M&A Advisory: Corporate Restructuring Guide

In partnership with

Looking for unbiased, fact-based news? Join 1440 today.

Upgrade your news intake with 1440! Dive into a daily newsletter trusted by millions for its comprehensive, 5-minute snapshot of the world's happenings. We navigate through over 100 sources to bring you fact-based news on politics, business, and culture—minus the bias and absolutely free.

Subscribe to 1440 today.

🔎 What is Corporate Restructuring?

Corporate restructuring is about reorganizing a company’s structure, operations or financial setup to improve profitability, efficiency or adjust to changing market conditions. This can involve mergers, acquisitions, asset sales, debt restructuring or downsizing, depending on the situation. 

For those of us in finance, understanding the key components of restructuring – such as the financial impact of changes in cash flow, bankruptcy processes and operational risks – can add significant value to your skillset. Whether you’re advising on capital structure, evaluating distressed market opportunities or simply looking to sharpen your legal and accounting skills, a solid grasp of restructuring will surely help you. 

✅ Key Strategies in Corporate Restructuring

Here’s a snapshot of the key strategies companies often use: 

• Organizational Restructuring: This involves streamlining internal structures to boost efficiency and reduce costs. 

• Economic Loss Restructuring: When companies face ongoing losses, selling non-core assets or renegotiating debt can be critical to avoid insolvency. 

• Reverse Synergy: Sometimes splitting a business into separate entities – through spin-offs or de-mergers – creates more value than staying combined. 

• Cash Flow Restructuring: During liquidity crunches, renegotiating debt or adjusting payment schedules can ease short-term pressures and ensure continuity. 

🏦 High-profile Restructures You Should Know

1. Enron: from a $63.4 billion company to a penny stock

Jeffrey Skilling was once hailed as a visionary in the energy sector. Born in Pittsburgh in 1953, he quickly rose through the ranks, earning an MBA from Harvard Business School as a Baker Scholar. His innovative ideas caught the attention of Enron's leadership while working on a project as a McKinsey consultant, leading him to join Enron in 1990 as Chairman and CEO of Enron Finance Corp (a subsidiary of Enron). 

Under Skilling’s leadership, Enron transformed from a traditional energy supplier into a cutting-edge energy trading powerhouse. He championed the use of mark-to-market accounting, allowing Enron to record projected future profits immediately, significantly boosting reported revenues and solidifying its position as one of America’s most admired companies. But these strategies also set the stage for Enron’s dramatic downfall. 

Enron’s aggressive culture prioritized short-term gains over long-term stability, embracing risky practices, including the use of special purpose entities (SPEs) to “hide” debt and inflate profitability, all while maintaining a veneer of innovation and success. These deceptive accounting practices, combined with a lack of adequate oversight, created a ticking time bomb. 

In 2001, just months after being named CEO, Skilling resigned, a move that sent shockwaves through the financial world. That same year, Enron’s financial manipulations were exposed, leading to the company’s bankruptcy, which was, at the time, the largest corporate collapse in U.S. history. The fallout also took down Arthur Andersen, one of the world's largest audit firms, which was found guilty of obstructing the investigation. 

The Enron scandal fundamentally changed corporate governance, leading to the enactment of the Sarbanes-Oxley Act, aimed at preventing future corporate abuses. Enron paid $21.8 billion to its creditors between 2004 and 2012, and Skilling was sentenced to 24 years in prison (and a $45 million fine), which was then reduced to 14 years, of which he ultimately served 12. 

2. Lehman Brothers: How a $600 billion empire crumbled overnight

Lehman Brothers, once a titan of Wall Street, became a defining symbol of the 2008 financial crisis. Its bankruptcy on September 15, 2008, marked the peak of the global market meltdown. As a major player in the subprime mortgage market, Lehman's $600 billion collapse was the largest in U.S. history and sparked a financial panic that rippled across global markets. 

Lehman's rise was fueled by aggressive expansion into the mortgage origination business in the late 1990s. By acquiring subprime lenders such as Aurora Loan Services and BNC Mortgage, Lehman built a vast portfolio of mortgage-backed securities. But this growth came with significant risks. The firm operated with a dangerously high leverage ratio, leaving it vulnerable to shifts in the real estate market. By 2007, its leverage had reached 31:1, meaning even a small drop in asset values could wipe out the firm’s equity. 

As the subprime mortgage crisis deepened in 2008, Lehman’s vulnerabilities became increasingly clear. Attempts to raise capital and offload assets failed to restore confidence, and as investor trust evaporated, so did its stock price. Last-ditch efforts to secure deals with potential buyers like Barclays and Bank of America fell through, leaving Lehman with no option but to file for bankruptcy. 

The immediate aftermath was catastrophic. The Dow Jones dropped 4.5% in a single day, and global financial markets faced severe turmoil. Credit markets froze, money market funds faced panic-driven withdrawals, and the interbank lending system seized up. Even with emergency measures from the U.S. government and Federal Reserve, the fallout from Lehman’s collapse exposed the limits of their crisis response. 

The impact of Lehman’s bankruptcy rippled across the globe. Commercial real estate assets were liquidated, international banking systems were destabilized, and sectors ranging from hedge funds to energy companies were hit. The collapse triggered a re-evaluation of risk management, regulatory oversight and accounting standards that continues to shape the financial landscape today.  

✒ On a Final Note…

We hope this post gave you a deeper understanding of restructuring. High-profile cases, like Enron and Lehman, offer lessons that go beyond the headlines.  

By digging into their stories, you can sharpen your ability to anticipate risks and recognize the opportunities that restructuring can reveal. If you can apply these insights to your work, you’ll surely be better equipped to deal with complex challenges in the finance world. 

Until next time,  
PE Bro 

P.S. Was this email forwarded to you? Then subscribe here!

Enjoyed this read? You might find our resources useful: