Corporate Restructuring
Qeeva Advisory is at your side, we ensure excellence meets experience in every facet of restructuring.
As of the time this was written, some businesses like Chateau Royal and even Zenith Bank have all pushed for a restructuring of their companies in Nigeria. The question is why? Join us as we explore this topic of corporate restructuring.
What is Corporate Restructuring?
One wonderful thing about a company that only a few business owners and senior executives know is that- It has a life, It can become stronger if properly catered for, but it can become weaker and less productive if poorly taken care of or it needs a change in its power engines. When the latter happens, the business requires an urgent need for corporate restructuring.
Company and Allied Matter Act(CAMA) of Nigeria understands this very well, hence, it gives companies a legal and distinct personality from the owners.
Corporate restructuring encompasses the comprehensive overhaul or modification of a company’s management, financial structures, and operational procedures with the aim of enhancing overall efficiency and effectiveness.
These transformative adjustments can yield several advantages, including heightened productivity, enhanced product and service quality, and cost reduction. Furthermore, such changes empower a company to more effectively meet the demands of its customers and shareholders. In some cases, restructuring initiatives may necessitate the closure of underperforming or financially unsustainable business units.
Why Do Businesses Need Corporate Restructuring?
Restructuring a company’s structure and financial holdings using inorganic growth tactics involves strategies like mergers, amalgamations, and acquisitions, which can serve as a lifeline for businesses teetering on the edge of collapse. The end goal of these organizational and financial restructuring methods is to cultivate synergy and increase efficiency.
Businesses engage in restructuring for a variety of reasons, with cost reduction being a primary objective. Achieving this goal involves implementing several methods:
- Cost Reduction:
- Eliminating Redundant Processes: Identifying and eliminating duplicate or inefficient processes within the organization.
- Consolidating Debt: Combining or refinancing existing debt to reduce interest expenses and debt-related costs.
- Streamlining and Optimizing Operations: Enhancing the efficiency of day-to-day operations to minimize waste and overhead expenses.
- Preparing for Acquisition or Merger:
Restructuring to align with a potential acquisition or merger, ensuring a smoother integration into the partner company. Restructuring plays a major role here because the merging has a lot of benefits. A good example is the CBN circular which mandated the resignation of senior bank executives. However, banks which have previously been restructured under holdings(which are a merger of both financial and technological institutions) were exempted from this law.
III. Adapting to Industry Changes:
Responding to industry-wide shifts or disruptions to maintain competitiveness and stay ahead of competitors.
Implementing organizational changes to enhance efficiency and adapt to new market dynamics, which may include:
- Adjusting the internal structure, such as adopting a flat hierarchy or restructuring departments.
- Ensuring compliance with new legislation through internal structural adjustments.
Other needs for restructuring include:
- Driving corporate excellence and gaining a competitive edge by embracing the transformative innovations ushered in by the realm of information technology.
- Harnessing economies of scale through expansion to tap into both domestic and international markets.
- Facilitating the recovery and rejuvenation of a struggling enterprise by offsetting the losses of the ailing unit with the profits of a robust company.
- Securing a consistent stream of raw materials and fostering access to advancements in scientific research and technology.
Why You Should Allow Qeeva Advisory to Help You in Corporate Restructuring
Qeeva Advisory is a renowned leader in delivering top-tier restructuring services.
- Our seasoned professionals at Qeeva Advisory boast an extensive track record of successfully managing complex restructuring endeavours.
- With a multidisciplinary team of experts, including Chartered Accountants, IT specialists, legal professionals, and company secretaries, we offer a comprehensive and holistic approach to addressing your restructuring needs.
How We Can Help In Corporate Restructuring
- Financial Advisory Services
Qeeva Advisory excels in providing comprehensive financial advisory services. Our team of financial experts, including chartered accountants and financial analysts, possesses the knowledge and experience to offer sound financial guidance. Whether it’s financial planning, investment strategies, or risk management, we tailor our solutions to meet your specific needs and help you make informed financial decisions.
- Mergers and Acquisitions (M&A) Advisory
We are your trusted partner for M&A transactions. With a deep understanding of Nigeria’s business landscape and regulatory framework, our M&A experts assist clients in identifying suitable opportunities, conducting due diligence, and navigating the complexities of mergers and acquisitions. We facilitate the entire process, from deal structuring to post-merger integration, ensuring a seamless transition.
- Restructuring and Turnaround Services
Qeeva Advisory specializes in helping companies navigate challenging times through effective restructuring and turnaround strategies. Our multidisciplinary team, comprising financial, legal, and operational experts, collaborates to develop and implement tailored restructuring plans. We assist in debt management, cost reduction, and operational optimization to restore financial stability and sustainable growth.
- Corporate Governance Consulting
At Qeeva Advisory, we offer comprehensive corporate governance consulting services, designed to enhance transparency, accountability, and compliance within organizations. Our experts provide guidance on aligning corporate practices with regulatory requirements, promoting ethical behaviour, and strengthening board structures. We empower businesses to foster a culture of responsible corporate governance.
- Business Valuation and Appraisal
We possess a proven track record in business valuation and appraisal services. Leveraging a combination of financial modelling, market analysis, and industry insights, we offer accurate assessments of a company’s worth. Whether for mergers, acquisitions, financial reporting, or strategic planning, our valuations provide clients with valuable insights for decision-making.
- Risk Management Solutions
Qeeva Advisory is at the forefront of risk management solutions. Our risk experts employ advanced methodologies to identify, assess, and mitigate risks that organizations face. We tailor risk management strategies to each client’s unique risk profile, helping them safeguard assets, optimize opportunities, and ensure resilience in an ever-evolving business environment.
Financial Modeling
At Qeeva Advisory, we excel in financial modelling services. Our experts meticulously assess the viability of your company and strategic plans through advanced financial modelling and projections. By doing so, we comprehensively evaluate risks and opportunities within various scenarios and planning options. Our financial modelling expertise empowers you to make informed decisions for your business’s success.
Distressed Interim Management
Qeeva Advisory offers seasoned and adaptable interim C-level management expertise to assist companies in effectively manoeuvring through restructuring or crisis scenarios.
Liquidity Management Services
At Qeeva Advisory, our expertise in liquidity management goes beyond assisting distressed companies. We excel in helping businesses prioritize and finance their operations through advanced cash flow forecasting, liquidity enhancement, and effective vendor negotiation strategies. Whether your company is facing financial challenges or seeking to optimize its liquidity position, Qeeva Advisory provides tailored solutions to meet your needs.
Types of Corporate Restructuring
Based on situational demands there are two types of corporate restructuring:
– Internal Restructuring
– External Restructuring
Internal Restructuring:
Companies often turn to internal restructuring as a strategic move, especially when they find themselves burdened by substantial debt. In such situations, the company aims to maintain its corporate identity and operations while avoiding any external intervention. This approach allows them to regain financial stability and control over their affairs.
Methods of Internal Corporate Restructuring
Arrangement of Compromise: An arrangement of compromise is a legal agreement between a company and its creditors or shareholders to settle outstanding debts or disputes. This mechanism is often employed when a company faces financial distress and seeks to negotiate with its stakeholders to restructure its obligations, potentially reducing the debt burden or extending repayment terms. This process is presided over by the Federal High Court and the Securities and Exchange Commission.
Arrangement on Sale: This refers to a strategic agreement within a company to sell a portion of its assets or divisions to another entity. Such arrangements are typically used to streamline operations, eliminate non-core functions, or raise capital.
This can help a company focus on its core business and improve its financial position.
Management Buyout (MBO): In an MBO, a company’s existing management team, often in collaboration with external investors or lenders, acquires the company from its current owners. This approach can lead to greater management control and continuity while allowing for potential growth or turnaround efforts. MBOs can be a means for management to take ownership and revitalize the company.
This process typically involves the following steps:
- Submission of an application to the Securities and Exchange Commission (SEC) seeking approval for the buyout, submitted by the company’s management team engaged in the acquisition.
- Provision of a copy of the special resolution passed by the company’s shareholders, endorsing the management buyout.
- Furnishing a copy of the management team’s composition participating in the management buyout.
- Presenting copies of the company’s Certificate of Incorporation and its MEMART (Memorandum/Articles of Association).
- Providing two copies of the company’s prospectus.
- Sharing a copy of the sale agreement formalizing the transaction between the company and the management team.
- Complying with any additional document requirements stipulated by the Securities and Exchange Commission, as may be periodically mandated.
When employees within the company conduct this buyout process, it is referred to as an “employee buyout.”
Employee Buyout: An employee buyout involves the company’s workforce purchasing a significant stake in the organization. This approach can enhance employee motivation, loyalty, and engagement while allowing the existing owners to exit or reduce their holdings. Employee buyouts can align the interests of employees with those of the company, fostering a sense of ownership and responsibility.
Share Restructuring: Share restructuring encompasses changes in the ownership structure of a company, such as consolidating shares, issuing new shares, or reclassifying shares to adjust voting rights or ownership percentages. These changes can be undertaken to address governance issues, accommodate new investors, or simplify the company’s capital structure. Share restructuring can influence the power dynamics and capitalisation of the company.
EXTERNAL CORPORATE RESTRUCTURING
External corporate restructuring involves reshaping a company’s structure, assets, or operations through interactions with external parties. This can include mergers, acquisitions, divestitures, joint ventures, and strategic partnerships. By engaging with outside entities, businesses aim to optimize their resources, expand their market presence, and enhance their competitive edge.
Under the external corporate restructuring, we have the following:
Takeovers: A takeover, also known as an acquisition or buyout, involves one company called the acquirer, acquiring a significant stake(at least 30% or full control of another company(parent company). This process leads to a fundamental change in ownership and often results in a shift in management and corporate direction while they both exist as different corporate entities. Companies pursue takeovers for various strategic reasons, such as expanding their product or service offerings, entering new markets, gaining access to valuable intellectual property, or eliminating competition. Takeovers are a means to achieve growth, diversification, and increased market share.
Purchases and Assumptions: Purchases and Assumptions, often abbreviated as P&A, represent a significant facet of external corporate restructuring. This method involves the acquisition of select assets and liabilities of a failing financial institution by a healthy institution, typically under the supervision of regulatory authorities. It is a strategy employed to stabilize the financial sector, protect depositors, and ensure the continuity of essential banking services. Before a P&A occurs, it must first be approved by the Federal High Court via application.
Cherry-Picking: In the external corporate restructuring, Cherry-Picking is a viable strategy tailored to struggling companies seeking to salvage their investments. This approach does not entail an all-encompassing assumption of the failing company’s liabilities by the investor. Rather, as the name implies, it grants the investor the opportunity to conduct a thorough examination of the failing company’s financial records, assets, and business operations and select the one it feels it can acquire.
The ultimate goal is to identify and selectively acquire those components with the potential to rejuvenate and return to profitability when seamlessly integrated into the investor’s existing business operations.
Mergers and Acquisitions
Mergers and acquisitions (M&A) are frequently used terms, but it’s essential to distinguish between them. In essence, a merger involves the fusion of two companies to create an entirely new entity, while an acquisition entails one company purchasing another, with no new entity formed. In mergers, the emerging entity might adopt a fresh identity or retain the name of one of the merging companies.
Why Companies Pursue Mergers and Acquisitions
Companies engage in mergers and acquisitions for various compelling reasons, including:
- Risk Diversification: M&A can help companies spread risk across diverse markets or industries, reducing vulnerability to economic fluctuations in a single sector.
- Stock Exchange Quotation: Joining forces with another company can make a firm eligible for stock exchange listing, unlocking access to capital and enhancing visibility among investors.
- Technological Advancements: Companies often seek M&A opportunities to access advanced technologies or innovative products that can boost their competitive edge.
- Management Expertise: M&A can bring together teams with complementary skill sets, fostering enhanced management capabilities and efficiency.
- Desire for Growth and Market Share: Companies may pursue M&A to rapidly expand their market presence and achieve growth targets.
- Compliance with Regulatory Requirements: In some cases, regulatory mandates necessitate industry consolidation, prompting companies to engage in M&A activities.
Whichever reason your company has to undergo a merger or acquisition, Qeeva will see through it with you.
Types of Mergers
Mergers come in three primary categories:
Horizontal Mergers: These involve direct competitors in the same line of business. For example, when two banks merge, it constitutes a horizontal merger.
Vertical Mergers: Vertical mergers occur between companies engaged in complementary but non-competitive business activities. An example is the merger of a packaging company and a manufacturing firm.
Conglomerate Mergers: Conglomerate mergers bring together companies with entirely unrelated business interests. This type of merger involves companies from diverse industries, uniting their resources and expertise for strategic purposes.
Other examples that are not in the above class and are sometimes practised in both restructuring include:
Divestment:
Divestment refers to a strategic corporate process wherein a company opts to sell off one of its subsidiary entities. This deliberate action often serves as a means to alleviate the company’s financial obligations, including debt reduction. In the course of divestment, the parent company typically initiates the liquidation or closure of the subsidiary’s operations. This enables the parent company to streamline its portfolio and allocate resources more efficiently.
Demerger:
A demerger is a restructuring approach in which a company divides into two distinct entities. During this process, the synergies that were previously shared between the two groups are apportioned separately. Companies choose to demerge as part of their overall restructuring strategy, aimed at alleviating financial burdens and addressing other pertinent factors. Through the demerger process, the company optimizes its capacity, which enables it to generate the necessary profits to sustain its operations effectively.
Reverse Merger:
A reverse merger presents distinct advantages for private companies. In this scenario, a public company acquires a private one, bypassing the exhaustive procedure of seeking a stock exchange listing for the private entity’s shares. This type of corporate restructuring is a strategic move aimed at enhancing the private company’s business prospects without the need to navigate the intricate process of initiating an initial public offering (IPO).
Process of Corporate Restructuring?
- Identify your business objectives
- Form an Action Plan.
- Execute and Supervise it.
– Identify Your Business Objectives:
- Begin by conducting a thorough analysis of your company’s current financial health, operational efficiency, and market positioning.
- Identify specific business objectives such as cost reduction, expansion into new markets, debt management, or improving profitability.
- Consider regulatory and legal implications unique to Nigeria, including corporate governance requirements and industry-specific regulations.
– Form an Action Plan:
- Develop a comprehensive action plan that outlines the steps needed to achieve your identified business objectives.
- This plan should encompass various aspects of restructuring, such as financial restructuring, organizational restructuring, or asset divestment.
- Ensure that your plan complies with Nigerian corporate laws and regulations, including those set by the Securities and Exchange Commission (SEC) and the Corporate Affairs Commission (CAC).
Execute and Supervise It:
- Implement the restructuring plan with a focus on maintaining transparency and communication with all stakeholders.
- Monitor the execution closely to ensure that it adheres to the action plan and timelines.
- Consider engaging legal and financial experts who are well-versed in Nigerian corporate law to navigate regulatory requirements effectively.
Corporate restructuring in Nigeria, like in any other country, is a complex process that demands careful planning and execution. The specific challenges and opportunities will depend on your company’s unique circumstances and the dynamic business landscape in Nigeria.
Qeeva Advisory offers you professional guidance to navigate regulatory complexities and ensure a successful restructuring process aligned with your business objectives.
What regulatory framework oversees Corporate Restructuring in Nigeria?
Corporate Restructuring in Nigeria is subject to regulatory oversight from various laws and agencies, including:
- The Federal Compensation and Consumer Protection Act 2019, is enforced by the Federal Competition and Consumer Protection Commission (FCCPC).
- The Companies and Allied Matters Act 2020, is administered by the Corporate Affairs Commission (CAC).
- SEC rules were established in 2013, and governed by the Securities and Exchange Commission and the Investment and Securities Tribunal.
- The Investment and Securities Act 2007, is overseen by the Securities and Exchange Commission (SEC) and the Investment and Securities Tribunal.
- The Federal High Court of Nigeria.
FAQs
- Is restructuring the same thing as winding down?
– No, restructuring and winding down are not the same. Restructuring involves making changes to a company’s operations, organization, or financial structure to improve its performance or address specific challenges while keeping the business operational. Winding down, on the other hand, refers to closing or liquidating a company’s operations entirely.
- When should a corporation carry out restructuring?
– Corporations in Nigeria should consider restructuring when facing financial distress, operational inefficiencies, changes in market conditions, mergers and acquisitions, or when they seek to optimize their business for growth and competitiveness. It is often prompted by the need to adapt to changing circumstances or achieve specific business objectives.
- How long does the restructuring process take?
– The duration of the restructuring process in Nigeria can vary widely depending on the complexity of the restructuring, the size of the corporation, regulatory requirements, and the specific objectives. Simple restructurings might take a few months, while more intricate ones could take a year or longer. It’s crucial to plan for an appropriate timeline and seek professional guidance to navigate potential delays and challenges.
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