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Transactions in Turnaround and Restructuring Situations


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David Johnson is a career change agent who has served as interim manager or financial advisor on over $5 Billion of distressed middle market transactions.

In his nearly 20 years as a change agent, David has served as an advisor, board member, interim manager, investor and operator at organizations ranging in size from pre-revenue startups to Fortune 500 organizations.

David has several publications to his credit and is a regular speaker on the topics of change management, performance improvement, turnaround and restructuring. He received his MBA from the University of Chicago and completed his undergraduate studies at Fairleigh Dickinson University.

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Transactions in Turnaround and Restructuring Situations

  1. 1. Transactions in Turnaround and Restructuring Situations Speaker: David Johnson April 18, 2013 1
  2. 2. Speaker Biography • David Johnson is a founding partner of ACM Partners. His advisory experience spans North America and ranges from pre-revenue startups to Fortune 500 companies. • An active member of the Chicago business community, David currently serves on the board of directors (audit committee) of Gateway Foundation, a $70 million nonprofit organization focused on providing substance abuse treatment. Additionally, he is an active member in several professional associations. • David’s writing has appeared in several industry publications, and he has lectured at the University of Chicago, Northwestern University, the University of Wisconsin-Madison, the University of Illinois-Chicago and Loyola University Chicago. 2
  3. 3. Transaction Bias • In the past 10 years the worlds of turnaround and transactional professionals have seen a growing convergence. • Increasingly lenders (bank and non-bank) and equity investors have shown a preference for addressing troubled situations through a transaction, rather than a multi-year turnaround. • As a result, most troubled situations can now be resolved more quickly (months rather than years), and generally out of court. • A lack of risk-tolerant capital is no longer a barrier to resolution of even the most distressed situation. It is now fair to say that there are equity investors and lenders active across the risk spectrum for companies of all sizes. 3
  4. 4. Getting a Distressed Deal Done • The role of a turnaround advisor in the shifting distressed landscape is as a facilitator, the “boots on the ground”, working with company management to steer toward a successful transaction. • Few distressed situations are purely the result of market dynamics. • Whether the issue is an under-performing core business, an ill-conceived expansion initiative, a stalled real estate development, etc. the presence of a skilled advisor experienced in the short deadlines, contentious negotiations, overwhelming information requests and persistent operational issues that mark a distressed situation can be the difference between success and failure. 4
  5. 5. Role of a Turnaround Advisor • In a distressed transaction, whether a refinancing or a sale, a turnaround advisor will often work closely with management on a day-to-day basis, facilitating the process. • While every situation is different, a in most deals, one can expect the following: – Increased Communication: A turnaround advisor will initiate regular update calls with the incumbent lender and other key stakeholders. – Assess the Problem and Act on It: Following an analysis of the situation, a turnaround advisor will begin implementing initiatives to reduce costs and maximize cash flow. – Develop and Execute Turnaround Plan: Working with all stakeholders, the turnaround advisor will develop and manage a realistic turnaround plan. 5
  6. 6. Emerging Trends 6 Deep Talent Pool Rapid Tempo Increased Asset Recoveries Active Distressed Investors Broad Refinancing Options
  7. 7. Emerging Trends Cont. Deep Talent Pool • As the turnaround industry has developed, those in need of a turnaround advisor have found that there are a number of talented professionals available. • When considering retaining a turnaround advisor, the following questions are of paramount importance: – What is the likely scope of the project? – Is industry expertise likely to add significant value? – Are there weak spots in the management team that may necessitate an interim manager? 7
  8. 8. Emerging Trends Cont. Rapid Tempo • The tempo of turnaround situations, especially from the time that an advisor is retained, has undeniably increased in recent years. • Company management can and should expect an objective assessment of a company’s near-term outlook, an action plan for managing through any liquidity pressures, and the outlines of a long-term plan to fix or sell the business within weeks. 8
  9. 9. Emerging Trends Cont. Increased Asset Recoveries • Asset recoveries have historically tended to be inversely correlated with levels of macro-economic distress (i.e. liquidations are broadly more successful in good economic times than bad). • As the broader U.S. economy has improved, asset recoveries have strengthened considerably from the lows seen in 2009. • Savvy turnaround advisors are frequently able to negotiate additional concessions from incumbent lenders when their loans are over- collateralized. 9
  10. 10. Emerging Trends Cont. Active Distressed Buyers • The growing size of distressed asset investment funds has created a large number of potential acquirers of distressed companies. • With a pool of savvy financial buyers willing to pursue distressed acquisitions, whether out of court or in the context of a 363 sale, nearly any troubled company is a potential acquisition candidate for some buyer. 10
  11. 11. Emerging Trends Cont. Broad Refinancing Options • The growing risk tolerance of many banks, as well as the increased activity of traditional non-bank commercial lenders and more opportunistic special situations lenders, has created an environment in which many troubled credits can be refinanced if the incumbent lender is seeking an exit. 11
  12. 12. Many Avenues to a Positive Outcome 12 • An incumbent lender willing to continue supporting an under-performing company is generally seeking a rationalized cost and capital structure. Turnaround • Often lender fatigue has set in in a turnaround situation, and the best outcome for all parties is for the company to find a new lender. Refinance • Fatigue sometimes extends beyond the lender to management and ownership. This may call for a distressed sale process. Sale Process
  13. 13. Key Takeaways 1. Options for troubled companies of all sizes have expanded considerably in the past decade. Denial, not a lack of options, remains the biggest enemy of a favorable outcome in these situations. 2. It is crucial that a company be proactive in addressing signs of under- performance or distress. Failing to do so risks having a sub-optimal solution imposed by incumbent capital providers. 3. It is a rare management team that is both knowledgeable and objective enough to recognize distress and take steps to address it. That role commonly falls to trusted advisors, including attorneys. 13
  14. 14. About ACM Partners • ACM Partners is a boutique financial advisory firm providing due diligence, performance improvement, restructuring and turnaround services. • David Johnson can be contacted at: – Email: – Ph: 312-505-7238 • For more information visit: 14