The Lost Art of Turnarounds

The number of companies that are going quickly from distressed to liquidation raises the question of whether "turnarounds" have become a lost art.

There certainly is no shortage of professionals claiming to be turnaround specialists. The large restructuring firms have been adding people, as have some of the smaller firms. And, many out of work executives are now coming to market as turnaround specialists.

Notwithstanding all of this claimed expertise, liquidations are becoming more numerous.

What gives? What has changed?

In my many years of experience in the Restructuring world, first on the front lines and over the last dozen years as an advisor to professional service firms (often about their Restructuring practices), I long ago came to the conclusion that:

turnarounds are very, very tough stuff.

There are good reasons that companies become sick and curing the ills of a troubled company takes superb talent, capital and time. Talent alone has never been the entire answer.

Truth of the matter is that most of the turnarounds that have occurred in the last twenty years has been through the purchase of the sick company by private equity which injected talent and capital, which in turn created the time for a turnaround.

So what has changed that explains the rash of liquidations?

First and foremost, those private equity funds that have money for distressed investments seem to be largely sitting on the sidelines, awaiting something closer to the bottom of the cycle.

Second, capital availability to support turnarounds is much scarcer than many restructuring professionals seem to appreciate.

Third, this economy is so difficult that only the very best of turnaround experts are likely to have the skills and experience to sustain a turnaround in this environment. Many turnaround experts are skilled in cost cutting; but in this environment revenue enhancement skills are needed every bit as much.

Fourth, there is so much uncertainty about the overall economy that rallying constituents around a turnaround plan is as difficult as it ever has been.

None of these factors are stopping individuals and firms from promoting their ability to do the near impossible. Of course, when one is demanding to be paid on an hourly basis, it is pretty easy to be bullish about the prospects for a turnaround.

One has to wonder how soon we will see constituents demanding that turnaround experts put their fees (or some significant portion thereof) at risk to assure that more reality is quickly brought to the table as to the true prospects for a turnaround.

Coming next: In tomorrow's post, Is Everyone Really a Turnaround Expert?, I will share one of the reasons why I believe so strongly that the Restructuring profession must change.