THE GREAT RESTRUCTURING OF 2020
What we know so far!
- The Chinese Coronavirus has fundamentally changed the world and United States economies with unprecedented speed.
- In some cases, those changes will be temporary. In many cases, those changes will be permanent.
- The unintended and unforeseen consequences of the crisis will ripple through all aspects of the world and United States economies for many years.
- The economic relationships between debtors (individuals, companies, governments) and creditors (vendors, lessors, lenders, employees) and owners (equity holders) are now fundamentally unbalanced, just as has occurred in all previous financial crises.
- As in the Dotcom Crash, the 9/11 Crash and the 2008 Crash, those economic relationships will be rebalanced by renegotiation, sale, bankruptcy and liquidation, so that assets are redeployed, asset value is monetized and maximized and economic activity can continue. We know that there will still be airlines, travel companies, restaurants, oil companies, auto manufacturers, etc. We do not know which companies will survive or who will be their owners. For example, Boeing will likely still exist, but Boeing equity and debt holders may be hurt severely.
- The world has survived far worse and has revived strongly. For example, World War I, followed by the Spanish Flu, followed by the huge economic growth of the 1920’s. Humans are wired to adapt to and to overcome hardship. We still have the land, resources, infrastructure, intellectual property, technology and talent that we had a month ago. Huge economic dislocation can also spur huge creativity, energy and innovation.
- There will be major economic losers, but also major economic winners.
- The United States is self-sufficient in food and energy and is the largest market and the greatest economic and political safe haven in the world. We are the best-positioned country in the world to emerge stronger than before.
What we do not know!
- How bad the Chinese Coronavirus will get.
- How long it will take for it to resolve. For example, the 1918 Spanish Flu came in waves and there is high expectation that the coronavirus will reappear this fall.
- How bad the economic situation will get before it stabilizes, both in the short term and long term
- The effect of historically unprecedented government economic stimulation and significant increase in the deficit.
- The availability of cash to sustain under-performing companies and businesses.
- How young CEO’s, investors, bankers will react to a situation that they have not seen or lived through before.
What happens next?
- Everyone we know is sheltering in place and is shocked at the magnitude and speed of this world change. People need time to adjust to a radical new reality, and they have not yet had that time.
- It is almost impossible to make any future predictions, however the most immediate business decisions will be critical given the extreme level of uncertainty.
- We expect that the world health and economic situation will become clearer over the next few months. We expect to see a giant wave of economic restructuring that will last several years.
- Early business crises will be driven by lack of cash. Based on our experience in several previous economic crashes, the speed with which business owners and managers face reality, preserve, protect and forecast cash and take effective action will determine which businesses survive and which die.
WHAT YOU CAN DO AS A BOARD MEMBER, INVESTOR, LENDER OR STAKEHOLDER …
- It is critical for companies, investors and lenders to face reality and act quickly. When things are going bad, waiting seldom improves the situation. In over 40 years of crisis management and restructuring experience we have never seen a board of directors act too quickly when faced with a crisis. We have all too frequently seen a board act slowly or not at all.
- Implement cash flow, receivables and inventory reporting so that you are alerted to problems early.
- Gerbsman Partners believes that companies, investors and lenders should to call for assistance early. The earlier professionals can get involved in the process, the better the potential outcome in maximizing enterprise value. Again based on experience, boards, investors and lenders request assistance only after a company has little cash or is out of cash. Many more options exist to maximize enterprise value if a company has some running room.
- Focus on the control, preservation and forecasting of cash on a weekly, monthly and quarterly basis.
- Require “bottoms up” forecasting for all aspects of cash, revenue and expense. Have the CEO and CFO defend all numbers.
- Hold the CEO responsible and accountable for performance. Re-forecast your business plan based on the reality of “what is” today with large margins for uncertainty.
- Communicate frequently with all parties at interest. Check that the CEO is providing leadership, motivation and morale to the management team and employees.
- Review all companies in your portfolio. Identify and define action plans to fix weaknesses now.
! CALL GERBSMAN PARTNERS NOW AND GET AHEAD OF THE CURVE.
Crisis Management and Restructuring to Maximize Enterprise Value is our Business!
ABOUT GERBSMAN PARTNERS:
Gerbsman Partners focuses on maximizing enterprise value for stakeholders and shareholders in under-performing, under-capitalized and under-valued companies and their Intellectual Property. Since 2001, Gerbsman Partners has been involved in maximizing value for 103 technology, medical device, life science, digital marketing, information & cyber security and solar companies and their Intellectual Property and has restructured/terminated over $810 million of real estate executory contracts and equipment lease/sub-debt obligations. Since inception, Gerbsman Partners has been involved in over $2.3 billion of financings, restructurings and M&A transactions.
Gerbsman Partners has offices and strategic alliances in San Francisco, New York, Virginia/Washington DC, Boston, Europe and Israel.
Steven R. Gerbsman – Principal steve@gerbsmanpartners.com
Robert R. Tillman – Member of Gerbsman Partners Board of Intellectual Capital
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