As the New Year begins, I am becoming more enlightened than ever about the growing proportion of arrogance in our profession. Walking out of some meetings, I feel like I have entered the Twilight Zone, where I am not sure I understand the thinking and logic of the others at the meeting or how conclusions may have been reached. Despite that situation, I have come across a few others that give us the greatest feelings of hope, fulfillment and satisfaction. To kick off 2020, here is a taste of both outcomes.
Welcome to the Twilight Zone
In January 2019, we were asked to make a pitch/presentation to a company’s stakeholders, president, chief financial officer and legal counsel about working with an investment banker (IB) to engage in a restructuring. It seemed like a reasonable project, similar to others I had successfully engineered with the likes of SSG Capital Advisors, the Griffin Group and others. However, this particular IB had different ideas. After a brief introduction, he announced, “I am the captain of this ship.” He proceeded to tell the client that he could do the turnaround work as well as the investment banking work, despite the fact he had never been recognized for managing the turnaround component of a restructuring.
Shortly after the meeting, we spoke with the company’s CEO and CFO and pointed out the company needed to be turned around before it could be sold. Our team could certainly accomplish this, and the company did have certain core prospects. I also explained that true leaders or true captains never have to tell you who they are. If they feel they have to make such a statement, it should leave you with as many questions as it may answer.
The company chose to go with the “captain.” Every three months or so I sent a follow-up email to the company president or called him to check in, but neither I or my colleagues heard back. Then, this past November, I received a follow-up text from the company’s president asking if I could call him. The IB, he said, was forcing the company to self-liquidate. The bank was no longer funding the professional we had met with, and he had moved on to another engagement.
The company was a second-generation business. The family had spent more than 75 years in the industry, and in approximately one year’s time, two generations of work and 125 jobs were most likely gone.
What I was asking myself, was, “Why did you wait so long? Why didn’t you call sooner?” The arrogance of the particular professional was a huge disappointment. There were resources that could have potentially provided a much better outcome. What seemed to be missing most was self-assessment and humility.
Early on, one of the toughest workout lenders I worked with commented, “Rob, consultants and investment bankers are like the quarterbacks. When you win (defined as success) you get too much credit, when you lose (defined as failure) you get too much blame, but once you’re there and in, we (the lender) expect success.”
When Millions of Dollars is Not Enough
In 2016, I was appointed co-trustee of an estate. There were two sets of beneficiaries that had been in a continuing lawsuit for more than seven years. The warring sides/factions weren’t totally happy, saying it mildly, with the original trustee, so I was asked to join as co-trustee. One of the main assets of the estate was an operating business, which the judge presiding over the case had instructed us to sell. The sale was completed in the spring of 2017 for an amount higher than anybody had expected.
After the sale, the estate had monetized assets in excess of $3 million after paying all expenses. Yet, two and a half years later and almost 10 years following the initial suit, the beneficiaries still fight over who gets what when. All they had/have to do is determine the percentage each constituency should receive.
One could say $3 million dollars doesn’t buy what it once would, but it certainly is real money … and nobody has taken me up on my offer to take everybody out for a burger (real or Impossible) and a beverage to negotiate a settlement. Instead they’d rather take depositions and fight it out in court, draining the estate. I continue to ponder why they persist in their approach when after two and a half years there is plenty of liquidity and no resolution.
An Oasis in the Desert
Still, despite these head scratching scenarios and the next potential Theranos and Elizabeth Homes situation always a stone’s through away … every now and then a situation gives me phenomenal hope.
A long-standing client spent five to six years transitioning his second-generation family business. We were introduced to the owner and the company when its incumbent bank had asked them to exit. The company engaged in manufacturing/distribution as well as a retail business. We assisted the client in finding a new lender — Mark Buren and Andy McGhee at Alostar Bank. Once the company’s transition was fully completed, it succeeded on a multitude of levels, including paying off its entire debt structure and reaching tremendous levels of earnings, not just EBITDA.
The owner wanted to explore a transaction. The owner selected a particular IB that was narrowly focused on his industry but not local to the business. And while this particular company had gone through a transaction almost 30 years ago, it was under an entirely different generation of leadership For this process to succeed, it was critical that the president understood the magnitude of the process so it could be explained to and executed by members of the management team.
The owner interviewed this particular investment banker. The initial presentation materials were thorough without being overwhelming. It included a timeline and an expected valuation with multiple scenarios. The owner was told initially he would likely have to keep proceeds in the company as a rollover. The IB’s senior people would be working on the transaction. In my almost three decades of work, I have rarely seen a timeline laid out as meticulously as this one was. What also struck me at the time was it not only included deliverables, contingences and other critical concerns but also established contingency plans for delays, unexpected events and resolutions to right the process if there were deviations. For the most part, this team let their completed transactions do most of the talking.
- The transaction completed within 30 days of the original projection and at a valuation + cash in the business, which I estimate at more than $70 million, give or take.
What is the Hope for the New Year?
Recently, NBA former Commissioner David Stern passed away. He has been described as a visionary, who ruthlessly ruled with compassion. He globalized the game and was at the forefront of diversifying it. Both the owners and the players had the greatest respect and love for him, which is unheard of in any other professional sport.
As we turn the calendar page, our wish list for a great, happy and healthy New Year includes:
- Who will be the next David Stern or David L. Cohen? For those that don’t recognize the name, David L. Cohen was the number two person in former Philadelphia Mayor Ed Rendell’s administration, earning approximately $125,000 per year. Late in 2019, he retired as one of the top executives of Comcast, earning $25 million a year, give or take.
- A partner on my firm EisnerAmper’s executive committee (his initials are JW) has one of the most enviable traits I can think of. He can disagree with you, say “no” to a request and still make you feel positive and respected.
Fun and Passion:
- Convention season opens: The Asset Based Capital Conference/SFNet and Distressed Investing Conference/TMA. Both with plenty of learning and networking opportunities.
And as one of the founders and developers of the Distressed Investing Conference it’s a great event. The likes of Ted Koenig and Michael Sharkey, presidents of their respected organizations, are like mayors with great insights … everybody wants to spend some time with them.
- Versa Capital’s Poker Tournament, assuming you can stay up that late, is a great fun event.
Self-Assessment and Success:
- To hope for success, to hear more of the latter situations and less of the former, and hoping that there are many opportunities for all of us.
- We all open the year with a clean slate. Wishing everybody hits all their budgets and targets and finds plenty of opportunities and the oasis in the desert.