What Is Capital Restructuring?

Enterprise reorganization is the process of reconfiguring the company's capital, assets, labor, technology, management and other factors to build a new production and operation model so that the enterprise can maintain its competitive advantage in the process of change. Corporate reorganization runs through every stage of corporate development. Enterprise reorganization is a process of reorganization, rectification and integration of enterprises based on corporate property relations and other debts, assets, and management structures, in order to improve the overall management and strategic status of enterprises and strengthen their competitiveness in the market To promote corporate innovation.

Corporate Restructuring

Corporate restructuring is right

Because it is closely related to corporate financing channels and capital structure, the choice of payment methods in corporate reorganization will have a significant impact on the operations of the parties to the reorganization and the interests of their shareholders, so it is also another focus of the parties concerned or persistent in the reorganization negotiations. problem. Generally speaking, the payment methods in the restructuring mainly include cash, stocks, bonds, and financial leverage. Among them, cash payment is to pay cash to the shareholders of the other party, including one-time payment and installment payment;

Stock payment means that the restructuring party does not pay cash to the restructured party, but instead issues new shares or direct placement of new shares to them; bond payment refers to the issuance of bonds to the restructured party, or the use of issued bonds in exchange for the stock of the other shareholder; Leverage refers to the restructuring party's completion of reorganization through borrowing, that is, increasing its own financial leverage, such as leveraged acquisition in corporate mergers and acquisitions. Various payment methods have different requirements for corporate financing capabilities. In practice, the restructuring party should combine its own cash capabilities, asset liquidity and ability to raise funds outwards, as well as the other party's requirements for payment methods and other factors. A payment method that is beneficial to you and can be recognized by the other party.

In China's corporate restructuring practice, the most commonly used are cash payment and stock payment methods. In contrast, the use of financial leverage for corporate restructuring has not been widely recognized and familiar with people. This is due to the limitations of China's current financing. decided. But the good news is that financial leverage payments have begun to take shape in recent restructuring markets. It is reasonable to believe that with the continuous improvement of the market economic environment, the gradual improvement of laws and regulations related to corporate restructuring, the growing concept of corporate risks and benefits, and the gradual adjustment of bank policies, the financial leverage payment method will become the main payment in future restructuring activities. the way. ^[2]

Choice of pricing methods for corporate restructuring

Under the terms of paid transactions,

There are two main drivers of corporate restructuring:

One is to maximize the existing

First of all, with the entry of the WTO, the rules of our game will change radically,

1. Equity custody

Equity custody is corporate

Introduction to corporate restructuring

Specific options for corporate restructuring:

Business reorganization

1. Change management. When the existing management is relatively weak and the enterprise is lacking in vitality, it is necessary to update the management or at least give the management a new supplement. In general, management candidates should have the following qualities:

(1) Industry experience (2) Trimming experience (3) Thinking change (4) Leadership, ability to guide and direct.

The new management should have a new perception of the company's strengths and weaknesses, work out new strategies for rebuilding the company, and lead the company to continue its development. In most cases, traditional ways of doing business need to be changed, and a culture that embraces change should be promoted.

2. Strong financial control. In almost every company's troubled situation, its financial control and financial management are either weak or non-existent. If new management really wants to take control of troubled companies, they need a completely effective budgeting and reporting system. Management is then required to use this system as a daily tool to monitor the company's business and make critical decisions. In addition, appropriate specifications should be established to monitor the business and develop an early warning signal system so that problems can be identified and resolved early. Finally, auditing an enterprise by an outside accounting firm should be seen as a key complement to the company's management and control. Perform high-level audits to improve accounting procedures and systems and ensure the accuracy of reported results.

3 Organizational change. In the case of trimming, communication between key management and individuals in various departments must be open, and all information must be fully communicated. In addition, the driving force of this change is not simply the creation of a new organizational structure table and the re-designation of the declaration process, but rather the implementation of open communication methods and many steps oriented by communication activities.

For managers, in the process of organizational change, it is important to mobilize employees to actively participate in organizational change, and to ask questions from the perspective of employees. For example, what do people think of change at a certain stage? What do they want to know? What do they require? When these issues reach employees, leaders must quickly make adjustments to organizational change processes and methods based on employee feedback. For employees, they want to know the plan for change, to know the latest progress of change, and to solve the "I" changes and the content of "I" work. The best results can only be achieved when the vital interests of employees are closely integrated with the company's vision.

4 marketing. Companies with weak leadership and in crisis often do not have well-defined or well-executed marketing strategies. A company's sales force must be driven by performance-based measures. These performance measures must work for both the goals and the bottom line of the business. Measures to improve and strengthen the motivation and efforts of the company's sales team: (1) sales targets and related marginal revenue targets should be well defined and planned; (2) sales areas should be clearly defined and implemented.

5. lower the cost. The direct goals of cost reduction strategies are to increase the profit margin of the company and generate more cash flow. The ultimate purpose of reducing costs is to improve the company's cost position relative to competitors or improve efficiency, and to match overhead to total sales. The methods that companies can use to increase profit margins are usually guided by pricing and sales decisions or reducing costs. In the case of losses, profit margins are more sensitive to reducing costs than increasing prices, although cost reduction strategies often take longer than increasing prices to make the form of increased profit margins manifest.

Corporate recapitalization

1. Asset Reduction Strategy

In the case of restructuring, companies may seek to adopt strategies to reduce asset investment. In the reduction strategy of companies in the business sector, such assets may include reductions in fixed assets or reductions in investment. Reducing or withdrawing these assets may be a quick way to generate cash and focus management on the company's core business. However, these decisions should never be made hastily, and these decisions must always be supported by appropriate analysis and planning. It is very important to realize that the sales value of these assets will be lower than the market price under normal sales conditions when the company is in a downturn.

After identifying the company's core business, the following questions need to be answered first:

(1) What are we trying to sell?

(2) Why should we sell this asset?

(3) Who are the potential buyers?

(4) How valuable is this business to us?

(5) What is the value to potential buyers?

(6) What do we give up when we sell this business?

(7) What do we gain by selling this business?

Once the decision to sell an asset is made, appropriate steps need to be taken to ensure that all potential buyers are identified and that appropriate information is provided to these potential buyers so that they can make their own investment decisions. Valuation then needs to be made, followed by contact with investors. If you are selling an independent business unit, you will most likely need to produce a comprehensive prospectus to provide information to potential investors in the most objective way.

2. Attract new funding

A key area that needs attention is attracting new capital for businesses. These funds can be given in the form of equity or in the form of new loans (or variants of the two). But it is necessary to quantify it first, then outline the use of the funds, and determine a plan for the company's renovation.

(1) Detailed financial forecasts. A detailed financial forecast is essential for a proper restructuring plan, and for the next few months, the forecast is best made monthly (especially if the business is seasonal), and then for years, quarterly. In this forecast, the role of the restructuring steps, and the associated costs and financing requirements, should be described with sufficient detail and accuracy, and any plan should be based on historical financial results.

(2) Looking for investors. There are many types of investors who may invest, merge or acquire the company. These investors can be: the company's existing suppliers or customers, private investment groups, competitors in the same or similar industries. Another source of investment that should be considered is foreign investors looking to expand their business in China.

(3) Required information (recruitment letter). Investors need to have sufficient information to make an accurate assessment of the company and its future development prospects, and will require relevant companies such as customer base, product lines, relationships with sellers, markets and competition, open orders, production processes , Financial forecasts, and more.

(4) Valuation. Of course, specific investors can make their own valuation of the company, but the company itself should also make a self-evaluation and be prepared to negotiate the selling price of the interests to be sold. Due to different circumstances, the valuation methods that need to be applied will also be quite different.

3 debt reorganization

When no new funds are injected, or when new funds are injected, the possibility of debt restructuring can be sought. In fact, for a company with an excessively high leverage ratio, if the company wants to reach a profitable level or a capital preservation level, such reorganization is likely to be imperative. The first step in debt restructuring is to determine the level of borrowing that the business can afford. This analysis should be conducted after a review of the company's financial planning, which also takes into account the main variables that affect business performance.

4 merger

Depending on the relevant industry in which the enterprise is located and its advantages and disadvantages, it may also merge or acquire other state-owned industries that supplement the enterprise's advantages (or in turn be acquired). For example, a company's comparative advantage may be in having a strong distribution channel and marketing team, but it may be weak in product production (or does not have its own production facilities), while another company in the same industry has a strong production Facilities but lack a strong marketing and distribution department. It is also possible to create integration effects and create a more balanced and efficient enterprise (that is, one plus one equals three). These mergers should be given a careful analysis and a detailed description of both benefits and integration effects from a qualitative and quantitative standpoint. In addition, organizational culture and style should complement each other. If duplication exists, alternative means to reduce duplication should be studied.

5. Access to the public market

Companies that are experiencing financial difficulties are unlikely to enter the public market immediately, but once they are stabilized or restructured, they may seek to enter the public debt or equity market.

In fact, many foreign direct investment companies will look at the possibility of entering the public equity market when they analyze the company as a possible investment object. The way is to withdraw their investment through an IPO. Two to three years after its investment, it depends on its specific funding guidelines.

If the affiliated business department is strong and the enterprise's leverage ratio is too high, it can adopt public equity methods to adjust the capital structure for the company and enhance its profitability by reducing interest expenses. This can also be used to greatly increase the value of the total shares held, because the company's stock trading process will produce greater liquidity.

It should be noted, however, that any company wishing to participate in an IPO must have a strong foundation and the future prospects of its business should be clearly defined and achievable.