When Ken Yager and his partners launched turnaround management firm Newpoint Advisors Corporation, he did so with the intention of targeting small to lower middle-market companies in a time- efficient and cost-effective way. But he wasn’t thinking small by any means.
“We do not see ourselves as a boutique but rather as a scalable enterprise that can expand our platform in terms of industry and geography,” Yager explained during a recent interview. “We are passionate about saving jobs, preserving capital and getting companies on the right track. Our focus on small to lower middle-market businesses makes us different from others in the industry.”
Meeting a Need
Yager, along with his partners Craig Pace and Katie Pace, formed Newpoint Advisors Corporation in March 2013. Two additional employees and a handful of independents are part of the team. “Our growth has been so rapid. We are grateful to have a network of top independent contractors on our bench,” Yager said.
Newpoint’s founding members made a strategic choice to focus on lower to middle-market businesses — defined as $50 million or less in revenue, with a focus on those with less than $20 million in revenue and senior credits less than $10 million. Yager explained that the process of turning around a business is very complex and made more difficult by the multiple constituencies involved, all having different agendas. Traditionally, the turnaround industry has a difficult time tailoring its services to be time and cost efficient for a small business. “We saw this as a great opportunity and built a platform to service a sector that has not been fully appreciated by our industry,” Yager said.
To help Newpoint Advisors Corporation lower the cost of delivering services to their clients, it has deployed technology, specifically the proprietary Alignment Company Scoring System — software that calculates a series of critical data points to more quickly determine the probability of success in navigating a turnaround.
One element of the scoring system determines a company management team’s ability to execute and deliver a cash-flow model within a 13-week time frame. “So we’re going beyond whether we can do it and actually determining whether the existing management team can do it,” Yager says. “It becomes a predictor of success.”
Another data point determines gaps, in areas such as revenue forecasting. Many small business owners complain that building forecasts with any degree of accuracy takes a lot of time that could be spent selling rather than planning. “But we know thoughtful forecasts are critical for developing operational and staffing plans that will help make a business a success as well as impress potential new investors,” Yager says. “Even as their business model evolves, we ensure our clients can build an accurate set of growth projections that will lead them on the right path.”
Instead of having to cover every element in a turnaround, the alignment scoring system enables Newpoint to quickly zoom in on hot spots and predict when one might happen. They can prioritize needs and deploy more naturally and cost effectively.
In conjunction with the technology strategy, Newpoint turnaround mangers set ambitious timelines and goals for themselves to produce results in a fixed period of time, through two specific offerings. One package, the “20 Day Proactive Assessment,” includes everything from management interviews to a 13-week cash-flow forecast, among other offerings. The second, “the 100 Day Turnaround,” includes all of the elements from the 20-day assessment plus a detailed project task list with an end goal such as a certain level of liquidity. “We tie our success fee to that goal so that we are paid based on our degree of success with our client,” Yager explains.
Initially, Newpoint Advisors Corporation leaders believed that traditional lenders and lawyers, who often rely on the turnaround management space, would end up being a significant referral source. They have since identified several other channels — more than a dozen — that provide opportunities, including groups that lend to or advise small businesses in the lower middle market (e.g., those who get involved in tax issues and Small Business Association-type supporter advocates). “We also believe that our model, because of stakeholder alignment, will play well with those in the entrepreneurial, growth-oriented and venture capital space,” Yager says.
Yager’s interest with the industry began when he was in high school and his father gave him a book called Corporation in Crisis: Behavioural Observations for Bankruptcy Policy by Philip B. Nelson. It provided him with a good foundation on characteristics of good and bad companies and how to detect why a bad company is failing. Yager was intrigued by the possibility of improving people’s lives, preserving jobs and saving companies, as well as the ability to see tangible changes from turnaround management.
“After I read that book I was glued to the Wall Street Journal, reading articles about turnarounds and learned about this specialized industry,” he said. “This trade group had just started in 1988 called the Turnaround Management Association, and I just followed it along.”
Entering the Turnaround Space
Yager’s early professional career included capital markets financing with Salomon Brothers, lease finance at Continental Bank; auditing at Coopers & Lybrand, where he also first tried his hand at turnaround management; and handling leverage buyouts as a VP at Bank of America, among many other roles. He also got involved in several entrepreneurial ventures — raising capital or running startups. His own startup — Bizco.com — offered an accounting back office support function. Yager got the company off the ground and sold it to another consulting firm.
Along his professional journey, Yager obtained his MBA at Kellogg School of Management and joined the TMA in 2004 to deepen his knowledge. He continues to be actively involved in the association and has moderated the group’s breakfast forum podcast. More recently, as a partner at Morris Anderson, Yager jumped fully into the turnaround space, before co-founding Newpoint Advisors Corporation.
Yager met Craig Pace five years ago as a colleague at another turnaround firm. Craig and Katie Pace met through the TMA and eventually got married. From the start, there was personal and professional chemistry between Newpoint’s three founding members.
In addition to Yager’s turnaround chops, Craig Pace, also a seasoned turnaround professional, brought expertise in managerial accounting and the entrepreneurial realm, as well as the energy and knowledge that smaller businesses crave. Katie Pace’s time spent in asset-based lending environments, her entrepreneurial instincts and ability to connect with people helped Newpoint communicate with smaller businesses in the personal way they desire. Now, the firm’s triad has created a culture that saves jobs, preserves capital and strengthens businesses in a sustainable way.
Yager and his partners see a long future ahead for the turnaround management industry, and see no signs of it disappearing. However, he anticipates it will continue to evolve dramatically. “It mirrors a lot of other financial markets because that’s what turnaround management is — a disposition of assets; these are just distressed assets,” Yager says. “Just like the stock market and commodity markets before it, the distressed market is becoming efficient based on the rule of law – the 35-year progression of the bankruptcy code.”
As such, Yager believes the industry is becoming more financially and trade oriented and less turnaround manager oriented. He turns to the recent past for perspective.
“The original turnaround management people of the 1980s didn’t have a financial market to go to liquidate assets or create capital. Those no-liquidity needs and requirements are fading, and they’re being replaced by the ability to trade these assets because there’s a lot more people willing to buy them, and buy them at higher and better values. So I see the future of the industry really becoming more of a financial market itself.”
Yager also sees a burgeoning area in the due diligence space around distress, which is why he believes accounting firms are starting to make greater inroads into this market.
This is all the net result of driving a higher number of transaction professionals and fewer number of turnaround managers, in Yager’s mind. He sees the lower middle market eventually experiencing the same trend, although it will take a little longer. But Yager has no worries about such market forces, since he has accounted for these changes in his unique business model and strategy.
“We’ve designed Newpoint to not necessarily be the investment banker, but facilitate those financial services companies that will be coming into that space and assist individuals who will be trading those assets,” Yager says.
Jill Hoffman is the editor of ABF Journal.