Unlocking Value through M&A

Turning crisis into opportunity

Turning Crisis into Opportunity

Globally, the current economic landscape is placing significant financial stress on businesses, particularly small and medium-sized enterprises (SMEs) that rely heavily on external financing. In Cyprus, this pressure is especially evident, as many local SMEs face mounting challenges in sustaining operations and growth. High interest rates, inflation, and limited access to equity financing, including venture capital or private equity, have left companies with fewer options to fuel growth and expansion plans. While recent rate cuts by the European Central Bank offer hope, the recovery remains slow, and inflationary pressures continue to affect the companies’ ability to manage their debt and finance growth, increasing the appeal of restructuring and Mergers & Acquisitions (M&A) as practical solutions for addressing financial pressures.

M&A as a Strategic Solution

In this environment, distressed M&A solutions are becoming a strategic alternative for companies facing financial strain. Once-thriving businesses are now looking for ways to reposition themselves in response to market dynamics, and restructuring through M&A offers them a lifeline. Distressed deals, even under financial duress, have the potential to unlock substantial value when handled with a focus on value creation. This is especially true when management can optimise the sale process, identify key value drivers, and reshape the narrative around distressed assets. Buyers may initially approach with skepticism, but well-prepared teams can demonstrate hidden value through strategic initiatives such as operational improvements or financial restructuring.

Restructuring and Unlocking Value

A growing trend in corporate restructuring is centered on improving liquidity and right-sizing balance sheets, driven by both internal business challenges and pressure from creditors. In Cyprus, where traditional debt financing is more common and equity financing options are limited, companies are increasingly considering the sale of non-core assets to raise liquidity. This strategy allows businesses to manage debt more effectively and refocus on core operations. In some cases, businesses are also under pressure from lenders to stabilise their finances ahead of debt maturities, adding urgency to the restructuring process.

The Role of Advisors and Strategic Buyers

M&A in distressed situations not only provides an opportunity for businesses to reorganise but also attracts a specific type of buyer—those looking for turnaround opportunities. These buyers focus on the assets' future value rather than current challenges. Advisors play a critical role in helping companies clarify the value proposition and steer discussions toward long-term growth. Whether this relates to selling assets in segments or divesting non-core units, these transactions allow companies to focus on viable areas while mitigating the financial burden.

Conclusion: Turning Challenges into Opportunities

Given the illiquid nature of the Cypriot market and rising operational costs, we expect distressed M&A activity to become a more prominent option for many companies. Businesses in sectors such as retail, construction, and real estate may find themselves considering strategic options such as divestments as they face difficulties in refinancing their debt. Distressed M&A offers a potential pathway for companies and investors to address these financial challenges, whether through asset sales or partnerships with stronger firms that can provide operational support. By taking a proactive approach and emphasising long-term value, management teams can also reshape perceptions of distressed sales, turning challenges into opportunities for buyers who recognise the future potential.

Obtaining specialised advice is crucial in guiding companies through the intricacies of these transactions. Careful implementation of specialized advice extends beyond mere facilitation; from supporting management in navigating high-pressure situations to positioning distressed assets for maximum value. Moreover, strategic advice serves as a beacon in managing tight timelines, communicating value creation initiatives to potential buyers, and ensuring the transaction process remains efficient. By staying focused on the goal—maximising value and navigating through financial distress— companies can leverage carefully tailored advice to influence the success of distressed M&A transactions. With thoughtful planning, even the most challenging situations can lead to favorable outcomes for all stakeholders.