We are often asked by shareholders, whether institutional or corporate, to spend time with their invested companies. This is more often the case when these companies are performing behind plan, but can also be useful as a precursor to a sale process, fundraising or other external scrutiny of the business.

We have carried out a number of these projects in 2013, in sectors including medical technology, energy, retail and distribution. One in particular had some interesting characteristics. The business had:

• Been performing behind plan
• Been affected by significant external events outwith its control
• A new management team
• Seen its bank debt sold to a hedge fund
• Little relationship with this new creditor
• Anticipated covenant pressure within the coming 12 months

In a situation such as this, our input provides valuable support to management in a challenging period while also giving shareholders an objective view of the company’s expectations and prospects. That was particularly true In this case, given the confluence of a number of factors and the need for rapid, reliable information and strategic decisions.

Our work included:

• Review of company’s forecasts along with alternative scenario planning
• Challenging management’s view where appropriate – what was over-optimistic and what was being kept back?
• Detailed review of loan facility documentation in conjunction with Company lawyers to assess covenant position and options for avoiding or curing default
• Discussion of negotiating strategies for discussions with funders
• Review of ongoing funding options
• Analysis of parties with an interest in the success of the business and the possibility of engaging with them
• Assessing the potential for splitting the business into distinct parts for retention / sale / closure
• Modelling these options in respect of future profitability,, cash flow and funding
• Agreement of an ongoing plan to work through the major areas of focus

By the end of our work, we had ensured that the Company had

• Revised, more realistic forecasts
• A greater understanding of what-if scenarios and implications for covenants
• A better knowledge of loan covenants, default conditions and the ability to cure
• Clear negotiating strategies for discussions with funders
• An action plan to pursue potential arrangements with two other parties

This progress was made over a very short space of time, as our inolvement supported a management team who were being pulled in a number of directions. We enabled the business to understand and assess its options more quickly and more deeply than would otherwise have been the case.