Due diligence is becoming a tool for companies’ long-term success. Andrew Stoneman explains.

Maintaining solvency and growing a successful business requires many attributes – including hard work, skill and determination. But that’s not all. Against today’s business backdrop of increasing regulation and competition, keeping on top of this as well as the day-to-day operational challenges of running a business, places even greater demands on management. It’s easy to see how companies can quickly find themselves in a position where they need to bring in expert help to regain control and put their business back on track.

This is where the restructuring or turnaround specialists are brought in. Once considered the solution of last resort, restructuring and turnaround no longer carries with it the negative connotations of yesteryear. It’s evolved as a far more constructive and innovative way of contributing positively to a company’s future outlook and success. This is good news for UK business and a reflection of how the restructuring and turnaround industry has worked hard to gain the gravitas it deserves. For many business people it now has a strategic role to play for a company’s long-term success.

While, the causes of corporate distress can be numerous and varied, little has really changed over the years. Poor management, poor cashflow and fraud continue to prevail in many cases and the burden of keeping up with external pressures such as those outlined above are also taking their toll as managers take their eye off the ball.

But what else is driving the growth in corporate restructuring?

Corporate borrowing has increased phenomenally and MBO and leveraged finance markets in the UK and Europe have hit record highs in the past two years. A lot of cash is chasing a dwindling number of deals; new market entrants and market saturation means competition for deals is extremely competitive. More marginal deals are being underwritten, highly leveraged deals are more likely to fail within two years and the ‘rescue culture’ environment has lessened the appetite for insolvencies.

Thankfully, messages about acting quickly and recognising the warning signs that denote potential trouble ahead are being heeded and it is a tribute to UK business that this is now happening. It’s also good to note that heightened awareness and greater transparency within many organisations has led to a greater self awareness that is itself promoting the ‘act early’ message.

Turnaround specialists today are more empowered than ever before to bring a fresh, strategic input towards a swift and workable resolution to a company’s particular dilemma. With a kit bag brimming with viable and increasingly innovative solutions, they have become a highly valuable part of a company’s armoury for moving forward. All this, of course, provided that senior management is prepared to sit up and listen.

As to the future? Pan-European restructurings are increasing as are restructurings for SME companies in the UK. A number of industry commentators believe there will be an increase in restructuring/market correction later this year, heading into 2008 - a view we agree with. We have also witnessed the arrival of several high profile US restructuring firms in Europe during the past few years and some would argue that this alone is evidence of increased restructuring activity and that more is around the corner.

Being able to tap into the skill base and network of restructuring specialists is vital for viable and loss making businesses. If you are looking for comfort in a storm or want to shop in the sales it is best to be well networked as there is always an opportunity.

Andrew Stoneman is a partner at Menzies Corporate Restructuring
www.menzies.co.uk