ASSETS Spring 2016

R E S T R U C T U R I N G l I N T E R I M M A N A G E M E N T l C O R P O R A T E D I S P O S I T I O N S
Sales Restructuring
To Increase Profitability
According to research published
last year in the Harvard Business
Review, sales organizations fail
because of challenges specific
to their development stage.
In other words, the challenges to
the sales team are related to which
of the five stages the sales
organization has developed:
Build stage The organization
is first establishing itself, and the
challenge is hiring and training
sufficient capable salespeople
to penetrate new accounts.
Complete stage The organiza-
tion is scaling to a size that allows it
to gain market share against more
established competitors. The chal-
lenge is having sales force “thrash”
in which salespeople under-perform
because of bad hiring or leave
because of insufficient sales
pipelines. As a result, staff must
be continually replaced.
Assuming the business can’t be sold as a going concern, a wind-down and
liquidation are the best opportunity to pay off the secured lender and generate
the best potential return for the unsecured creditors. A number of non-bankruptcy
options exist, but in many cases, existing management may wish to have a third
party take on the task of securing creditors' interests through an Assignment for the
Benefit of Creditors (ABC). An ABC can accomplish a great deal in a relatively short
period of time because of streamlining court involvement.
Some of the advantages of an ABC include:
ASSETSA PUBLICATION OF RESTRUCTURING ADVISORS SPRING 2016
For more information regarding on-site restructuring services, contact Restructuring Advisors at 865.567.2341
continued on page two
AnAlternativetoBankruptcy
Your firm is working with a long-standing, privately held client.
Operating performance over the long run has been strong, but over
the last three years the company has struggled. Its products are no longer
unique and today are viewed as nothing more than commodities. Over
time, the business has outgrown current management capabilities and
the next-in-line isn’t interested or isn’t ready. With sales trending down
and payables running at an all-time high, the company is teetering on
insolvency. The owner has approached you as a long-time trusted advisor
to the company and said, “I just don’t think I can do this anymore.”
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ROBERT WEBB SENIOR CONSULTANT
An executive leader with more than 20 years of financial and manufacturing
operations management expertise, Robert L. Webb brings to the Restructuring
Advisors team both deep knowledge of the financial aspects of a business and
a broad understanding of the human factors that come into play when
a company enters troubled waters.
An area of expertise for Mr. Webb is analyzing a company’s financials and mitigating
those behaviors that contribute to its calamity. When asked how he has been able to
serve in such a wide array of industries from consumer manufacturing to industrial research
and development, he says, “We don’t have to be the industry expert. Many of our clients are
businesses that have been in operation for decades. They know their business. What they
are not as adept at are internal, organizational problems, cash flow issues, and managing
inventories. These commonly show up in the financials, however, of nearly all of our clients
regardless of the industry they are in. We help identify those problem areas and return the
organization to profitability. If someone in an industry is making money and your business
isn't, it’s because something is wrong within your organization or operations.”
Mr. Webb demonstrated his expertise in two recent engagements in distinctly different
industries. In a company serving the transportation industry he freed up $1 million on the
balance sheet to provide the company with much needed breathing room. In a custom
manufacturing and assembly business, he improved throughput by 33 percent and increased
gross margins by 5 percent by removing operating constraints and balancing the production
lines. The previous solution had been to add staff to generate more production. By reducing
employees on each line, redeploying them to additional lines, and balancing the production
speed, the business virtually eliminated WIP, reduced waste 90 percent and increased total
production 33 percent. Often the best solutions are counter-intuitive to the current practices.
“When we go into a company,” Mr. Webb says, “we go in with the attitude of belonging.
We care about and treat the business like it’s our own. We
share the same desire as the management team for positive
results and want it to be successful for the long run.” =
Company selection of the assignee,
rather than having the assignee
appointed by a court
Reduction in administrative costs
Fewer court hearings
Easier preservation of asset value
Greater flexibility in making
business choices
Transferability of assets, including
intellectual property
Maximization of the company’s
remaining value through maintaining
operations
Meeting contractual obligations
more easily
Often a more positive process than
bankruptcy, both in experience and
perception.
MEET OUR TEAM
“Having the ability to
walk people through
a business crisis can’t
be minimized.“It’s
unknown, and they
haven't been through
it before. Part of our
responsibility is to
reassure them that the
short-term pain is
going to be worth it
in the end.”
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continued on page two
RESTRUCTURING ADVISORS
works with stressed and distressed middle-market
organizations confronted with financial and operational
challenges. We provide on-site restructuring services
that increase cash flow, improve profits and optimize
operating efficiencies.
SERVICES
Financial Restructuring
Operational Restructuring
Business Assessments
Interim & Crisis Management
Bankruptcy & Liquidations
Source: Peppers & Rogers Group
of companies
motivate employees
to treat customers
fairly, and 65% provide effective
tools and training to gain trust
with their customers.
81%
THE NUMBERS

To initiate an ABC, a debtor agrees
through a contract or trust to assign the
debtor’s interest in a company’s assets
to a third-party (the assignee) for the
benefit of the debtor’s creditors. “For the
benefit of” means that the assignee will
then liquidate those assets and distrib-
ute the proceeds (less administrative
costs) to the creditors.
Just as with a bankruptcy filing, the
ABC can block creditors from pursuing
direct claims against the protected as-
sets. A major difference between an
ABC and a bankruptcy, however, is the
debtor is not discharged from remaining
debts—only the assets transferred under
the ABC are. Additionally, an ABC may
consider an owner as a significant cred-
itor, too, although the owner cannot be
treated differently by the assignee from
other creditors during asset liquidation.
Only corporation entities are eligible to
file an ABC; sole proprietorships cannot.
Deciding whether an ABC is the right
solution for a troubled company requires
analysis of many complex factors. Per-
haps the most important question to ask
is, “Does the organization have signifi-
cant assets that could bring increased
value through an ABC?” If so, an ABC
can be a great alternative to Chapter 7.
Some other factors to consider are the
importance of timing which is easier to
control under an ABC, the importance of
minimizing cost, and the need to avoid
the stigma of bankruptcy.
Because most business managers
have little day-to-day experience with
the kind of organizational crisis that can
force a business liquidation, choosing
among the alternatives to bankruptcy
requires outside, expert advice. If a busi-
ness is experiencing mounting debt and
financial distress, seeking the help of
experienced professionals earlier rather
than later gives the business the most
flexibility to achieve optimal results—the
right results fast—either through an
ABC, a bankruptcy filing, or some other
bankruptcy alternative. =
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BANKRUPTCY continued
SALES RESTRUCTURING continued
THE ACTIONS:
Working with the senior leadership
on-site and in cooperation with the
secured lender, Jim Burritt, managing
partner at Restructuring Advisors,
gained agreement with all parties that
the company did not have the ability
to continue operating as a going con-
cern. Burritt delivered a recovery val-
uation analysis that provided the
parties with a net cash flow forecast
for all wind down activities of the com-
pany. An agreement on the cash flow
forecast was completed quickly, and,
over the first week:
• facilities were secured
• equipment, account receivables,
and inventories were verified
• payroll was reduced by
87 percent.
The Restructuring Advisors team
identified that the best opportunity to
provide the maximum return was to
divide the assets and operations into
four specific business lines.
After consultation with the board
of directors and the secured lender,
Burritt identified prospective buyers
for the business lines, trade names,
customer lists, and other intellectual
property. Restructuring Advisors then
marketed the business line assets to
approximately 40 strategic and finan-
cial buyers. During the sale, existing
inventories continued to be sold and
receivables continued to be collected,
enabling the client to generate positive
cash flow. The property—approxi-
mately 240,000 square feet of indus-
trial/office space located in New
England—was placed on the market.
OUR RESULTS:
In less than 40 days three transac-
tions were completed for the sale of
the company's business lines. As the
New England real estate market for a
property of this type was weak, the
acquiring businesses received short-
term leases to continue to operate
their newly acquired business for the
specific space and time that each
needed. The leases allowed the busi-
nesses to begin generating revenue
from their new operations immediately
and provided the company with
needed cash. The building was then
sold for a respectable value with the
proceeds going to the secured credi-
tor for debt repayment. =
COMPANY:
Atlantic Extrusions Corp.
INDUSTRY:
Manufacturing, Plastic Extrusions
ANNUAL REVENUE:
$40 million
REGION:
New England
SERVICES:
Out of Court Asset Sale
CA SE ST UDY
Maintain stage The organization maximizes profit by
lowering the cost of sales and increasing the average sales
price. The challenge is finding additional revenue.
Cull stage Competitors have surpassed the company
in some way, and the challenge is to revitalize it, removing
bottom performers while nurturing existing business through
dedicated account management and customer support.
Extend stage A sales organization that successfully
restructures from the maintain stage can extend its life
through widespread product/ services adoption and
customer intimacy. The challenge is keeping and
strengthening relationships with customers.
Books, articles, and training tend to focus on the com-
ponents of selling itself, rather than these organizational
factors and how businesses should structure the sales
division to meet its specific challenges. Likewise, manage-
ment often does not anticipate that over time a sales force
needs to be restructured because the business is evolving into
a new stage; rather, as long as a given structure seems to be
meeting immediate needs, the structure will be retained. When
the challenge to an organization changes, however, active man-
agement recognizes that the business has entered a new
phase and must reorient its sales response. For example, if the
sales team begins reporting vast turnover and problems with
retaining staff, management must recognize that the organiza-
tion has passed from the build stage to the compete stage.
Because the sales force presents the organization’s prod-
ucts and services and establishes and sustains customer
relationships, a misalignment between sales force structure
and its challenges will eventually bring harm to the business. It
is imperative, therefore, that management address the problem
before a crisis develops. Otherwise, making necessary
changes in a timely manner will preclude experimentation and
adequate planning.
To restore or improve profitability in the cull stage, for
example, a company may have to improve sales-force
efficiency while controlling costs. Typically, results can be
achieved by minimizing the administrative activities of sales
personnel, streamlining procurement, automating processes,
shifting effort from small purchases to larger buyers, and
implementing new motivational and customer-support tools.
Ideally, however, all of these improvements should be inte-
grated, systemic, and ongoing, rather than coming about in
an ad hoc manner in response to an organizational emergency.
Likewise, the best ratio of inside sales personnel to out-
side sales personnel fluctuates based on the stage of the
organization. When the company is in the build and compete
stages, it will rely more on a sales force structured around out-
side personnel who work independently and off site. In the cull
stage, the organization is more likely to rely on inside personnel
who exhibit the following efficiency advantages:
Time savings because of less commuting
Cost effectiveness because of fewer travel expenses
Flexibility of schedule
Greater access to in-house support tools and data
By understanding where in the sales development stage a
company is, an organization can shape the structure of its
sales force to meet the most pressing challenges and
consequently maximize profitability. =
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THE CHALLENGE:
Headquartered in Salem (MA), Atlantic Extrusions manufactured
and distributed extruded plastic products to the furniture, utilities,
and landscaping industries. The firm struggled with the challenges
of operating a low-margin business in a high-cost environment.
Management had not achieved significant market share with any of the
company's product lines and, as a result, frequently competed solely on
price. Five executive management changes over an eight-year period
further eroded the confidence of staff members, lenders, customers,
and other stake holders.

ASSETS Spring 2016

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