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Prepare for take-off

Stefan Stern
Financial Times
24 February 2010

Steve Frobisher, head of business turnrounds at PA Consulting Group has been quoted extensively in an article in the Financial Times Road to Recovery report which looks at how companies should prepare for growth in an uncertain economic environment.

The article questions if evidence pointing to more business taking place, such as rising vacancies and more new pitches, is anecdotal or if more work really is being done.

Commenting on this, Mr Frobisher says: "This is a time for the judicious use of scarce capital. You cannot afford to use it unwisely."

Mr Frobisher is advising clients to make sure they have sufficient liquidity before starting to drive the business harder again. Only a very conservative balance sheet, he believes, can protect the business against unforeseen shocks – such as a "double-dip" recession – or against the risk that a company trades too hard before it is ready to do so.

Most of the time, businesses engage in activities that are either value-creating or value-destroying, Mr Frobisher says. The embarrassing fact is that, sometimes, leadership teams are not able to distinguish between these two types of activity as quickly as they should. It is essential now to focus on the winning parts of the operation, he says.

And then another question has to be asked: what sort of growth are you aiming for? The general label of "growth" can actually cover a wide range of developments. "What is it you are trying to grow?" Mr Frobisher asks. "Is it revenue, profits, the number of employees or shareholder value?" There is good growth and bad growth, he adds, and businesses need to be clear which sort they are pursuing.

The article goes on to look at various growth strategies, including the convergence of M&A activity, concluding with Mr Frobisher’s remarks that, in his experience of over 30 transactions, most failed to deliver the growth and value that had been anticipated. What is more, there has often been quite a mess to clear up. It might be wise to delay some acquisitions now, should valuations fall further.

But he is not a complete pessimist in terms of prospects for growth. "Considering how badly weakened some other businesses will be, there should be opportunities to achieve organic growth at the moment," he says.

"Stronger businesses should find that there is room to manoeuvre, and there should be the opportunity to price quite aggressively," he adds. When it comes to growth, even after a deep recession, it’s an ill wind that blows nobody any good.

You can read the article in full here.

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