"It’s essential to keep management motivated and focused on results"
Andrew Burn, Partner, KPMG
How to sell
Changes in group strategy, or perhaps an unsolicited approach from a buyer, may create an opportunity to sell. However, "in times such as these, it’s essential to keep management motivated and focused on results," advises Andrew.
One approach is to offer ‘exit bonuses’ to important members of the management team, which are payable on meeting performance targets in the run-up to completion of the deal. In the case of one European business, the commercial and operations directors were incentivised with exit bonuses equating to over 30% of annual salary. As a result, performance was maintained right up to the sale.
There are many loose ends to tie up with the sale of an international subsidiary – and you should always be aware of the impact on the rest of the group as a whole. If you have common suppliers across different countries, for example, will the sale affect group terms and conditions or volume rebates?
How to close it down
While making these changes can be effective, closure may still be the best option in some cases. However, there are three key elements to bear in mind:
- You must be on top of local regulations on employee rights and insolvency procedures. "It’s advisable to ask a lawyer or an accountant to undertake a review to highlight where your liabilities sit," suggests Andrew. This includes contracts. "I have seen businesses where employees have contracts with a subsidiary, despite working for the group in another country," he adds.
- Rule out the risk of contagion, where problems can spread across other parts of the business, and ensure the wider group isn’t liable for the subsidiary’s debts.
- Look at the bigger picture. While a subsidiary may be underperforming at one point in time, it may make more sense to close down part of your group in a different country and transfer those operations into the problem subsidiary – if there are compelling strategic reasons for doing so.
- Be clear on what you are trying to achieve, and ensure you have accurate data on which to base your decisions
- Plan, implement and closely govern the turnaround strategy
- Make sure you have the right blend of existing and new resources/skills assigned to addressing the problem
- Regularly monitor the results being achieved by the turnaround and adjust your approach accordingly
For more on the ins and outs of fixing an overseas entity, download the KPMG Enterprise report Going global or drop us an email to talk about any specifics.