Turnaround Strategies for Companies Doing Business in Mexico

Steve Katz  00:17

Hi, everybody, and thanks for listening in on our Hilco Global Smarter Perspective podcasts. I’m your host, Steve Katz. We’re glad you could tune in. Today we’re going to be discussing insights and best practices for businesses with turnaround needs in the Mexico market. For those of you who have been listening in on our other podcast focused on Mexico, this is part four in our series. And joining us again for the discussion today is our friend Jan René Aguirre, who’s director of business development and turnaround strategy at Hilco Global Mexico. Jan, thanks for coming back and joining us today.

Jan Rene Aguirre  00:50

Great to be here again, Steve. It’s a pleasure.

Steve Katz  00:54

All right. Well, we’re great to have Jan again. This is a really informative series, I think we’re going at it in a really methodical way. As I said, this is the fourth conversation. And so far, we’ve covered some of the core pitfalls that companies run into in general, when nearshoring in Mexico and some of the intricacies involved in M&A activities. And then I think last time, we talked about asset management within the country. So you can probably guess my first question based on how we approached this last time is, why did you choose turnaround strategies as our fourth topic to cover today?

Jan Rene Aguirre  01:29

Well, you see, Steve, at the end of the day, the reality is, is stark yet simple, right? I mean, especially with a financial and economic turmoil that we have seen in the past five years. Business’ stress knows no borders. It’s as global as the markets we’re operating. Just as a chain is only as strong as the weakest link, correct? A global company can find its overall health impacted by the performance of its overseas subsidiaries, including those in Mexico. So these subsidiaries often rely heavily on intercompany trading among other complex dynamics, and making their success crucial to the parent company’s well being as well. Here’s a thought that really brings it home. Companies are always on the move, evolving. It’s like they’re either on an escalator going up, or one heading down. And if management doesn’t act with the speed and precision that is required, it’s all too easy to find oneself riding from just underperforming to a full blown liquidity crisis. That window for action can be surprisingly narrow, under causing the need for agility and foresight in today’s business leaders.

Steve Katz  02:49

I like I like the escalator analogy. I think that’s a that’s a great way to come at it.

Jan Rene Aguirre  02:56

Yeah, I mean, thank you but it really comes up to that right. This brings us squarely to wide turnaround strategies is our topic today. It’s about being proactive about not just reacting to challenges as they appear, but also anticipating at least bailing them and having a plan in place. It means having a fully understanding the local markets unique challenges and opportunities and weighting them into a global strategy, Steve, that keeps the business moving forward, not backward. I can tell you in summary that basically, I chose the subject because implementing an effective turnaround strategy is about acting decisively to steer the companies back to a health and growth. It’s about making the tough calls, and perhaps about streamlining operations, reassessing market strategies, or even restructuring finances, all aimed at stabilizing the business and setting it up for a strong future. I’m really encouraged and happy to address this issue. I hope that this sets the stage for our discussion today, Steve, and we look forward to diving into the specifics and sharing some of the insights that can really make a difference for businesses navigating these waters.

Steve Katz  04:19

Okay Jan, perfect. I think that’s great way to get started. Can you know, just move it forward to the next part of the discussion. Can you talk about the general stages of a turnaround and how do you guys look at those?

Jan Rene Aguirre  04:34

Sure sure. I mean, I’m positive that most of your audience is familiarized with general stages of, of what a turnaround involves. I mean, from a situation analysis and management of the liquidity crisis, all the way to the final restructuring and negotiations. But I would like to focus on four core actions that I have that I believe have great impact throughout the whole turnaround process.

Steve Katz  05:00

Okay, great.

Jan Rene Aguirre  05:01

The first one would be the whole asset analysis, including ID and appraisals. And what I would say about this is, imagine Steve walking into a room blindfolded, trying to figure out what’s in there. And that’s what jumping into turnaround strategy without a thorough asset analysis feels like, no? So this is why it’s important. Moving on to liquidity enhancement. The famous saying cash flow is king, right?

Steve Katz  05:33

Yeah.

Jan Rene Aguirre  05:34

In the thick of a turnaround strategy enhancing liquidity is akin to finding water in the desert. It’s about making every drop count and finding more resources and sources before you run out of liquidity. This phase is about squeezing liquidity from every possible asset to sales with financing and other creative solutions, while keeping at the same time the operations running smoothly. So it’s a huge challenge. The third topic that I would like to address is capital for restructuring and growth. And this is where you’re building the bridge to the future. On a turnaround strategies, not only just about survival, I will say that it’s also about positioning for growth. So accessing capital for restructuring can mean a range of actions, from refinancing existing debt under more favorable terms, to bringing in new financial or investment partners in different growth areas. So this capital isn’t just a buffer, it should be a catalyst for transformation. Basically enabling companies to invest in new technologies, markets or operations, and have a more strategic vision for execution.

Steve Katz  06:54

Yep, yeah, the alignment there I think is critical.

Jan Rene Aguirre  06:59

I think lastly, the fourth one is a strategic advisory component, right? This is a compass in your turnaround journey. It’s about having a seasoned guide by your side, offering insights, strategies and pathways that might not have been seen in the past. So having a strategic advisory services can help navigate these complexities, and helping the company successfully go through its turnaround strategy. So basically, Steve, with these four topics, what we’re doing is we’re basically essentially mapping out a comprehensive approach to turning a business around. And it’s about seeing the full picture, ensuring immediate survival, and laying down the groundwork for a prosperous future. Let’s put it that way.

Steve Katz  07:53

Yeah. Okay. So that’s, again, very methodical way to look at and so taking your map analogy, right? Let’s take our first destination on the map, starting, I guess, with asset management. Why is it essential for companies that are doing business in Mexico to really focus in on asset management? And what are the complexities of that?

Jan Rene Aguirre  08:16

Sure, Steve, I mean, I strongly believe that asset management really is a cornerstone specifically for companies that are going through this turnaround process. In the early stages of a turnaround, particularly during the diagnosis of trouble phase, understanding what assets a company holds their condition, and their true value is critical. This is where comprehensive asset management kicks in, as a pivotal tool. It’s not just about listing assets. It’s also about deeply understanding them, and within the context of the local market dynamics, regulatory environments and operational challenges, being able to successfully understand the value and liquidate them in Mexico. As we transition into the manage liquidity crisis, which I’m sure you’re aware that it’s a famous 13 week, cash flow and so forth.  The insights the insights gained from comprehensive asset management become invaluable. Knowing exactly what assets are at your disposal under liquidation value can provide strategic options for enhancing liquidity and perhaps through asset sales, full operational lines divesting or restructuring asset portfolios to better serve the company’s turnaround strategy. What I would say is furthermore, also in the assets business viability phase the detail analysis provided by a comprehensive asset management can offer a clearer picture of the business breakup value versus the value as an ongoing concern. And as you are worse, Steve, this insight is crucial for making informed decisions about the company’s future direction, where whether it involves pursuing a turnaround, or it’s actually considering a divestment.

Steve Katz  09:16

Yup. Yup. Yeah, you know, just to break in there for one sec, I think it’s true a lot of times, you know, businesses will contact a third party resource, and they’ll say, you know, this is this is what we want to do. This is what we need to do. And I think when you get into that sort of assessment, you can sometimes say to those businesses, well, you know, that is one option. But really, there’s another better option for you to pursue.

Jan Rene Aguirre  10:46

Yeah, I mean, you totally got that. I mean, you can see how crucial it is to make a proper assessment of the assets that you have in time, right and the value of them.

Steve Katz  10:57

Yep.

Jan Rene Aguirre  10:57

Perfect.

Steve Katz  11:00

Okay, and what, what thoughts can you share about liquidity enhancement?

Jan Rene Aguirre  11:05

Sure. I mean, it’s a I’ll start by saying that it’s, it’s fascinating how it ties back to the stages of a turnaround. Again, making analogies, it’s like navigating a ship through choppy waters. And you need to ensure that it’s leakproof and can make it to a calmer seas. In that context of a turnaround stage, that liquidity enhancements really starts to shine during the management of liquidity crisis phase, I would say that it’s all about ensuring the company has a cash flow necessary to keep operations running while you work on more strategic long term changes are also necessary. I will tell you that you need to think of it as giving a patient in critical condition blood transfusion, but at the same time, while you’re buying the time, but also you’re stabilizing the patient for surgery. I don’t know if I made myself clear. But um.

Steve Katz  12:01

Yeah, yeah, I think I understand what you’re saying. It makes sense. You need to you need to get, you know, get past the immediate crisis or difficulty so that you can really get into the focus on what’s causing the problem.

Jan Rene Aguirre  12:16

Exactly, exactly right, It’s spot on. I mean, this phase is critical because liquidity or the lack of liquidity can accelerate a company’s decline from underperformance into a full blown crisis. Announcing liquidity could involve several strategies, such as renegotiation or renegotiating payment terms with suppliers to extend payables, accelerating receivables, or even sending off some non core assets quickly, to generate unnecessary cash. Each of these moves is akin to patching up holes in our metaphorical ship, and ensuring that it stays afloat. But here’s where it even it even gets more strategic, and it ties up into the later stages, like assets viability, right? Because at the end of the day, the turnaround strategy is not about just survival, as I mentioned before, but it also about business continuity. So as we enhance liquidity, we’re also gathering critical data and insights about the business operations, which assets are truly valuable and generating cash and where our biggest financial trades. This information is basically gold dust for the restructuring phase. So in essence, Steve, the liquidity enhancement is the bridge that connects emergency actions needed to stop the bleeding with the strategic moves required for long term long term health. It’s not just about finding the money to pay the next set of bills or payroll, but it’s also about building muscle on a liquidity basis, to stabilize the company, so that it can go and undergo the necessary transformation in order to emerge even stronger.

Steve Katz  14:10

Right, because a lot of times, people companies are so focused on the short term solution or per pet, you know, putting a band aid on the immediate issue, that they’re really not looking at the what’s necessary to ensure long, long term viability.

Jan Rene Aguirre  14:26

Exactly.

Steve Katz  14:27

Yep. Yeah. Great. And when it comes to capital for funding, restructuring and growth on behalf of companies that are in these types of situations in Mexico, how do you and your team at Hilco suggests businesses approach those types of efforts?

Jan Rene Aguirre  14:43

Well, I’m really glad that you brought that up. As you can see, our financial systems are different in different countries and Mexico is not an exception. So when we consider the critical role of capital in both restructuring and fostering growth for companies operating in Mexico, it’s a nuanced conversation that, again, ties back to the stages of a turnaround strategies that we have been discussing. So let’s dive into how businesses can approach securing and utilizing these capital effectively. So navigating through a turnaround, specifically through the business restructuring, and business plan phase, securing the right type, and right amount of capital is pivotal. It’s not just about finding any source of money, as I mentioned before, but I will change that it’s also about finding the right fit for the company’s specific needs and growth plans. And as you are aware, within a turnaround strategy, building up these business plan, and the state different stakeholders agreed to these business plan is key. No?

Steve Katz  15:55

Yeah. Yeah, absolutely.

Jan Rene Aguirre  15:56

Yeah, I mean, at the end of the day, you want that, to make sure that the money that is being allocated to the company, it’s used properly. And it’s being used in a manner that it helps for value creation, right, and that comebacks, again, to what we discussed about performing assets, and non performing assets no? So on a first off approach, it’s crucial to start with a clear, realistic assessment of the company’s financial health and future prospects. And this involves revisiting the earlier stage of assessing business viability. Where the focus on evaluating the pieces long term viability and identifying the core areas that require investment to turn the business around. Yeah, for growth capital, the emphasis shifts towards funding not just survival, but expansion. As I said before. This could mean investing in new technologies, entering new markets or scaling operations. And here, equity financing becomes an attractive option for sure, offering a way to inject fresh capital into the business without the immediate burden of debt repayment. And this is particularly relevant in the negotiation of financial and financial restructuring stage, where leveraging the company’s projected growth can attract investors looking for opportunities in Mexico’s burgeoning market sectors. So throughout these efforts, the overreaching theme is their strategic, judicious use of capital, Steve.

Steve Katz  17:40

Yea.

Jan Rene Aguirre  17:41

It’s about ensuring that every peso, or dollar invested, moves company closer to its turnaround, and growth objectives. This means maintaining laser focus on ROI from the outset, continuously monitoring the impact of investments, and being willing to adjust strategies as the business evolves. And the market conditions change.

Steve Katz  18:07

Yeah, absolutely. And I think there’s a lot, there’s a lot there. I mean, we have I know, we’re going to be talking, again, on at least one more topic for businesses who are doing business in Mexico. But But this idea, also of partnering with the right entities and or forming joint ventures that can, you know, help serve as a source of capital and expertise is critical. So maybe we’ll dive into that a little bit more next time. My next question is, I guess I’m just wondering is, you know, is it safe to assume that most companies in Mexico and their leadership teams would require a fairly robust level of strategic advisory to help them determine which of these steps they actually need? And then also to potentially guide them through these types of efforts? And if so, I guess first, is that is that something they can obtain from partners that they may have utilized from outside the country? You know, where they’re where their corporate headquarters might be based, for example? And two, is the consulting oriented piece of that a separate and distinct entity from the tactical piece that you know, requiring multiple third parties? Or are there experts who are experienced in doing it all?

Jan Rene Aguirre  19:20

Well, it’s a fitting wrap up for our discussion, Steve, Focusing on the general roll of strategic advisory and how it ties together all these stages of a successful turnaround we’ve touched upon so I’m really glad that you brought it up. To your first point. Yes, most companies operating in Mexico are given that unique business environment, regulatory landscape, and market dynamics would greatly benefit from a robust level of strategic advisory. These guidance is crucial for navigating the nuances of the local market. I’ve said before identifying the right steps in the general process, and at the same time ensuring that strategies are executed efficiently. Can they begin? Can they obtain these from partners outside the country? Potentially, yes. However, the distinct advantage of leveraging in country expertise cannot be overstated. I believe we touch this points in our previous conversations, but local advisors bring an invulnerable depth of knowledge about the market. As mentioned before, it’s the famous saying, know how know who, no?

Steve Katz  20:38

Yeah. So Yeah.

Jan Rene Aguirre  20:39

From regulatory compliance and financial nuances to cultural and operational insights, its invaluable. These local know how ensures that strategies are not only theoretically sound, but also practically applicable and sensitive to the local business climate.

Steve Katz  20:59

Yeah it makes a lot of sense. It does.

Jan Rene Aguirre  21:02

As for the consulting oriented piece being separate from the tactical piece, it’s true that there are distinct elements. Strategic advisory focuses on the bigger picture, planning and strategizing, while the tactical piece involves the ground level execution of those strategies. While some companies might look to the multiple third party partners to fulfill these different needs,. The ideal scenario, Steve, is finding a partner that offers a comprehensive suite of services. And that can cover both strategic and tactical aspects. I would make an emphasize that this holistic approach ensures a seamless integration of the strategy and execution because in these types of scenarios, and in many cases in business, execution is key. So yeah, I would say that the benefits of using an in country expertise, like Hilco Global Mexico, are meaningful. It ensures a more nuanced and effective approach to turnaround strategies, it reduces complexity and friction of managing multiple third party partners and it streamlines execution process. Ultimately, enables businesses to leverage local insights and expertise to maximize their chances for a successful turnaround in a nutshell.

Steve Katz  22:30

Yeah, I mean, at the end, that also is very logical, especially when you’re trying you know, you’re trying to accomplish something in an efficient manner and, and in a manner that has continuity and causes the least amount of business interruption. So if you have a part, if you got a partner experienced in the market, and it’s a single partner, and there’s less wasted time to get everybody up to speed or everybody integrated, you can achieve a lot more a lot more quickly. So it makes a lot of sense. I think it continues along this the vein of what we talked about in that previous discussions. So thanks for that, Jan, and we’ll look forward to talking to you next time. I know there’s probably going to be people that want to reach out to you, as I’ve done over the course of the past few discussions. So can you just once again, provide your contact information?

Jan Rene Aguirre  23:20

Yeah, sure, Steve, I’ve just as a final comment to what you just concluded and the details within the turnaround strategy, time is critical and decision making is critical. So yeah, and you just mentioned having a lot of third parties involved and everything. You won’t believe how important it is to basically have a single point of contact that that can actually help you with all these troubles. So sure, I can. Thanks again, Steve. And I can be reached out by email and phone. My email is J A G U I R R E at HilcoGlobal.mx. And my phone in Mexico is + 52 55 8500 8547.

Steve Katz  24:11

All right, perfect. Thanks again, Jan. And listeners, we hope this Smart Perspective podcast provided you with at least one key takeaway that you can put to good use in your business or share with a colleague or client to help make them that much more successful moving forward. And remember that you can check out more great podcasts and articles featuring timely insights from Hilco experts like Jan at HilcoGlobal.com forward slash Smarter dash Perspectives. Until next time for Hilco Global, I’m Steve Katz.