2023-08-13 14:35:00
Imagine a patient walking into a diagnostician’s office. He consults him, determines his treatment, and after a few months the patient gets well. Only the patient is not a person, but a company, sometimes with thousands of employees.
Restructuring companiesFoto: Niall Wiggan / Panthermedia / Profimedia
The “company doctor” consults him, determines his illness and directs his treatment. Most of the time, the patient is going through a blood disease. The “blood” of companies, the one that irrigates the whole organism, is represented by money.
The case of the stem cell bank
Companies’ suffering is almost always caused by money, and “company surgeons” are called in to intervene. But success is not 100% guaranteed.
One December evening, the representatives of the largest stem cell harvesting company in Romania, woke up with serious problems. Articles had appeared in the local and central press that the stem cell bank would have financial difficulties and that it was going to be executed by the Fisc. The cell bank held 70% of the profile market in Romania, being one of the largest in Europe.
People were calling the Romanian Association of Accredited Stem Cell Banks (ARBACS) asking where they could move their stem cells for which they had paid serious money.
“Their restructuring lasted only six months. It was the shortest restructuring”, explains Paul Cîrlănaru, CEO of CITR, in a discussion with HotNews.
Asked “how did he do it”, Paul Cîrlănaru explained to us that fortunately, there was only a problem of resettling the contracts, accompanied by bringing in additional capital, which they did. “For them it was very important that this threat of insolvency does not hang over a company with such a sensitive activity”, concludes the CEO of CITR.
When the State gets you into trouble
There was another case, says Cîrlănaru, that of a top 5 player in the Romanian construction market. “Very often, these companies are financed by banks. When interest rates rise and loan rates go up, it is a big problem if the beneficiary – in this case the Romanian State – does not pay its obligations. The company had accumulated debts due to these delays in payment by the State, it was facing with great difficulty the payments it had to make, so we were called to help them restructure”, says Paul Cîrlănaru.
It was hard? “There we had to secure a financing of 20 million euros to pay the debts accumulated over time. They had a lot of open, very high volume jobs. Either way, this volume is the big problem in infrastructure construction”, explains the CEO of CITR
“You build, let’s say, fifteen kilometers of highway, after that you have to collect the money you put in the ground, as they say among builders. In short, we had to interrupt this business cycle, isolate the historical debt until it could be restructured and in the meantime the company could continue to be financed. It is quite difficult because any supplier who sees that you are having problems will tell you that they will stop supplying you with goods because they do not trust that you will be able to pay for them. It’s a lack of confidence that you see and that you have to manage. Here the central element was to make sure that during the reorganization period the company remained bankable in order to finance the works in which it participated”, says Cîrlănaru.
Basically, “company doctors” receive their clients either directly from “patients”, people from companies who look at the numbers and notice that something is wrong, or from “owners”. That is, from the financiers of the companies, through the pressure they generate when they see difficulties in repaying the financing. And when I say financiers, I mean primarily banks.
There is also the situation where the company collapses suddenly, and the restructuring company is appointed by the court.
There are cases where the business owner, who has left the executive management in the hands of close people, comes and says: “Hey, I’m looking down on my company and I have the impression that something isn’t right. Help me understand what’s wrong and how we can move the business in the right direction. And there are times when the executive of the company comes and says I have some specific problems that the contractor denies, but he sees that they are there”
Frequent retorts: “I’ve been doing this business for 15 years, you’re not coming to teach me how to do it!” or “Have you worked with 1,000 suppliers to know what it’s like?”
Sometimes corporate doctors are contradicted by “patients”, convinced that they know better why they suffer. Replies like: “I’ve been doing this business for 15 years, don’t you come now to teach me how to do it!” or “Have you worked with 1,000 suppliers to know what it’s like?”, are common.
“What I’ve always tried to explain to both the people on our teams and the entrepreneurs is that I’m not going to come and tell you how to pour concrete or drill for oil or run a hotel. That’s what you’re good at. I am that element in this equation that allows you to access either some legal facilities or some new business models. I have always turned, when necessary, to external advice, because you cannot know everything about all industries. You realize that when we managed four insurance companies over the course of a few years, we had to educate ourselves and bring in external know-how to explain to us how things are. And it’s very important to understand for the people I was working with, that I’m not here to make your job better. I am not coming to replace you, I am coming to help and bring these elements of financial supervision, governance, negotiation and market standard in terms of lenders and suppliers”, says the CEO of CITR
Rarely is a business model not viable. If you’re in a real market, there has to be a working model. The case of Gitta
A company that has grown too much unsustainably may have to divest a lot of assets to return to the core business.
This is the case of the Ghitta sausage factory from Baia Mare. “They did a very interesting and natural thing. From the production of sausages, they have expanded to all the horizontals of the industry, to pig breeding, slaughtering, processing, etc. and also to sales, including internationally. It was a complete business chain, apparently. But when they added up the numbers, something didn’t look right.
And somehow this was also the starting point of our intervention. We looked at it along the way and identified that certain segments were underperforming. In the slaughterhouse, their cost of production exceeded that of others by about 50%. And I helped them to be able to recover and continue doing what they were doing anyway”, says Cîrlănaru.
Or a chocolate factory that had the ambition to be on the shelves of all supermarkets in the country. However, in a short time the prices of raw materials rose and the company had problems paying its bills, so they called us for help.
There are also failures, and the reasons are multiple
“Perhaps the market expectations are not what we want. You make a recovery plan that can take several months. And during this time an external factor intervenes, a crisis that throws everything up in the air. It’s like you have a patient kept alive on machines and someone comes and puts one in the head. If there is another event, another market change, it obviously brings with it problems that are difficult to manage”, says the interlocutor.
There can then be problems in the area of expectations related to the amounts obtained from the sale of some assets. It’s an area where the market matters a lot, because you have some valuations, you have some expectations, and this thing doesn’t happen, and the company can’t support the difference.
But, it also depends on the tool you operate with. What we see now is that we have more scalpels. Before we only had insolvency in the classical sense, which was like a rather blunt ax with which we tried to work surgically. Now, we also have this preventive agreement, which helps us a lot. Of course, we are not at the level of sophistication of the developed markets in the West, but there are some important steps.
The state recently offered companies with difficulties, or “patients with breathing difficulties” the opportunity to use the preventive agreement, and the first 30 companies also used this technique.
“In the last six months, we have felt pressure on companies that have to face a higher cost of financing or the inability to pay debts that have been deferred for a very long time and that have become accustomed to this paradigm. The increased interest of entrepreneurs for the new restructuring mechanisms is increasingly visible. 30 preventive concordat projects does not seem like a large number, but for the Romanian economy it is the beginning of a change in mindset. Considering the confidential nature of the restructuring procedures, we do not have visibility over all the open projects, especially over the restructuring agreements, so we can estimate that the number of companies that resort to restructuring solutions is higher”, concludes Cîrlănaru.
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