As the credit crunch
brings more restructuring activity than ever before, companies
looking to cut their costs need to make sure they are doing so for
the right reasons. Jason T
Hesse reports.
Go deeper with GlobalData
The latest restructuring speculation
concerns Crédit Agricole, which is said to be considering merging
the back office functions of Crédit Agricole Leasing (CA Leasing)
and Eurofactor, its leasing and factoring arms.
This would not be a big surprise, as the
French bank has been consolidating other businesses in the last
year.
At the start of 2009, for example, the bank
created a large ‘consumer finance’ business line, which
incorporates its Finaref and Sofinco units.
At the same time, and fuelling further
speculation, Oliver Toussaint, CA Leasing’s current managing
director, was also recently appointed the new head of the
Eurofactor business.
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By GlobalDataMoving the two units closer together would
make a lot of sense – both CA Leasing and Eurofactor are profitable
businesses that continue to grow despite the current downturn, and
there is no doubt the two businesses have back-office functions in
common which they could easily share.
Other continental lessors have
experienced similar situations, such as De Lage Landen, the Dutch
lessor, which acquired fleet lessor Athlon in 2006. The acquisition
raised questions as to how closely the two businesses should
operate.
In Belgium, for instance, De Lage Landen and
Athlon decided to merge some of the back-office functions,
resulting in considerable savings for the company.
“Times are tough and if you look at the
balance sheet and there’s a mess that needs to be sorted out, you
just have to take a knife to it and carve out what isn’t
appropriate”
The two businesses now share the legal
function, human resources, and even have a shared credit service,
where De Lage Landen handles credit applications for Athlon.
Sven Vanbinst, De Lage Landen’s country
manager in Belgium, said that he was now looking at merging the
total risk environment together, including the recovery process.
The two businesses are scheduled to move into one building in
2010.
But is now a good time for companies to be
reorganising and restructuring their businesses?
Richard Guilbert, a partner at asset finance
consultancy Invigors, said that now is a good time for
reorganising, if you are doing so for the right reasons.
Reasons to
restructure
According to Guilbert, there are
three main reasons why companies restructure.
The first is that in the boom times,
it simply was not a priority to streamline business processes, and
some companies just focused on writing as much business as
possible.
“Some managers are taking advantage of a lull
in business to fix things that had been ‘patched up’ while the
company was still growing,” said Guilbert.
“It can be as simple as that, an accumulation
of businesses and products which now need to be rationalised into a
more sensible commercial business model.”
It could also be that having looked at the
numbers, some parts of the business are no longer seen as ‘core’,
Guilbert explained.
“It can be a political driver – the economic
downturn is a great time to bury the bad news. Everyone would
understand a restructure happening now, where before it might have
raised some questions,” he said.
But, Guilbert added, the final reason could be
that a company is forced into reorganising the business as the last
of its options.
“Times are tough,” he said, “and if you look
at the balance sheet and there’s a mess that needs to be sorted
out, you just have to take a knife to it and carve out what isn’t
appropriate.”
Driven by absolute
need
This is particularly true of
bank-owned companies which, when driven by absolute need, start to
look very closely at their business model and structure, trying to
figure out how they can change to please Wall Street, which
ultimately holds the purse-strings.
GE is a prime example of this. Despite
well-publicised attempts to restructure and streamline its finance
company, GE Capital, it was recently downgraded by both Moody’s and
Standard & Poor’s, losing its prized AAA-rated status.
The incentive for GE Capital to please
investors is strong, and there is little doubt that Jeff Immelt,
GE’s CEO, will do whatever it takes to restructure GE Capital back
into the investor-pleasing cash-cow that it once was.
“Companies have to wrestle with the temptation
to take a short-term tactical approach, rather than balancing
long-term strategic views, because many of the individuals making
the decisions don’t know if they’ll be around in two years’ time,”
Guilbert said.
A common theme
The one main trend in most
restructuring activity has been the reorganisation of the business
into distinct business lines, or ‘poles’.
The idea is that lessors can improve
the back-office function while employing fewer employees, thus
saving money.
This was the approach taken by BNP Paribas
Lease Group (BPLG) which, while reporting “record” volumes, is
reorganising its business lines internationally.
“Companies have to wrestle with the
temptation to take a short-term tactical approach, rather than
balancing long-term strategic views, because many of the
individuals making the decisions don’t know if they’ll be around in
two years’ time”
BPLG subsidiary Arval has cut 80 jobs in the
UK, while in France, voluntary redundancies are being encouraged at
the lessor.
Mike Dix, the UK head of BPLG, had said that
he expected the recent reorganisation would support the company in
the downturn, and managed the reorganisation of the UK business,
before leaving the company last month.
BPLG’s operations have now been split into two
business lines: the first is a ‘tech solution line’, which concerns
office and IT equipment, while the second, an ‘equipment and
logistic solutions line, covers farm equipment, materials handling
and construction.
The lessor also closed its IT broker business,
which was not hitting profit targets.
“[They] simply didn’t generate a sufficient
profit and we couldn’t see how this, in the current environment,
could be profitable,” said Dix.
The trend for dividing the business can also
be seen at UniCredit Leasing, which split the business into ‘hubs’:
the ‘strategy area’, the ‘business area’ and an ‘operations
area’.
The move here was aimed at simplifying
governance and improving information flows.
Short-term decisions, long-term
repercussions
Other lessors have made similar
changes, such as KGAL, Siemens Financial Services, Banca Italease,
LeasePlan, Key Equipment Finance, and many more.
But although restructuring can save a business
money, what must be remembered is that the short-term decisions
taken today will still have a big impact on customers and
manufacturing partners.
“When the good times return, they will not
forget how they were treated. It seems there are an awful lot of
short-term based decisions which, although seem effective
cosmetically, are not good strategically, in the long-term,” added
Guilbert.
