Fortune to favour the brave as companies look to restructure
We expect a significant increase in company-led restructuring activity in 2021.
Over the past 12 months most underperforming companies have been understandably focused on near-term challenges. However, the combination of unprecedented Government support, financier forbearance and other initiatives to support solvency during this period has dampened the usual impetus for radical action.
With these settings now starting to wind down or normalise we expect companies to turn their focus to longer term financial and/or operational restructuring needs. Some of the more specific themes we expect to emerge in the year ahead are:
- Certain industry sectors to remain under more significant pressure due to the ongoing impact of: COVID-19 (aviation, travel, hospitality and education), international trade disputes (wine and agriculture), capital market illiquidity (coal), and high-cost financing structures (property development).
- As banks gradually bring support programs to an end, a deep secondary lender and alternate capital market becoming increasingly important in providing options for financial restructuring.
- A widespread focus on operational restructuring as businesses recalibrate (post JobKeeper) to a lower level of revenue. We advise early and decisive action over burning through limited cash reserves, which limits options later. Hope is rarely a good business strategy.
- Astute corporates with capital to deploy will take advantage of value-accretive distressed M&A opportunities. Restructuring expertise within buy-side advisory teams is essential to effective due diligence, valuation and transaction structuring.
- Industry participants will keep a close eye on the new small business restructuring process as a test case for broader application of debtor-in-possession to the restructuring legislative framework in Australia.
Having spent much of 2020 on the sidelines the restructuring industry stands ready to play a central role in guiding companies through 2021. We expect fortune to favour the brave.