Croatian government picks AlixPartners to advise on Agrokor restructuring

28 June 2017

AlixPartners have been selected as advisors for the restructuring of Croatian food-to-retail consortium Agrokor Group. Agrokor, which represents around 15% of Croatia’s GDP, entered into Extraordinary Administration due to the group’s unmanageable debt levels.

The financial crisis of the largest privately-owned company in Croatia, foods group Agrokor, has dominated recent headlines in the region, after global agencies began reducing the company’s credit rating. Croatia recently emerged as one of the main tourist destinations in the heart of Eastern Europe, but the Balkans' largest food manufacturer and retailer Agrokor is deemed equally as important to the economy as the country’s flourishing tourist industry.

The ailing group is Croatia’s largest employer, and their current predicament leaves some 60,000 employees in the region with growing doubts surrounding their future at the company. While the company’s revenue amounted up to around €6.7 billion, which is also 15% of Croatia’s GDP, the most recent data gathered by Reuters showed Agrokor’s debts still stood at a staggering 45 billion Kuna (€6.3 billion). The main part of their business is the supermarket chain Konzum, but the consortium also maintains a presence in the agriculture, food production, tourism and distribution segments.

With the future of further transactional payments still unresolved, and the mounting fears of rising unemployment in Croatia, the group also serves the needs of markets in neighbouring countries Bosnia, Serbia and Slovenia, suggesting a regional crisis could emerge if the situation does not improve.

HQ of Agrokor

Too big to fail

Amid these grim economic prospects, consulting firm AlixPartners have been appointed by the Croatian government to restructure Agrokor, after they expressed willingness to provide advice to the ailing food-procurer.

The company is a recognised leader in the corporate turnaround and restructuring industry, ranking as the fifth largest in the sector, however the firm had to ward off bids from five other major consulting forces. McKinsey, BCG, EY, KPMG and Roland Berger all had offers turned down though, as Ante Ramljak, who has been appointed by the government as the firm’s crisis manager, recommended AlixPartners for the job, with the firm subsequently winning the approval of Croatia’s Ministry of Economy, Entrepreneurship and Crafts.

Commenting on his choice, Ramljak said, “In competition with five other respectable international firms I believe we have chosen the best offer, which includes both quality and price. As a next step, we will prepare a restructuring plan and submit it for approval to creditors."

In cooperation with Agrokor, AlixPartners has placed emphasis on defining a plan alongside its main shareholders to arrange interim liquidity, cash forecasting and management processes, and defining a plan with the company and its main shareholders for all divisions and business units. The restructuring approach aims to ensure a continuous cash-flow, while preserving Agrokor’s ability to provide value to customers.

Since AlixPartners’ appointment, Agrokor has begun implementing the approach, and has managed to momentarily stabilise, in part through the securing of €480 million in debt-relief from bondholders headed by Knighthead Capital Management, with an additional €50 million in debt secured from suppliers. The secured debt allows the company to continue its operation going forward into the next season, while allowing for further internal restructuring and optimisation of its various businesses and their integration.


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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.