Demand for restructuring and turnaround in Asia Pacific on the rise

09 August 2016

The economic slowdown in China, as well as global instability, low commodity prices and changing interest rates, means that corporates in the Asia Pacific region may find themselves in strife. Restructuring and turnarounds may be called for, yet, as new research shows, more and more companies are waiting to the last minute to implement changes – which, in many instances, may have a long term negative impact on financials.

The slowdown in economic activity across Asia is likely to have a knock on effect on regional corporates that may find themselves in some, or considerable, distress in the coming period. To survive the storm, corporates may need to undergo significant transformation or risk bankruptcy.

In a new report from AlixPartners, titled ‘A Race Against the Clock’, the consultancy firm considers the current conditions in which a host of corporates in the region operate, as well as the link with restructuring demand. The research involves a survey of 100 lawyers, bankers, and fund managers across Asia Pacific who had completed turnarounds or restructuring.

Anticipating increase in restructuring activity

According to the study, the number of corporate restructuring and turnaround professionals citing an anticipation in the level of corporate restructuring continues to increase. In 2015, 57% of respondents said there would be a slight increase and 36% said a significant increase. This year, those expecting a significant increase (48%) outnumbered those that expected a slight increase (44%). This is up significantly on 2013 and 2014, when a considerable number of respondents expected a slight increase, and few expected a significant increase – 13% for both years.

Primary drivers for restructuring in Asia Pacific

The research also considers the primary reasons for restructuring over the coming 12 month period. Top of the list from respondents (27%) are changes to regional, and global, macroeconomic conditions. The top specific factor, according to 68% of respondents, is the ‘underwhelming economic growth in China’, and its impact on the wider market – up from 40% last year. The second most cited concern is debt and liquidity. Corporates have enjoyed a protracted period of low interest rate loans, used in part for aggressive growth, and have become increasingly leveraged – payback time looms however, with up to $1 trillion in debt due for repayment over the next four years. Rolling over the debt may prove more difficult as interest rates rise (due to moves in the US base rate) and market volatility creates uncertainty.

Primary focus areas for restructuring

The authors further find that the focus areas for restructuring have changed somewhat since last year. Debt/capital restructuring is now the primary reasons, up from 37% last year to 54% this year. Operational restructuring too has seen an increase, up from 37% to 49%. Management/leadership change has decreased in focus somewhat, falling from 20% last year to 12% this year. Implementing all three has fallen from 39% of respondents last year to 33% this year.

When is restructuring likely to commence

However, even with worsening corporate conditions, few organisations are embarking on restructuring projects until they find themselves in actual distress. In 2016, 28% of respondents said that they would move to restructure at the signs of stress, down from 69% of last year’s respondents. Many companies are instead opting to wait for signs of serious distress, as cited by 40% of respondents. A small fifth of companies take a proactive approach to restructuring.

According to the report’s analysts, a number of factors influence the restructuring decision making trend. One source of issue, is a lack of resources – either in terms of case or in terms of management’s time, which is reserved for other activities. The research further finds that there are two major contributing factors: “(1) lack of awareness that mounting stress was taking a toll on the business (as one respondent described it, an “if-it’s-not-broken-don’t-fix-it” approach); and (2) active disregard that a situation has become urgent enough to warrant such change even though clear indicators of distress have become apparent.”

The lack of swift action to stymie a possible long term business issue may have long term negative consequences for the business and its shareholders. When considering the extent to which the late start of a restructuring/turnaround negatively impacts the success of the overall reorganisation, 58% said it has a significant negative effect, 40% says it has some effect and just 2% says no effect.

Who holds restructuring influence

AlixPartners in addition asked respondents about the group which bears the most influence on restructuring of the organisation for the coming 12 months. The group that was the most likely to wait until distress, the CEO and other C-suit executives, are the ones whose decision counts – at 54%. The board of directors has lost considerable influence since last year, falling from 44% of respondents to 14%.

According to respondents, the use of third parties to implement and drive corporate restructuring has increased. 11% of respondent companies say a lender appointed Chief Restructuring Officer (CRO) will hold the most sway, up from 1% last year. While 5% says a company appointed CRO will be taking the lead.

"CROs are going to come into wider use because they have the experience and the outside perspective that corporate management teams may lack", comments a respondent at a Hong Kong–based investment bank. Other respondents reinforce that opinion, noting that the problem isn’t that management teams are incapable of managing the process, but rather, that the current financial or operational turmoil is leaving them blind to obstacles in the medium to long term.


More news on


8 tips for successfully buying or selling a distressed business

18 April 2019

Embarking on the sale of a business is one of the most challenging experiences a management team can undertake. Even serial dealmakers acknowledge that the transaction process can be gruelling, exposing management to a level of scrutiny and challenge through due diligence that can be distinctly uncomfortable.

So, to embark on a sale process when a business is in distress is twice as challenging. While management is urgently trying to keep the business afloat, they are simultaneously required to prepare it for scrutiny by potential acquirers. Tim Wainwright, an experienced Transactions Partner with Eight Advisory, says that this dual requirement means sellers of distressed businesses must focus on presenting their business in a way that supports buyers in identifying value, whilst simultaneously being open about the causes of distress. 

According to Wainwright, sellers of distressed businesses should focus on eight key aspects to ensure they are as well prepared as possible:

  • Cash: In a distressed situation cash truly is king. Accurate forecasting and day-by-day cash balances are often required to ensure any buyer is confident that scarce cash reserves are under proper control. 
  • Equity story and turnaround plan: Any buyer is going to want to understand the proposed turnaround strategy: how is the business going to enact its recovery and what value can be created that means the distressed business is worth saving? Clear presentation of this strategy is essential.
  • The business model: Clear demonstration of how the business model generates cash is required, with analysis that shows how financial performance will respond to key changes – whether these are positive improvements (e.g., increases in revenue) or emerging risks that further damage the business.  Demonstrating the business is resilient enough to cope with these changes can go a long way to assuring investors there is a viable future.
  • Management team: As outlined above, this is a challenging process. The management team are in it together and need to be consistent in presenting the turnaround. Above all, the team needs to be open about the underlying causes that resulted in the distressed situation arising.  A defensive management team who fail to acknowledge root causes of distress are unlikely to resolve the situation.

8 tips for successfully buying or selling a distressed business

  • Financing: More than in any traditional transaction, distressed businesses need to understand the impact on working capital. The distressed situation frequently results in costs rising as credit insurance becomes more difficult to obtain or as customers and suppliers reduce credit. Understanding how these unwind will be important to the potential investors.
  • Employees: Any restructuring programme can be difficult for employees. Maintaining open communications and respecting the need for consultation is the basic requirement. In successful turnarounds, employees are often deeply engaged in designing and developing solutions. Demonstrating a supportive, flexible employee base can often support the sale process.
  • Structuring: Understanding how to structure the business for the proposed acquisition can add significant value. Where possible, asset sales may be preferred, enabling buyers to move forward with limited liabilities. However, impacts on customers, employees and other stakeholders need to be considered.
  • Off balance sheet assets: In the course of selling a distressed business, additional attention is often given to communicating the value of items that may not be fully valued in the financial statements. Brands, intellectual property and historic tax losses are all examples of items that may be of significant value to a purchaser. Highlighting these aspects can make an acquisition more appealing.

“These eight focus areas can help to sell a distressed business and are important in reaching a successful outcome, but it should be noted that it will remain a challenging process,” Wainwright explains. 

With recent studies indicating that the valuation of distressed business is trending north. With increased appetite from buyers who are accustomed to taking on these situations, it is likely that more distressed deals will be seen in the coming months. “Preparing management teams as best as possible for delivering these will be key to ensuring these businesses can pass on to new owners who can hopefully drive the restructuring required to see these succeed,” Wainwright added.