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Turnaround specialists flourish in distressed times By BARRY SHLACHTER Clearly, bad economic headlines can be welcome news for some businesses. Take the turnaround industry. Just a few years ago, these firms were bemoaning the lack of Chapter 11 bankruptcies. Some frantically diversified into other consulting areas. But in its latest annual report, FTI, a large turnaround firm, noted that the U.S. subprime loan crisis has "erupted into a full-blown financial and economic pandemic." And it added: "Demand is accelerating and as a result we are experiencing strong momentum in our business." Viewed as ax-wielding mercenaries by some, turnaround specialists see themselves more like empathetic emergency-room physicians, combining deft scalpel swipes with a winning bedside manner to save a failing company. Whatever the image, business is booming. In North Texas, turnaround mavens from CRG Partners were recently hired to revive the Bennigan’s franchise-operating company when the Plano-based parent company suddenly filed for bankruptcy liquidation without attempting restructuring.
After rehiring staff and restoring the flow of food deliveries, CRG’s William Snyder of Southlake and Rob Carringer of Plano began helping franchisees negotiate the acquisition of shuttered but previously profitable company restaurants. Not all turnarounds take. For a variety of reasons, only half succeed, said Harlan Platt, a professor at Boston’s Northeastern University, who has researched the industry for decades and written books on the subject, including Principles of Company Renewal. Carringer recalls working with Cornerstone Products, a Plano-based maker of plastic bins and trash cans. It won huge orders from large discount chains like Wal-Mart, but then the cost of a key raw material, petroleum-based resin, doubled and customers refused to pay higher prices. The company failed, along with many competitors. "We have always viewed companies as people," said Gil Osnos, a turnaround specialist with CRG who has been in the industry for 30 years. "People get sick; so do companies. If there’s something like a flu epidemic going around, more companies get in trouble." Most turnaround firms are privately held and do not release results. But FTI said a unit devoted to turnaround consulting and merger-and-acquisition work saw a roughly 39 percent increase in operating earnings last year. Many practitioners are uncomfortable with the image created in the 1980s and 1990s by the likes of Albert "Chainsaw Al" Dunlap, who made no secret of aggressively using layoffs to radically downsize floundering companies. Allegations that the home-appliance maker Sunbeam issued false fiscal information when Dunlap was chief executive led to his abrupt ouster by handpicked board members. "There’s a Rambo image of turnaround specialists hitting the beach running, then getting their machete out to lop off a lot of heads," Osnos said. "But we’re more like the battlefield surgeons on M*A*S*H," he said, referring to the TV series about Army physicians in the Korean War who performed well under fire. Osnos complained that a "few guys garnered a lot of publicity but actually did their clients a tremendous amount of harm. Frankly, they were a discredit to our industry." When you turn a company around, 90 percent of the solution is the people and 10 percent are other things, he said. "Any practitioner worth his salt can only do things by working through the employees. Another thing is being totally honest and truthful, and able to rally the troops who remain." Carringer, who has a background in production engineering, says he spends his first day trying to get to know the management team. Then, after changing into casual attire at his hotel, he’ll return to the company plant for the second shift, moving products off the assembly line, packing boxes, all the while talking with workers. Word quickly spreads that the interim chief operating officer worked the shift and is not afraid to get his hands dirty. Such chatter, he said, often opens doors that would otherwise be more difficult to pry open. Similarly, Platt advises heading to the loading dock. "The marketing department will talk about the current campaign," the Northeastern professor says. "The executive office wants to talk to you about their dreams and complain, 'The problem is not us, it’s the industry.’ "But the guy on the loading dock sees the reality. That’s the guy who knows what’s being shipped and what’s being sent back." Snyder recalls two local cases he’s handled with far different results. He tried to save the Taylor bookstore chain by borrowing a model from Powell’s of Portland, Ore., which sells new and old books. "The company was strategically broken, just getting slaughtered by category killers like Barnes & Noble," he said of the mid-1990s case. "I went up to Portland and spoke with Powell’s and then to Cincinnati to see a store that had themed departments." Snyder tried both approaches and even had Taylor sell books online at about the same time Amazon was starting But Taylor couldn’t find a lender who shared his vision, and all nine stores closed. "It was my biggest failure," he said. Not so Furr’s, where he had the traditional cafeteria reinvent itself as an all-you-can eat concept and it clicked. That said, the job’s not for everyone. Carringer said he would discourage his children from considering a turnaround career because practitioners are never home. Only twice in decades has he had an assignment in North Texas. Then there’s the pressure. Snyder says it helps to have a Type A personality, "people who eat stress. Former military people do well; they don’t get flustered." And Snyder believes that some traits that are liabilities in other situations can be assets. "Being dysfunctional actually helps," he said. Particularly if there’s a bit of attention-deficit disorder. "You can focus for a very short, set period of time. It’s true. I’ve taken an ADD online test and found I had it. I then sent it to some of my partners, and we’re all ADD." Typically, the turnaround specialist searches for assets, like property, that can be sold and, if needed, leased back. Then lenders are contacted to see whether they will extend more credit, based on the argument that they may end up losing more if the company goes under. "It takes two to four weeks to figure out what’s wrong," Carringer said. "Then it’s another one or two months to implement the changes." Some can be painful. At idX Corp., Carringer shut two of its five factories producing fixtures for retail chains. The closures were based on productivity levels. "I pulled out $12 million in fixed costs by closing their Miami and Minneapolis plants. Those in Minneapolis had the highest tenure, with workers having about 25 years with the company." Carringer made the painful decision that all had to go. The CEO and CFO refused to address the workers, leaving the unenviable task to him. "No one knew me. I explained the situation," Carringer recalled. "Some started crying. People were yelling at me and shouting, 'Where’s the CEO? Where’s the CFO?’ I told them they were too embarrassed. It was brutal. One man threw a chair. "Maybe 100 jobs at the factory didn’t make it, but I ended up saving 500 jobs."
The industry To raise standards, the association created a three-part credentialing exam. Those who pass can call themselves a Certified Turnaround Professional. Among the biggest turnaround firms are FTI, Huron, AlixPartners, BBK, CRG and Xroads Solutions. Below that is a tier of firms with 25 professionals or fewer, then a huge pond of sole practitioners, said Harlan Platt a professor at Northeastern University. This month in New Orleans, the association will celebrate its 20th anniversary by inducting its first batch of veteran practitioners into the Turnaround, Restructuring and Distressed Investing Industry Hall of Fame.
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