The turnaround of a business under strain is critical when one considers not only the time, effort and money taken to build the business, but also when one considers the number of jobs that are reliant on any one business, says industry-agnostic turnaround implementation specialist Mars Hill Capital (MHC) Turnaround Director Marco Visser.

“We try to save as many jobs as possible in a distressed business, as this means we’re adding to the future of the economy (on a macroeconomic level). We see it as imperative that businesses that are under stress be saved,” he says, adding that this approach was born from the desire to “have a level of empathy” in what is typically considered a “cutthroat industry”.

This is also critical in a region such as South Africa, which struggles with continuously high unemployment rates.

“It’s essential that businesses that are struggling get the support they need so that as many jobs can be saved as possible, as there are a number of people that are reliant on that individual for that income.”

However, like many other industries, the Covid-19 pandemic had a detrimental impact on businesses trying to retain their employees, as Visser explains the pandemic has “highlighted issues that have been lying underneath the surface that have often gone unseen or unaddressed.”

The pandemic, he adds, has “brought these issues to the fore”, and he notes that while there is “no shame” in having a business that’s in distress, “the real issue is an issue of leadership acting timeously.”

Visser therefore encourage business owners or CEOs to, when they see the warning signs, “have the wherewithal to ask for help” and “find the right kind of expertise to help the business”.

Companies like MHC often get called in to assist too late, which Visser notes adds a layer of complexity to the implementation of the business’s turnaround strategy.

MHC’s value offering, in particular, is a very hands-on and pragmatic approach – MHC will often take control of the business, or take on senior management roles, to develop and implement a turnaround strategy specific to the business, which ultimately assists the business’s management team to “lead the business into the future”.

Visser refers to a recent case which exemplifies MHC’s pragmatic approach. MHC intervened in a large South African manufacturing business which had been losing R100 million per annum, and after MHC’s assistance, it’s now recording a yearly profit of R65 million in just over two years.

“We’ve now left that team with a sustainable business, and a stable management team that’s able to lead that business into the future, and that’s a great example of what hands-on, pragmatic leadership can do,” he comments.

CRITICAL SUCCESS ELEMENTS

From a financial point of view, while financial controls are imperative, Visser states that a “strong leadership team”, with a particular focus on the strength of the CFO and their team, is just as critical.

“You also need a clear focus on cash generation, on margin preservation and, if possible, on margin improvement,” Visser says, adding that “creating a world class organisation starts at the top.”

Should a company not have a strong CFO, as a consequence, Visser says “the business will ordinarily struggle in terms of cash management.”

In addition, he highlights that as a basic minimum requirement critical metrics need to be constantly monitored: net working capital analysis, key account management, cash flow analysis, operational and labour efficiency, and more, should be mandatory.

To have a robust defense system, Visser encourages businesses to work on scenario analysis, and to have stress testing built into the company’s modelling, as well as an understanding of which suppliers are critical to the supply chain. In this regard, he suggests businesses should be aware of their suppliers’ risk of default and what the level of the company’s dependence on those suppliers is.

“It’s about having a holistic view of your business. Risks to one’s business can’t be appropriately understood in isolation but should rather be considered in conjunction with the key relationships it has in both its supply chain and with its key customers, considering both the cost as well as the income dependencies. That’s why stress testing and scenario analysis are critical,” Visser elaborates, noting that “more often than not” businesses that are under stress, often have “some form of lack of maturity in their financial modelling and in their financial controls”.

YEAR AHEAD

Commenting on what MHC expects for the remainder of 2022, Visser notes that “it’s difficult to give a line of sight of the pipeline”.

The businesses the company assists generally have a minimum turnover of about R500 million a year.

“Those (turnaround strategies) tend to be slightly slow burning and are more complicated restructures. It takes a lot of time, effort and energy to get that right,” Visser says.

This time and effort, he adds, falls in line with MHC’s tag line of “Capital with a Conscience”, and the company values of “excellence, integrity and heart”.

As part of this, the company also donates 20% of its yearly net profit to non-profit organisations as a means of “paying it forward” and assisting those who need it most.

These registered charities, from around the world, are focused on poverty alleviation, job creation, the elimination of gender-based violence and the reversal of climate change.

“We’ve lived up to that standard every year,” he concludes.