What is corporate restructuring?

Corporate restructuring is a process, where the entity modifies its capital structure or operations. Corporate restructuring is preferred, if there are significant problems in the financials of the corporation and to enhance their performances. Change in ownership is also one of the causes for corporate restructuring. Financial and legal experts are hired to assist in the process.

Reasons

The reasons for corporate restructuring are as follows −

• Change in strategy.

• No profits for a long time.

• Reverse synergy.

• More cash flow requirements.

Characteristics

The characteristics of corporate restructuring are as follows −

• Improves balance sheet.

• Reduction of staff.

• Change in management.

• Disposing assets (underutilized).

• Outsourcing.

• Operational shift.

• Reorganizing functions.

• Labor contracts renegotiations.

• Debts rescheduling.

Aspects

The aspects to consider for the corporate restructuring are as follows −

• Legal/procedural issues.

• Accounting issues.

• Cultural synergies.

• Funding and valuations.

• Tax and stamp issues.

• Compensations etc.

Types of strategies

The types of strategies used in corporate restructuring are as follows −

• Merger − Combining of two or more entities into a new entity.

• Demerger − Two or more companies combined to form a single company for synergy benefit.

• Reverse merger − Unlisted companies converted into listed companies without going for initial public offering (IPO).

• Disinvestment − Sell out liquidates/subsidiaries.

• Acquisition − Company acquires another company by taking complete control.

• Joint venture − Two or more companies formed into single companies for financial act.

• Strategic alliance − Two or more companies will go for a collaborative agreement.

• Slump sale − Companies transfer one or more undertakings.

Types

The types of corporate restructuring are as follows −

• Financial restructuring − Alters equity, debt servicing, equity and gross holding patterns to get profits and sustain in the market.

• Organizational restructuring − Change in hierarchy, employee downsizing, redesigning job descriptions/posts etc.