Article by Lionel Gouget, Partner Valtus France.
In 2023, the number of business failures increased by nearly 36% compared to 2022. Increasingly, this trend affects organizations of all sizes, with business failures employing at least 100 employees reaching their highest level since 2014 (1).
The increase of challenges and the slowdown in activity observed in certain sectors tends to take on a structural turn. To continue to thrive in an uncertain environment, the ability of anticipation proves to be decisive.
In a context where instability seems to have become the rule, crises overlap more than they succeed each other. Thus, the causes of the difficulties encountered by companies often result from a combination of several factors.
Rapid and profound changes
The transformation of traditional business models forces many organizations to reinvent themselves and make sometimes very significant investments, which may temporarily or permanently impact their profitability. This reality is particularly evident in the energy sector, where the need to anticipate and implement a transition from fossil fuels to other sources is increasingly felt. More general, organizations sometimes struggle to quickly adapt to evolving consumer trends such as increased sensitivity to price and product origin, the explosion of the global second-hand market (estimated at 128 billion euros (2)), technological innovations, and digital services. For some SMEs and ETIs, the needed shift can be considerable.
Increase in financial challenges
At the crossroad of major geopolitical crises, rising prices/costs also weaken most companies. Thus, 95% of ETIs are affected by the increase in energy costs and 82% by raw material costs (3). Obviously, the effects of inflation are also felt on consumer spending, thus impacting the outcome for companies. In addition to this inflationary context, there is a recurrent risk of shortages, supply difficulties, and distribution challenges. The end of public funding and aids put in place during the Covid-19 also contributes to destabilizing cash flows combined with increased cost of credit access. By the end of 2023, 31% of ETIs reported a deterioration in their cash flow situation.
Adapting business models: a crucial necessity
The retail-, automotive subcontracting-, construction- (concentrating nearly a quarter of the failures recorded in 2023 alone (4)), and real estate sectors are hard hit by the challenges mentioned above and must accelerate their transformation to preserve their competitiveness. Other sectors are gradually being affected, as for example chemistry and agri-food. Fortunately, companies’ turnaround capacity remains impressive. A paradigm shift is taking place in crisis management. Increasingly, leaders are adopting a proactive approach, favouring preventive support rather than curative solutions. Thus, the probabilities of a positive outcome are greatly increased. Regularly, upstream structuring can be sufficient to overcome encountered difficulties. It can then involve rethinking business models, reducing overheads (cost reduction, production capacity adjustment, refocusing on core activities), monitoring and anticipating short-term indicators (cash flow, working capital requirement, operational KPIs), or initiating a search for alternative financing. When the crisis is already deeply rooted, the room for manoeuvre is more limited, and the implementation of turnaround strategies becomes more complex.
Face the storm
At Valtus, our dedicated crisis team regularly supports companies in difficulty, in France and in Europe. We rely on a pool of Chief Restructuring Officers (CRO) with multi-sectoral and cross-functional skills. We also leverage the expertise of CEOs, HRDs, or CFOs who have all faced several major crises. Valtus is capable of intervening in multiple situations: carve-outs, operational and financial turnaround, assumption of social mandates, takeover at the court, cash flow optimization, social climate appeasement, and potentially support during amicable or collective procedures. By involving seasoned experts as early as possible, companies can define and implement the most appropriate solutions for their situation. Anticipation, agility, and experience in crisis management are essential assets to return to growth. Despite a less favourable economic climate, maintaining optimistic prospects seems perfectly justified.
(1): Étude de défaillances et sauvegardes des entreprises en France – T4 et bilan 2023, Altares
(2): Etude Tripartie/Wavestone, 2024
(3): Baromètre Palatine-METI du Financement des ETI, Décembre 2023