Some problems in a business announce themselves. A debt problem rarely does. It does not show up in a single bad quarter, but builds quietly over time, as cash that should be funding new machinery, new capability and new work disappears instead into servicing borrowings taken on in easier times.
For sectors already under strain, that drift is now a defining pressure. Automotive is the clearest example: volumes in decline, capital that should be funding the move to new technology going instead to lenders. Construction and the wider industrial base are feeling the same squeeze – the same story, playing out across different production lines.
To understand how legacy debt is reshaping these industries, and where interim leadership fits in, we sat down with Omar Mirza, Managing Director at Alvarez & Marsal, the global professional services firm known for its turnaround and restructuring work. We asked him how legacy debt accumulates, what effective restructuring actually looks like, how leaders carry their people through a turnaround, and what the next phase holds for the sectors under most pressure.
HOW DEBT LEFT BUSINESSES “STYMIED AND EFFECTIVELY ZOMBIFIED”
To understand today’s distress, Omar starts with the decade that preceded it.
“If you cast your mind back to 2009, after the last financial crisis, debt was, or is still, highly available for many companies,” he says. “Until recently that was very cheap.” Alongside that, he points to a sharp rise in private equity transactions, many of them funded with borrowing. Businesses were acquired on the assumption they would grow, with debt used to fund the deal.
The problem comes when the assumptions stop holding. When debt becomes more expensive, or companies are not achieving those levels of growth, they end up “effectively burdened with servicing” the debt, Omar explains. Instead of reinvesting, cash goes to service debt. The company stalls. As he puts it, it can become “stymied and effectively zombified”.
Automotive shows the pattern at its sharpest. Volumes have been in decline, and suppliers carrying high levels of debt have been focused on servicing it rather than investing in the new machinery and capability that would position them for future work, not least the shift to EV production. The money that should buy the future is paying for the past. The same logic runs through construction and other capital-intensive industrials: a balance sheet that looked manageable on cheap money and steady growth becomes a serious constraint the moment either condition turns.
RESTRUCTURING IS ABOUT CIRCUMSTANCE, NOT FORMULA
There is no single fix. Omar is clear that the right approach turns on two questions: whether the company needs new money to keep trading, and whether it is forecasting a profitable future.
Those two answers determine the route. For an automotive supplier that has tripped covenants but is still trading profitably, the answer may be as straightforward as resetting facilities and giving the business breathing space to improve its performance. If a lender has lost its appetite for the sector, the answer may be to refinance away from it. A new lender with more confidence in the company’s trajectory can step in and provide the support the existing lender no longer will.
Where neither works, a transaction can crystallise whatever return is available for lenders while, critically, cleaning the company of its legacy debt entirely. “The advantage of that,” Omar says, “is it allows it to go forward with a new investor, new owner, free of any of the legacy debt that’s been on its balance sheet.” For an industrial supplier weighed down by historic borrowings, that clean balance sheet may be the difference between slow decline and a credible future.
A PLAN ONLY WORKS IF PEOPLE BELIEVE IN IT
Omar puts real weight on bringing the board, the management team, the employees and other stakeholders along on the journey.
He sets out four things leaders need to get right. First, a credible plan: “a viable and well thought out turnaround plan to improve the company’s position.” Second, the right skill set to deliver it. Third, transparent communication, so stakeholders gain trust and clarity in what the leadership team is trying to do. Fourth, visible progress, demonstrated regularly, so confidence builds as the plan moves in the right direction.
He is realistic about the skills gap. “It’s normal that you wouldn’t expect a legacy management team to be able to deal with financial distress, or difficult conversations with lenders. That’s not in the day to day toolkit of most management teams, and that’s fair enough.” Which is precisely where interim support tends to come in.
KEEPING MANAGEMENT “OUT OF THE FIRING LINE”
Omar described three roles an interim manager can play.
The first is plugging a skills gap. A management team may have no experience of specialist restructuring lenders, or of winding down a manufacturing plant. An interim manager brings that capability and augments the incumbent team rather than replacing it.
Just as valuable is the role of acting as a shield. “A company is often caught in the middle of difficult, more fractious negotiations between various stakeholders: lenders, shareholders, customers,” Omar says. In capital-intensive sectors, where those conversations often happen simultaneously and at pace, an interim manager can front up and manage those situations, which keeps the management team out of the firing line and lets them focus on running the business day to day.
There is also the matter of who is best placed to have the difficult conversations. A turnaround often calls for a tough discussion with an important customer or supplier, perhaps around a price increase or a change to contractual terms. In a sector like automotive, where a supplier may have served the same manufacturer for decades, that history can make the incumbent team poorly placed to deliver the message. An interim manager can step in and have the conversation instead, approaching it from the facts rather than the relationship. It keeps the management team one step removed from any emotional response, and reaches the outcome without damaging a relationship the business still needs.
QUALITIES THAT MAKE AN EFFECTIVE INTERIM LEADER
Volatility raises the bar on who can lead. Omar names three qualities in particular.
Decisiveness comes first. “Without a doubt, they need to be able to make decisions and stand by those decisions.”
Then there is emotional intelligence, applied in both directions. An interim manager has to be empathetic when empathy is needed, and able to have tough conversations when the situation calls for it. “A high level of EQ is needed to deliver both empathy and tough messaging,” along with the judgement to know when each is called for.
Last is the ability to move between a high degree of detail and the big picture. The best interim managers, Omar says, can take a detailed grasp of a complex situation “up to the point where you can see the big picture”, and from there guide the company and its stakeholders on where it is heading.
WHAT MAKES INDUSTRIAL BUSINESSES ATTRACTIVE TO INVESTORS NOW
The flip side of distress is opportunity, and Omar has a clear view of what draws investors in the current climate.
It starts with financial command, knowing where and how the business makes its money. He puts it in concrete terms: an automotive supplier should understand exactly which components “are very profitable” and which “may be less profitable”, alongside a firm grip on liquidity and cash flow. For a manufacturer with a broad product range, that clarity about where margin actually sits is often what separates a confident sale from a distressed one.
Beyond that, he points to dependable revenues. In a turbulent economic and political environment, businesses with recurring, predictable revenues, underpinned by strong customer contracts, stand out. Unique intellectual property that makes a business defensible adds to the appeal, as does operating in a sector investors currently favour, such as defence, healthcare or critical raw materials.
LOOKING AHEAD: “YOU’LL SEE THE WINNERS EMERGING”
Omar does not sugar-coat the near term for automotive and construction. There is “likely to be a continuation of distress in the near term”, he says, “and unfortunately that means that some companies will enter into insolvency”.
But distress creates movement. For companies in a position to act, there is an opportunity to make smart, strategic acquisitions at value: acquiring capability, access to customers and access to new geographies, often from overseas buyers looking to establish a foothold in Europe. He also expects portfolio rebalancing. An automotive supplier under pressure may look to move some of its capacity into off-highway, aerospace or defence: adjacent sectors that draw on similar engineering strengths but are far less distressed than the automotive supply chain right now.
His medium-term view is more optimistic. As these markets begin to improve, “you will see the winners emerging”. The companies that survive the tough times will find themselves in an environment with fewer competitors, and a better chance of growing in the future.
At Valtus UK, we work with boards, owners and stakeholders to provide experienced interim leaders who stabilise businesses quickly, manage complex stakeholder situations and deliver change under pressure, including turnaround CEOs, CROs, CFOs and COOs. If your business is navigating the kind of pressure Omar describes, we would be pleased to talk about what earlier, more controlled intervention could look like.
