The New Contingency Planning
Over the past several decades, the restructuring advisory industry has changed in a variety of ways. In the 80s, there were really only a handful of turnaround and restructuring advisors that operated in this small, cyclical and lucrative industry. Back then, pioneers discovered that there was no sales cycle, clients needed the best resources in the country and the market yielded very high billing rates. In addition, restructuring engagements had very long tails which resulted in millions of dollars in professional fees.
Because of these characteristics, many consulting firms realized that they too should be providing turnaround and restructuring services. Today, almost every major consulting firm has a restructuring group. So, what was once a small, cyclical and lucrative industry is now very competitive.
In addition, the landscape of the bankruptcy process has changed. One example is General Motors. At the time, the General Motors bankruptcy was the fourth largest in U.S. history, and the company was only in bankruptcy for 40 days. This is one of many examples of either pre-pack, out of court, or expedited in court process which seems to be the norm these days.
With this change in landscape comes the need for a change in how restructuring advisors approach potential clients. Today, consumers of restructuring advisory services are now looking for a more cost-effective, expeditious way to work through a process.
One area to focus on is the contingency planning process. During this initial phase of the restructuring process, companies must provide several documents to satisfy court requirements. Many of these documents require financial and operational company data, and when deploying a traditional and more manual method, working through this process can take a lot of time. However, this process shouldn’t be priced at a premium or take so long. I am aware of situations where companies spent millions on contingency planning efforts. Now, there are several benefits for companies to work through the contingency planning process even if they avoid an in-court bankruptcy process. I’ve always said, “a binder full of First Day Motions can provide a company with a significant amount of leverage as they enter into negotiations with lenders.” However, I believe there are ways to do more with less and create the same value to clients with the use of technology.
In addition, providing clients with the required documentation and analysis for bankruptcy preparation is a valuable exercise especially if you do it right the first time. By understanding the company’s operations, technology platform and legal structure early on, it will help create efficiencies and reduce costs post filing.