Stakeholder Management Flashcards

What is the role of an 'investment banker' in a turnaround engagement?

Answer: To advise on strategic alternatives, run sale processes, and negotiate financing solutions

Investment bankers in restructuring advise on M&A alternatives, run competitive sale processes (including 363 sales), and help structure and negotiate new financing for distressed companies.

What is 'board oversight' particularly critical for during a corporate crisis?

Answer: Ensuring fiduciary duties are properly discharged as the company approaches and enters insolvency

As a company approaches insolvency, directors' fiduciary duties shift to include creditors; robust board oversight ensures directors act appropriately and avoid personal liability.

What is a 'management buyout' (MBO) in the context of a distressed sale?

Answer: When existing management acquires the company, often as a restructuring exit strategy

In a distressed MBO, existing management — often backed by private equity — acquires the business as part of the restructuring, betting their operational knowledge gives them an edge.

Why is lender confidence critical to preserving a company's value during distress?

Answer: Loss of lender confidence can trigger acceleration of debt and collapse of the company faster

If lenders lose confidence and exercise their rights — accelerating debt, enforcing collateral — it can force a company into bankruptcy faster and at lower value than a managed process would achieve.

What is 'strategic buyer' versus 'financial buyer' in a distressed M&A sale?

Answer: A strategic buyer is a company seeking synergies; a financial buyer is a private equity firm seeking returns

Strategic buyers are companies that can achieve synergies by combining with the target, often justifying higher prices; financial buyers like private equity firms focus on standalone returns and turnaround potential.

What is 'ESG risk' relevant to in a turnaround context?

Answer: Environmental, social, and governance factors that can affect a distressed company's ability to attract investors or customers

Poor ESG credentials can limit a distressed company's ability to attract new investors, buyers, or customers, making ESG considerations increasingly relevant in modern turnaround situations.