PA Consulting advises Scope on charity's restructuring

24 January 2019 Consultancy.uk

Global professional services firm PA Consulting was called in by Scope to help lead an organisational change programme, as part of a five-year strategy. The disability charity did not bring in the level of donations in the year of 2016/17 that it had planned for, leading to the sale of a number of its assets since.

Scope is a national disability charity which was formed to campaign to challenge and change negative attitudes about disability, while providing direct support services. The organisation was founded in 1952 by a group of parents and social workers who wanted to ensure that their disabled children had the right to a decent education. However, a decline in the level of donations to the charity has forced the organisation to realign moving forward.

The need for organizational change has seen the charity spend £282,978 on advice from PA Consulting. The charity was charged a further £180,000 by the company for the secondment of Kerrie O’Connor to Scope to lead work on the overall change programme for Scope's five-year strategy.

PA Consulting advises Scope on charity's restructuring

Part of this strategy saw Scope auction off its regulated and day services provision wing. The transaction generated £23 million for the charity, while almost 1,600 staff transferred to the private sector firm Salutem Healthcare as part of the deal, affecting services at 51 locations in England and Wales. Scope also made a profit of £14 million on the sale of its London offices and other properties throughout that same financial year.

Without including the £23 million sale to Salutem, Scope's income for the year ending 31 March 2018 was £94.6 million, compared with £97.8 million in the previous year. Its income included £58.7 million on continuing operations and £35.8 million on discontinuing operations, which Chair Andrew McDonald suggested illustrated the need for the organisation’s "transformational year".

In his 2017/18 Chair Report, he wrote, "Staying as we were was no longer good enough. We needed to act in order to achieve greater impact and reach more people, to focus our energies and resource towards what mattered most. We needed to create an organisation fit for the future."

PA Consulting’s Head of Consulting sectors, Andrew Hooke, is also a Scope trustee. The same is true of Joe Barrell, Managing Director of Eden Stanley, a PR advisory firm which Scope paid £116,649 for audience insight work. A spokeswoman for the charity assured the press that the appointments of PA Consulting and Eden Stanley were undertaken in line with governance procedures and Charity Commission guidelines, however. She added that PA Consulting went through a full procurement process to be listed as a preferred supplier, while Eden Stanley was appointed after a competitive tender, and a decision by the board of trustees.

Related: Fee income of PA Consulting Group grows 6% to £400 million.

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8 tips for successfully buying or selling a distressed business

18 April 2019 Consultancy.uk

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.