Independent Business Review (“IBR”) & Red Flag Report
Background
The Independent Business Review (IBR) is a tool predominantly used in the Anglo-Saxon market and provides an independent expert evaluation of a company’s current economic situation. In restructuring scenarios or other structural, capital, or investment decisions, it is essential to produce professional transparency about the company’s economic performance from an external perspective within a short timeframe. The IBR thus offers a meaningful basis for decision-making from which concrete recommendations for restructuring and turnaround may be derived.
Typical content of an Independent Business Review (IBR) includes:
- Analysis of the current asset, financial, and earnings position, including a critical assessment
- Analysis of corporate structure and the business model
- Assessment of the market and competitive position and the company’s strategy
- Analysis of the operational performance structures of the business
- Analysis of the integrated business planning, possibly including creation of scenario analyses
- Analysis of debt servicing capability
The Red Flag Report represents a more concentrated investigation of the company. Compared to an IBR, the Red Flag Report is significantly more limited in scope and depth and generally offers only a short-term overview. The objective is to obtain an initial assessment of the situation of a company in crisis as swiftly as possible so that further steps and measures may be initiated in a targeted way. Which content and analyses a Red Flag Report contains depends on the stakeholders’ requirements, the company’s situation, and the business environment. It is not uncommon for an IBR to follow a Red Flag Report.
In the context of restructuring, especially external creditors of a distressed company demand an objective assessment of its economic performance and financial situation from a restructuring advisor. This independent expert assessment often serves as the basis for financing and investment decisions required during the turnaround process. From the Anglo-Saxon perspective, an IBR is typically demanded. The contents and analyses of an IBR are not predefined; they are usually agreed with the creditors and often focus, for example, on the analysis of (historical) financial figures or investigations regarding the robustness of the supply chain. However, an IBR cannot fully replace a restructuring expert opinion under German standards (e.g., IDW S6) because the requirements from the highest case law (e.g., of the Federal Court of Justice (“BGH”)) are not necessarily met. Therefore, for the crucial question for financiers on whether a restructuring loan can be granted in Germany, the IBR alone is not yet a sufficient basis. A pre-existing IBR must therefore be complemented and expanded with the required analyses and statements into a restructuring expert report including a formal expert opinion.
Turnaround Management Partners
The Red Flag Report gives all stakeholders a rapid, short-term overview of the current situation of a crisis company in a restructuring scenario.
Turnaround Management Partners prepare, as independent experts, an Independent Business Review tailored to the stakeholders involved, which serves as the basis for further action. Key themes are analysed and presented — those that are decisive for the specific company situation and the stakeholders’ requirements. The IBR is adapted in terms of size and complexity of the company and the desired scope of analysis and assessment. It serves as a decision-support tool, enabling all participants to make a well-founded risk assessment and defining the framework for possible courses of action.
- Presentation of the current financial situation and independent assessment of the current earnings, assets and financing situation
- Analysis of corporate structure and business model with strengths and weaknesses analysis as well as evaluation and commentary on corporate strategy
- Assessment of the market and competitive position, including the company’s positioning and evaluation of the impacts of current developments in the market and competition
- Analysis of the operational performance structures of the company
- Analysis of the integrated business planning relating to the plausibility of underlying assumptions and the general achievability of objectives (possibly including creation of scenario analyses)
- Assessment of debt service capacity
- Representation of options and recommendations for further courses of action
Our Red Flag Reports are adapted in terms of scope and depth to the client’s needs.
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