual Data Rooms, bank-grade security, Q&A features and streamlined Workflows. Our platform has helped turn around some of the world’s most famous businesses, like Virgin Australia and Europoles.

Restructuring FAQ

What are the general principles of restructuring?

Corporate restructuring typically involves reducing the overall size of the business by divesting, spinning off or laying off a business unit; removing or replacing management; revising expense management to reduce costs and debt. The goal is to make the company more efficient and focused on driving revenue. 

What is an example of a company restructuring?

In 2017, the Wall Street Journal updated its organizational structure to shift the company towards a digital strategy. Editors and other employees were encouraged to apply for new roles, self-selecting to pivot their roles under an updated organizational structure.