The New Restructuring Talent Needed

Seldom does a week go by that I am not talking to a C-level executive or two whom is trying to position himself, or herself, to take advantage of their experience in turning around troubled companies. The logic of their thinking seems, at first blush, to be sound. In this deep and extended downturn, a ton of companies are hurting. One would think that the constituencies would be eager to replace management of the hurting companies.

When one talks to executive recruiters, the candid ones will admit that companies are not switching out management at a rapid rate. In fact, many…if not most…recruiters are struggling, just like the economy.

Every troubled company situation is unique; but, a common pattern is that everyone in management has their “head down” and is working harder than ever in an effort to hold onto their jobs. At the same time, the constituents are often, themselves, in disarray and therefore not pressing for changes in management at the rate one would expect with so much distress.

Regular readers of this blog, and experienced Restructuring professionals, know that the most common "fix" today is sale of the good assets of a troubled company pursuant to Section 363 of the Bankruptcy Code. And, most often, the assets are being sold to a strategic buyer who can add the assets to an existing operating platform.

Now anyone who thinks that buying assets from a distressed company and instantly creating real value with those assets is a simple process is likely to be in for a rude awakening. Creating real value will require buying the right assets at the right price, integrating them quickly and efficiently, and then managing the resulting entity effectively at a time when business models are changing rapidly and the economy continues a downward slide.

What is needed is a new type of C-Level executive and/or consultant.

One who is skilled at integration, nimble, fast, and comfortable with the nuances of managing in a period of unprecedented uncertainty. And, one capable of being a part of creating the new business models needed in industry after industry.

This is a great time for C-level executives and/or consultants who understand how much the world has changed and position themselves for this new world order. For sure, many constituents do not yet understand or fully appreciate this shift in necessary C-level skills. Or have the wisdom and courage to demand a change in management. But, the good news is that week by week, there will be an awakening. And, the new breed of C-level executives will get their opportunity to demonstrate how they can create real value.

Only the real value creators need apply!

Liquidations - America's Great Growth Industry

For years, the Restructuring practice in this country was fundamentally different than the U.K. practice. In this country, we had the "second chance" system. In the UK, it was more like three strikes and you are out.

In the U.S., Chapter 11 was designed to provide the troubled debtor with a second chance through a reorganization process. Heck, some companies even took multiple trips through Chapter 11, (hence the evolution of the concept of Chapter 22 [twice through an 11], Chapter 33 [three times an 11], etc.).

Our system was in sharp contrast to the U.K. norm where a failing business is effectively put in the hands of a trustee for sale to a third party.

For years, legal scholars debated the advantages and disadvantages of the two very different systems.

I find it somewhat ironic that the U.S. system has evolved to one that, at least for the time being, looks more like the U.K. system. Very, very few companies are emerging from bankruptcy. The norm in the U.S. has become a very quick sale of the "good" assets through a Section 363 sale.

Experienced Restructuring professionals know, as well as I do, some of the reasons for this change. Among the reasons are:

1. Near complete absence of DIP financing other than by hostage or vulture lenders,
2. Common absence of unpledged assets or assets with greater value than secured debt associated with the asset, and
3. Unprecedented levels of uncertainty as to the economy and as to changing industry conditions.

Today, with rare exceptions, most Restructuring firms are getting more of their revenue from liquidation activities than the from turnaround activities.

Of course, most professionals dont see it as very grand and glorious to present oneself as a liquidator. So, organizations like the Turnaround Management Association (“TMA”) flourish, while the commensurate liquidation association has yet to be even formed.

Let's be clear:

One of this country's greatest growth industries is liquidations.

Those who recognize this fact, embrace the notion, and aggressively pursue the opportunity will be among the winners among professional service firms in the coming decade.

It is fascinating to watch some law firms, some consultants, and some specialty firms quietly building the future winners...while some dinosaurs congregate around the watering hole BSing about how well they are doing and subtly asking each other when the market for turnaround work will heat up.

Change presents such great opportunities for those who truly embrace it.

Google Dominates Restructuring Field

Yes, you read that headline right!

I believe that Google is doing more to Restructure America than any single Restructuring firm. (OK, I have been known to be slightly outrageous to make a teaching point, or two.)

Truth is that most Restructuring firms...or at least those involved with consulting…are doing more work in connection with liquidations and with forensic activities than they are doing true turnaround consulting. For me, that is sad, as I was hoping that the Restructuring industry would be on the forefront of driving the changes need to make American companies more consistently competitively on a global basis.

From my vantage point, regretfully, I don’t see constituencies pushing for radical restructuring of business models and operations of troubled companies. Much more common is either (1) governmental intervention, and/or (2) bankruptcy followed by quick sale of the good assets in a Section 363 sale.

Fortunately for America, Google’s impact is being felt and industries are being restructured, albeit frequently without the help of turnaround consultants, or even any consultants. Companies, of all sizes, in a host of industries, are being forced to change to survive. And survival is frequently being driven by forces on which Google has capitalized.

Let me be clear, Google is not driving all of the change that is occurring. But,

the transition to a true information era, where enormous, relevant information is so instantly and inexpensively available, is creating intense pressure on many companies just to change to survive.

Google is a part of the force driving change, but certainly not all of it.

So, yes my headline was somewhat tongue-in-cheek. But, only somewhat.

Want to better understand the impact Google (and the related information age changes) is having. I strongly recommend Jeff Jarvis’ recent book, What Would Google Do?

Having spent virtually all of my working life in and around the Restructuring industry, I keep hoping that the industry will be a part of the redoing of the business models needed in so many industries. Sure there is good money to be made in liquidations and forensics, but there is too much talent in the industry for it to not mobilize to be a part of the re-engineering of the American economy.

At least, that is my fervent hope!