Corporate Restructuring Considerations During a Merger

The term “Corporate Restructuring” often sends chills down the spines of employees, shareholders, and even management, as it is associated with difficult decisions. It includes reshuffling the organizational structure, resetting the corporate hierarchy, changing the company’s operations, and reviving the balance sheet assets and liabilities. All this requires major layoffs, divesting of departments, and reallocating human and financial resources.

Corporate restructuring aims to help businesses operate differently, unlock potential, shed excess baggage, and focus on growth. As a result, many businesses restructure to become competitive, turn losses into profits, and adapt to market changes after a merger and acquisition (M&A).

The Need for Corporate Restructuring After a Merger

An M&A is one of the biggest changes a company undertakes, combining two different business operations, work cultures, and leadership. From the board of directors to the last employee, from company policies to branding, everything gets a new look. M&A always has a reason, whether it’s cost synergies, market synergies, economies of scale, vertical integration in the supply chain, killing competition, or technology integration.

Corporate restructuring helps smooth the merging process and realize synergies. It ensures the best of both companies is sustained, redundancies are removed, and processes are streamlined. Restructuring is not optional but necessary in a merger to improve the chances of success, as it addresses major risks that can push mergers toward losses.

Organizational Restructuring to Set a Leadership Structure After a Merger

During a merger, the two companies decide how to structure the integration: one company absorbing the other, becoming an independent subsidiary, or creating a new entity. Depending on this legal structure, other decisions will follow. For instance, who will lead the new company, the leadership structure, and changes in the board of directors.

Challenge: At this level, the biggest challenge is balancing all stakeholders’ interests and reaching common ground acceptable to everyone. If major shareholders are unhappy with the proposed merger, they can create bottlenecks and make the deal inefficient. Also, who will lead the new business is a sensitive topic, as the employees and other stakeholders should accept the management change.

How Organizational Restructuring Can Help: Organizational restructuring helps realign a company’s internal structure and organizational chart by altering the leadership hierarchy, redistributing employees, and removing redundant positions. To smooth this change, it streamlines processes and removes redundant steps, making every resource count. It could decentralize or centralize decision-making, depending on the situation.

Operational Restructuring to Achieve Operational Efficiency

A merger could create overlaps across several functions, new policies, and changes to pay structure, work style, and reporting structure. A merger integrates two company cultures, and if they are polar opposites, it can be difficult to work together.

Challenge: If employees are receptive to change, it could hamper productivity. Instead of fostering healthy competition, a merger could build anxiety around job security.

A legacy grocer that enjoys the loyalty of its old customers merging with a new-age online grocery company that appeals to a younger crowd is a classic example of the cultural gap. Everything from branding and marketing to pricing, strategy, and distribution differs, even when they operate in the same business.

How Operational Restructuring Can Help: Operational restructuring involves changing how a company performs its core business activities, such as manufacturing, marketing, servicing, distribution, and more. The restructuring takes the best from both companies, integrates the winning approaches, and eliminates unprofitable or weak-performing products/services. It could mean new reporting heads, removing duplicate roles, departments, and real estate property (office buildings, factories, distribution centres). Keeping open communication about the change can reduce employee anxiety and give departing employees time to find a new job or upgrade their skills to meet changing job needs.

Financial Restructuring to Strengthen Balance Sheet

A merger is often one of the most expensive investments a company makes. Whether the M&A is an all-cash deal, cash-stock deal, or an all-stock deal, the integrated company’s balance sheet will take a hit. Debt could spike as the acquirer takes on both debt and equity from the acquiree.

Challenge: If a company has significant debt, tax liability, or ongoing litigation, it could reduce the value of the merged company.

How Financial Restructuring Can Help: Financial restructuring will involve selling duplicate or redundant equipment, products, real estate, or business segments. The company could use the proceeds to reduce debt. Financial restructuring also includes consolidating debt and renegotiating interest, converting debt into equity, and using the integrated company’s higher valuation to secure better terms with suppliers and creditors. They can also monetize accrued losses from the two companies to reduce tax and sell or revive underperforming projects to unlock trapped cash.

How to Undertake Corporate Restructuring

After the merger, the company can create an integration team with managers or executives from each department and company. Because they know the ins and outs of their departments, they can help shape a new structure, policies, and leadership team acceptable to both companies.

A team of professional accountants, tax consultants, business advisors, and transition leaders can help you integrate operations, implement the change, monitor performance, and make further adjustments needed during execution. Case studies show how corporate restructuring or strategic M&A can help turn around a company, how a merger can unlock a competitive edge, and how divestiture and debt restructuring can unlock growth.

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