A small but diverse group of management consultancies is exploiting the space in the business turnround market between the Big Four accountancy groups and the specialist advisers.
The space is fuzzy at the edges as both of these rival groups of professionals are broadening their areas of expertise, overlapping to various degrees with the consultancies. Even so, consultants argue that they have skills that others would find hard to replicate.
"Everyone in the turnround space focuses on the financial aspects of restructuring, but there are three other elements they don't do or they do too narrowly," says Mark Horwitch, head of the recently-formed corporate renewal group at Bain, the big US strategy consultancy. "These are strategic, operational and organisational issues."
Steve Frobisher, a member of the management group at UK-based PA Consulting, says: "The Big Four have their roots in financial reviews, but the core of our [business turnround] work is based on a combination of looking at external factors, such as the attractiveness of the company's market and the fundamentals of its competitive position, and assessing its internal effectiveness."
Operational expertise is particularly attractive to new investors in distressed companies, says Gerald Corbae, London-based partner at the Düsseldorf-based Droege consultancy.
"In the past a financial restructuring may have been enough," he says, "but these days are over, and you have to go into the nuts and bolts of operations."
A consultancy's relationships with clients and previous work in other areas can help bring turnround commissions, while the turnround partners can in turn exploit their consultancy's overall network and intellectual expertise. Bain's turnround business benefited from its strong existing links with the private equity sector, says Mr Horwitch.
This network of contacts - with banks and with consulting colleagues - along with access to sectoral expertise is also invaluable to more traditional customers, such as the German Mittelstand companies that are an important market for Droege. "It's what they are paying you for," says Christian Baur, co-head with Mr Corbae of Droege's 20-strong turnround and interim management group.
One important difference for consultants involved in a turnround - compared with a less urgent project - is the appetite for change, says Patrick Gambin, operations manager at Celerant, a UK-based consultancy. "If a turnround client has six weeks to turn its performance round, there is a much greater readiness to try things differently," he says. "You get very strong engagement right from top to bottom, and everyone is aligned to achieve the right result."
As speed is usually required in the initial phase of a turnround job, the style of consultancy offered is also important, says Mr Frobisher at PA. "Some companies are still driven by producing great reports that are, analytically, probably very sound but more resemble a doctoral thesis than actually spell out: 'What are we going to do with this business on Monday morning?' That is the most important thing with a turnround."
But consultants have to take care in the initial stages to ensure they are fully aware of the company's circumstances, because of the growing trend for receiving payment by results. If there is a large variable component in the payment, it is vital to understand what the variables are, says Mr Corbae.
Unfortunately, although the risks may be higher for consultancies - because a greater percentage of their fee depends on a successful outcome - turnround work is no more or less lucrative than other work, says Mr Gambin. "We are not able to charge a premium - the companies are in distress and can't afford it," he says.
Mr Horwitch at Bain points out that success fees based on results are different from those tied merely to events such as the approval of a reorganisation plan or securing of new debt that some specialist advisers prefer. "To us, events are irrelevant if they don't ultimately lead to improved results," he says.
It is not just in their clients' interests, therefore, that consultants aim to achieve a sustainable turnround rather than a quick fix that ensures only short-term survival.
All the consultancies say that turnround work for the private equity sector is increasing, but more traditional customers - owners or boards of companies concerned about underperformance in all or part of their business - are providing plenty of work too. "Because of the pace of change, there is always this type of work, with businesses that have lost their competitive edge or lost sight of the marketplace," says Mr Frobisher.
One trend that could attract more consultancies into the turnround business is the fashion for struggling companies to bring in advisers at an earlier, diagnostic stage - rather than delaying until there is a crisis, says Fiona Czerniawska, director of the think-tank at the UK's Management Consultancies Association.
"Because it is happening at an earlier stage, the work is slightly less specialised," says Ms Czerniawska. "That creates the opportunity for other firms to enter the market."
