HOLLY FELDER ETLIN
There are many kinds of turnarounds, but the most difficult
is the resuscitation of a company which has been in long-term decline. Winn Dixie was one of those companies. After
releasing earnings in early 2005, the company suffered
a significant and immediate contraction in vendor credit,
and was forced to quickly file for Chapter 11 protection.
Fortunately, it had all the key elements needed to make a
turnaround successful: a good market position (first or second
in every geography which was retained), strong management
with a new CEO--Peter Lynch (who had joined less than
six months earlier), support of its vendors, and a group of
creditors who were willing to see what management could
accomplish. However, the situation was daunting with plans to
close almost 1/3 of the chain, downsize the central overhead
structure by 40%, exit all manufacturing facilities and
rationalize the company’s distribution network—all within the
context of an unplanned Chapter 11 filing. The remaining store
base needed to be modernized, have updated offerings and
re-attract customers who had switched to other chains. On
top of that, one of the core market areas was hit by hurricane
Katrina right in the middle of the turnaround process. Using
lessons learned in several Florida hurricanes, Winn Dixie was
first to re-open stores in New Orleans post-Katrina, and won
back thousands of customers in the process—something they
replicated in subsequent stores in their core market areas.
Management also allowed their professionals to focus on
getting rid of items not core to the continuing chain, along
with cost reductions, and they focused on the reinvigoration
of the store base. What made this turnaround special was the
true partnership between management and their advisors and
constituents to create the most value in a short period of time,
overcoming significant obstacles and resulting in a successful
reorganization and exit from Chapter 11 about 18 months
after the company was forced to file.
I was engaged by a public company that had grown
expediently. An economic crisis caused the company to
default on the repayment of debt, resulting in a Chapter 11
reorganization. The stock was trading at $6.50/share.
Negotiations were held with the banks to purchase debt at a
significant discount, and a new loan was arranged. Projections
were provided to the bank to show repayment could be
accomplished within 3 years by certain assets.
During the initial 18 months, administrative expenses were
reduced from $8.5 million to $3.0 million and the stock rose
from $6.50 to $18.50/share.
The company sold a portion of its assets to repay high interest rate
debt, and create cash flow. The loan was repaid within 18 months,
causing a substantial savings. The company was freed to begin
acquiring underperforming businesses to improve operations and
generate income that could be sheltered with NOLs.
Over 15 companies were acquired, and the company was
transformed into a diversified holding company involved in
manufacturing and agri-chemicals.
The company was ultimately taken private for $55.00/share.
This matter required expertise in GlassRatner Advisory
and Capital Group’s key practice areas—turnaround, debt
restructure, repositioning, M&A, fairness opinions, and
maximizing value to the stakeholder.
For me, there are so many memorable situations that it is hard to pick
one. I have been privileged to work during my career with so many
extraordinarily talented people. The sweetest situations are the ones
for clients who I have helped go through the abyss and they have
come out on the other side stronger, profitable and generating cash.
The ones that I was able to provide with a second or sometimes third
chance and they have been able to take advantage of the new lease
on life; pardon the cliché. By the way, that pertains to companies in
both the profit and non-profit sectors. When you can help mission-driven organizations like I have, such as hospitals, youth organizations,
performing art centers, those serving the indigent population, better
serve their communities and missions, it is a special feeling.
When a company/client was originally going through a restructuring
and then I come in to consult with them for growth and expansion
opportunities and they are coming off a record year or we will get
together and they tell me how well they are doing, these are things
that make you feel good about what you do. It’s a great feeling to
know you are preserving wealth and creating and saving jobs. I’ll
receive a call or holiday gift from somebody that says I wanted to say
thank you, because, without your help, I don’t know where I would be.
Nothing is better or more memorable than that.
JOHN T. YOUNG
While certainly not the largest or highest profile, I would have
to say that my most memorable turnaround would be that of
Surefire Industries. Surefire was a relatively new company
that spawned from the nine-to-twelve-month backlog for well-completion services in 2011 and 2012. In response to heavy
demand for completion/fracking equipment, Surefire was
created and quickly became a leading supplier of hydraulic
fracturing equipment – with annual revenues topping $200
million in its second year. As the market responded to the
equipment shortfall, supply quickly surpassed demand and
orders for Surefire equipment evaporated.
As the company had ramped up quickly, adequate systems
had never been implemented. As revenues were declining,
the company discovered that prior-year earnings had been
overstated by almost $20 million. The reporting issue, coupled
with the rapid decline in revenue, resulted in one of the most
contentious lender-borrow relationship I’ve come across. Once
retained, the lender made it clear that there was a preference
to liquidate and move on. We were essentially given 60 days
to come up with an alternate solution.
We knew the management team by reputation and assessed the
team as being a significant source of value for the business. We
also knew the underlying collateral would be of very little value in
a liquidation. With no time to implement an operational solution
and no time to identify a buyer of the company – with everyone
out of ideas for a solution – I made the call that the only hope of a
favorable outcome would be to find an interested party who would
be willing to buy the paper from the lender and then transact
through a ‘friendly foreclosure.’
We aggressively scoured the market for investors who know
the playbook for such transactions and identified several that
were highly interested. We then had to work on the lender
to get them to consider trading out of the paper at some
discount to par. Working with the lender, we identified the
highest and best offer that we had for a purchase of the debt
from an investor. The lender then used the offer we sourced
as essentially a stalking horse bid for their trading desk. After
weeks of no higher bids, with literally minutes to spare on
our sixty-day forbearance, we locked down negotiated terms
between the bank, the company and the investor and moved
forward through the friendly foreclosure process.
Moreso than any other situation, this is the one everyone said
could not be done – and we did it. And a situation that could
have resulted in significant consequences for all involved,
instead resulted with a recovery to the lender significantly
higher than what would be realized through a liquidation or a
bankruptcy, recovery to most of the trades, and an ongoing
business that retained its employees and continues to operate.