By J. Gregory Barrow
As the country’s economic crisis persists, companies are filing for reorganization at a rising rate.
Chapter 11 filings rose 49 percent, increasing from 5,888 in fiscal year 2007 to 8,799 in fiscal year 2008, according to a news release from the U.S Courts. As the filings are expected to continue their up-tick in 2009, companies facing financial distress should explore solutions to maximize their opportunities on every level.
Why hire an investment bank?
The decision to engage an investment bank can prove to be an invaluable resource to a company trying to make the best of a distressed situation. Investment banks can play a crucial role in corporate bankruptcy or turnaround by providing services in the areas of restructuring and reorganization, debt and structured financing or the sale of assets to maximize value. Simply put, hiring a financial advisor can significantly increase the probability for a financially favorable outcome.
What can an investment bank do for you?
An investment bank will be an important ally in helping you make prudent decisions that will allow for the improvement of your company’s current and future financial situation. Acting as an agent on your behalf, they will pursue all strategic alternatives, which will allow you or your executive team to focus on managing the day-to-day operations of the business.
Too often, companies approach the selling or restructuring a business themselves despite having little knowledge of the process or sufficient time and resources to commit to the task. Investment banks have experience with facets of the process that you or your in-house advisors do not, including an adequate understanding of capital markets or financing options available, expertise in negotiating sales transactions in your industry and soliciting multiple offers. An experienced financial advisor can help your company develop a plan for a successful transaction and assist in the execution of that plan on your behalf. They will also help you arrive at a realistic valuation for your company based on their knowledge of the current market conditions.
What should you look for in an investment bank?
It’s important that you find a firm that has specialized expertise and is willing and able to provide a quick resolution to your situation. Ideally, you should identify a firm that has experience in your industry and one that has an established network of relationships with lenders, equity partners and buyers that they can access for your business. The investment bank that you employ should also have a complete understanding of bankruptcy code and in turn, lend a strategic vision and a set of realistic options. In the end, these qualities will increase your chances of receiving the most beneficial resolution.
Why take a team approach?
The collective approach of a legal and financial advisory team can be a powerful combination. Bankers can participate directly in the business decisions concerning a financial restructuring or sale and help maximize the monetary results for their clients, while attorneys focus on the legal aspects of the business restructuring process and any proposed transactions the banker and the company agree to execute.
“Corporations can benefit greatly from engaging a financial advisor to apply what the attorney is doing from a legal perspective and implement a working business-legal strategy to get the best outcome,” says Chris Giaimo, partner with Arent Fox LLP. “An investment banker can offer working knowledge of the business world and the intellectual impartiality to make independent decisions that benefit the company as a whole without the outside interests. I believe it is extremely beneficial to have an independent fiduciary who has assisted other clients in bankruptcy.”
What steps should you take?
If at all possible, engage an investment bank prior to filing Chapter 11 to allow for an additional pool of options such as pre-bankruptcy workouts with your existing lenders or investors or other more non-traditional options. This scenario also allows ample time for your financial and legal team to prepare a plan on your behalf. Once a company files for bankruptcy, the clock begins ticking to secure a resolution and time is of the essence. The optimal solution is to obtain a financial advisor along with your legal council in the early stages of corporate distress. Doing so will heighten your company’s chances for a successful outcome.
J. Gregory Barrow is the managing director of General Capital Partners, LLC, an investment banking firm advising financially distressed companies. For more information, contact Greg at firstname.lastname@example.org or visit www.generalcapitalpartners.com.