Restructuring in the healthcare sector publication

Restructuring in the healthcare sector: what does the future hold?

What steps can they take to capitalise on growth opportunities?

What steps can operators take to manage risk?

For a long period during lockdown, many businesses in the adult social care sector have been focused on survival. With headwinds continuing, management teams must ensure they have mapped out potential risks, put in place robust contingency plans and built a clear roadmap for managing their future operations. The most important first step for businesses across the sector is building strong forecasting. Cashflow continues to be vital for developing resilience. Management teams will need to ensure they have detailed forecasts of their cash position and their working capital requirements, and how each could change over the weeks and months to come. Within this, it will be essential that they factor in any deferred liabilities – such as rent – as best as they can, considering a full range of potential scenarios to help navigate uncertainty. Should any shortfalls be identified, management teams will need to carefully review their options for moving forward. Once a business understands its cash position, it can then consider ways to give itself extra headroom. Here, management teams may need to consider reducing their business’ cost base in order to drive efficiencies. This can be done by reducing any discretionary, non- essential spending, or postponing any planned capital investment projects. For some, solutions will require raising additional equity or debt, while others might need to consider M&A options, the sale of the business itself, or divesting non- core parts of their businesses. Above all, clear and transparent communication with stakeholders is vital. Where businesses might need to seek concessions or further support, ensuring stakeholders are in a position where they can make informed decisions with accurate data will only improve their chances of reaching successful agreements. If management teams identify any complications within their business, it is essential that they seek support at the earliest possible opportunity to lengthen their recovery runway. Early action gives them, and their advisers, the maximum amount of time to find effective, sustainable solutions.

On the other end of the spectrum, many high-growth healthcare businesses will be actively exploring new routes to unlock further growth, such as expanding their product lines through M&A activity, or growing sales through international expansion. Some healthcare businesses, such as medical consumables suppliers, may have experienced a COVID-19 ‘bounce’, otherwise understood as an uplift in activity linked to demand driven by the pandemic. For any business seeking growth through a merger, acquisition or consolidation, it is important that both the management teams at the helm of these businesses, as well as the investors looking to back these businesses, take a close look at a business’ performance over the last year to understand its long-term capabilities. Management teams looking to draw up an accurate valuation of a business should review every aspect of its operations as a first step. Reviewing the whole picture, including the market environment, financial performance and operational specifics, will give management teams a strong understanding of the current value of a business. It will also help them to determine whether growth is sustainable in the long-term. Investing time and energy into fully understanding a business and its ambitions will allow management teams to take full advantage of growth opportunities in the months ahead.

The most important first step for businesses across the sector is building strong forecasting. Cashflow continues to be vital for developing resilience. Gary Hargreaves Restructuring Advisory

frpadvisory.com

frpadvisory.com

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