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Funding and Reorganizing in an Economic Downturn

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Funding and Reorganizing in an Economic Downturn

  1. 1. Newhouse Partners Inc., Oakville Ontario, info@newhousepartners.com, www.newhousepartners.com
  2. 2. How to Fund and Re-organize During an Economic Downturn The Experion Group, March 24th, 2010 Shayne Tracy Florian Meyer revitalize, reposition, rebuild
  3. 3. Agenda <ul><li>Opportunities?? </li></ul><ul><li>Bankruptcy Proposal </li></ul><ul><li>First Step - Creditor Proposal Process </li></ul><ul><li>Potential Second Step - Going Bankrupt </li></ul><ul><li>When to Restructure </li></ul><ul><li>Newhouse Partner’s Process </li></ul><ul><li>Case Study Results </li></ul><ul><li>Questions </li></ul>
  4. 4. Opportunity – Lost?? <ul><li>Here is the background on one of our clients: </li></ul><ul><li>Company was not performing well </li></ul><ul><li>Bank sent loan account to Special Loans and the loans had been called </li></ul><ul><li>Had not paid CRA for sometime-CRA have closed the company bank accounts </li></ul><ul><li>Were not paying the suppliers </li></ul><ul><li>Not delivering products on time </li></ul><ul><li>Product quality was slipping </li></ul><ul><li>Only one main customer </li></ul><ul><li>Business had no organization structure </li></ul><ul><li>All doors lead to the owner </li></ul><ul><li>Partner ejected from business due to alleged Fraud </li></ul><ul><li>WHAT’s NEXT?? </li></ul>
  5. 5. Why Use the Bankruptcy Process?? <ul><li>The Bankruptcy Process is potentially a two step process. </li></ul><ul><li>First Step is to engage a Trustee and start the Creditor Proposal Process (NOI) </li></ul><ul><li>This stops all credit proceedings, such as creditor collection and CRA closing of the company bank accounts </li></ul><ul><li>Gives the company time to reorganize and make a proposal to creditors </li></ul><ul><li>Frees up cash flow, collect AR to pay the current AP and restructuring costs </li></ul><ul><li>Gives a minimum of 30 days before needing to call a creditor proposal meeting </li></ul>
  6. 6. Creditor Proposal Process <ul><li>File with courts the NOI </li></ul><ul><li>Within 10 days file a cash flow for the business </li></ul><ul><li>Trustee will notify the creditors that a Creditor Proposal is being prepared which stops the historical collection process </li></ul><ul><li>Do not pay any historical payables </li></ul><ul><li>Must stay current with all current liabilities </li></ul><ul><li>Negotiate a deal with secured creditors – likely a bank – Forbearance Agreement </li></ul><ul><li>By 30 to 45 days issue a Proposal to creditors and establish a date for the Proposal to be reviewed and voted on by the unsecured creditors </li></ul><ul><li>Offer unsecured creditors 10 to 20 cents on the dollar paid over a number of years. </li></ul><ul><li>Call the unsecured creditors and encourage them to support the proposal </li></ul><ul><li>Continued….. </li></ul>
  7. 7. Creditor Proposal Process Continued <ul><li>With Unsecured Creditor Approval next seek Court approval </li></ul><ul><li>Entire process could take up to six months </li></ul><ul><li>Once court has approved, creditors will start to received funds </li></ul><ul><li>At this point CRA – source deductions must be paid-off within six months </li></ul><ul><li>Could use SR & ED Tax Credits to help pay-off the source deductions </li></ul><ul><li>Alternative </li></ul><ul><li>If they do not approve the process the company is put into bankruptcy </li></ul><ul><li>Under the latter option the unsecured receive nothing </li></ul><ul><li>This would start the second step </li></ul>
  8. 8. Benefit of Creditor Proposal Process <ul><li>Company given time to rethink strategy </li></ul><ul><li>Time used to develop go forward plan </li></ul><ul><li>The Accounts Receivables used to fund the business going forward, almost like an equity injection </li></ul><ul><li>Gives the CRO and restructuring team to review the business </li></ul><ul><li>Identify the operational, human resources, sales and marketing issues </li></ul><ul><li>Develop steps and structure to correct these issues </li></ul><ul><li>Work with the team to ensure the entire structure will support the business </li></ul><ul><li>Work with all stakeholders to ensure the entity will success </li></ul>
  9. 9. What Happened With Our Client <ul><li>Evaluated all of the senior and mid level staff for “fit” </li></ul><ul><li>Moved or changed out the staff that were not a fit </li></ul><ul><li>Created an transition management team </li></ul><ul><li>Started to establish operating structure for the business </li></ul><ul><li>Strengthened the Sales Team to expand beyond one main client </li></ul><ul><li>Had bi-weekly town-hall meetings with all the staff </li></ul><ul><li>CRO controls finances and expenditures </li></ul><ul><li>Results: </li></ul><ul><li>AR current </li></ul><ul><li>Deliveries on time and quality greatly improved </li></ul><ul><li>Company started to work like a well oiled machine </li></ul><ul><li>Started to deliver to two additional clients </li></ul>
  10. 10. Second Step - Going Bankrupt?? <ul><li>Creditor do not support company or </li></ul><ul><li>Company can not pay the creditors </li></ul><ul><li>Next Step: </li></ul><ul><li>Them company goes bankrupt </li></ul><ul><li>Trustee must sell the assets to the highest bidder </li></ul><ul><li>CRO could work with the Trustee to make an offer for the assets </li></ul><ul><li>If successful this would allow operating entity and its assets to move to a clean new entity with no debts </li></ul><ul><li>Results: </li></ul><ul><li>All debts gone </li></ul><ul><li>Fresh start for the business </li></ul><ul><li>Original owner most likely also had to go bankrupt </li></ul>
  11. 11. The Newhouse Partners Difference <ul><li>Our experience suggested a broader solution is required </li></ul><ul><li>Restructuring provides a window of opportunity to address fundamental issues within the four pillars of the business model </li></ul><ul><ul><li>finance </li></ul></ul><ul><ul><li>human capital </li></ul></ul><ul><ul><li>marketing & sales </li></ul></ul><ul><ul><li>operations & technology </li></ul></ul><ul><li>Goals include: </li></ul><ul><ul><li>improving long term cash flow </li></ul></ul><ul><ul><li>understanding the core issues of the business </li></ul></ul><ul><ul><li>addressing these core issues with relevant disciplines </li></ul></ul><ul><ul><li>enhancing profitability </li></ul></ul><ul><ul><li>increasing corporate value </li></ul></ul>
  12. 12. When to Consider Restructuring <ul><li>10 Key questions for the CEO: </li></ul><ul><li>Is your financial performance less than what is expected? </li></ul><ul><li>Is the direction of the company clearly understood by all stakeholders? </li></ul><ul><li>Are the company's current strategies working? </li></ul><ul><li>What strategic issues need to be addressed? </li></ul><ul><li>Do customers and employees understand the company's value stream? </li></ul><ul><li>Is the company responding to market and customer demands and needs? </li></ul><ul><li>Does the company have a culture of discipline and performance? </li></ul><ul><li>Is management executing well? Are they leaders, not mere managers? </li></ul><ul><li>What is the depth of technical and people skill of management and staff? </li></ul><ul><li>Does the company have the right people in the right place doing the right things? (Jim Collins Good To Great book) </li></ul>
  13. 13. Start the Process <ul><li>proactive and coordinated across four pillars </li></ul><ul><li>multi-directional </li></ul><ul><ul><li>stakeholders </li></ul></ul><ul><ul><li>employees </li></ul></ul><ul><ul><li>clients </li></ul></ul><ul><ul><li>creditors </li></ul></ul><ul><ul><li>government </li></ul></ul>Communication is the fundamental mechanism for enabling, coordinating and managing change:
  14. 14. 0-30 Days: Stabilize <ul><li>Cash Flow and Financial Planning </li></ul><ul><li>Marketing and Sales Review </li></ul><ul><li>Human Capital Inventory & Assessment </li></ul><ul><li>Operations & Technology Evaluation </li></ul>Stop the bleeding, stabilize operations and understand the issues:
  15. 15. 30-60 Days: Plan <ul><li>Develop an 18 Month Business Plan </li></ul><ul><li>Define Market Strategy </li></ul><ul><li>Organizational Development </li></ul><ul><li>Operations & Technology Planning </li></ul>Establish a go forward strategic plan:
  16. 16. 60-90 Days: Rebuild <ul><li>Financial Optimization </li></ul><ul><li>Sales Planning and Program Implementation </li></ul><ul><li>Restructure, Realign, Team-build and Recruit </li></ul><ul><li>Operations & Technology Streamlining </li></ul>Operationalize the strategy and rebuild the organization:
  17. 17. 90 Days+: Transition <ul><li>operations stabilized </li></ul><ul><li>ramp-down period (3 to 6 months typical) </li></ul><ul><li>client management team populates executive roles </li></ul>Transition operations to client management team:
  18. 18. Case Study: Custom Manufacturer <ul><li>Symptoms </li></ul><ul><li>over promising/under delivering </li></ul><ul><li>cash flow challenges </li></ul><ul><ul><li>inability to attract “new name” clients </li></ul></ul><ul><ul><li>unpaid suppliers </li></ul></ul><ul><ul><li>employees not being paid on time </li></ul></ul><ul><ul><li>disgruntled creditors </li></ul></ul><ul><li>  Problems </li></ul><ul><li>unclear vision </li></ul><ul><li>risk averse (analysis paralysis) </li></ul><ul><li>poorly defined market strategy </li></ul><ul><li>lack of management depth </li></ul><ul><li>operations focused on customization and not creating a standardize product </li></ul>
  19. 19. Case Study: Custom Manufacturer (cont’d) <ul><li>reduced creditor debt by $1.5 million </li></ul><ul><li>wide-scale skills realignment </li></ul>Finance Human Capital Marketing & Sales Operations <ul><li>shifted from sale-driven to market-driven </li></ul><ul><li>implemented &quot;manage earnings&quot; and &quot;invest to build&quot; strategies </li></ul><ul><li>cash flow positive </li></ul><ul><li>instituted a multi-level communication plan </li></ul><ul><li>transitioned founder to sales & changed some of the senior management </li></ul><ul><li>refocused market strategy </li></ul><ul><li>Developed company structure to ensure many hands participated </li></ul><ul><li>Each area of the business was structured to enable each staff person to know their entire job and process structure </li></ul><ul><li>new external funding </li></ul><ul><li>first new-name sale in years </li></ul>
  20. 20. Case Study Summary <ul><li>Restructuring provides a window of opportunity to address fundamental problems within the four pillars of the business model </li></ul><ul><ul><li>finance </li></ul></ul><ul><ul><li>human capital </li></ul></ul><ul><ul><li>marketing & sales </li></ul></ul><ul><ul><li>operations & technology </li></ul></ul><ul><li>Benefits include: </li></ul><ul><ul><li>improving long term cash flow </li></ul></ul><ul><ul><li>renewed focus on the business </li></ul></ul><ul><ul><li>clear go forward strategy </li></ul></ul><ul><ul><li>time to establish the corporate structure </li></ul></ul><ul><ul><li>enhancing profitability </li></ul></ul><ul><ul><li>increasing corporate value </li></ul></ul>
  21. 21. Meet the Team <ul><li>Specializes in financial crisis management with specific experience in corporate leadership, finance, controllership and treasury functions. </li></ul><ul><li>Sought out by mid-sized companies for his insightful identification of recovery opportunities and his pragmatic approach to leading corporate turnarounds. </li></ul><ul><li>25 years experience </li></ul><ul><li>Specializes in assessing the people talent pool (attitudes, competency, behavior and values). </li></ul><ul><li>Designs effective organization structures </li></ul><ul><li>Known for making tough but fair people decisions to ensure the right people are in the right positions for corporate growth and profitability. </li></ul><ul><li>25 years of experience </li></ul>Florian Meyer MBA, CA Finance Practice Leader & CRO Shayne Tracy Ph.D. Human Capital Management Practice Leader
  22. 22. Summary <ul><li>Optimized Stakeholder Value </li></ul><ul><ul><li>a multi-disciplined approach addresses the root cause of the problem, not just the symptom </li></ul></ul><ul><li>Speed of Recovery </li></ul><ul><ul><li>Transform90 TM methodology </li></ul></ul><ul><li>Results Oriented </li></ul><ul><ul><li>implement what we recommend </li></ul></ul><ul><ul><li>results-based fee structure </li></ul></ul><ul><li>Reduced Risk </li></ul><ul><ul><li>seasoned senior management team with hands-on operating experience </li></ul></ul><ul><ul><li>proven track record revitalizing distressed companies </li></ul></ul><ul><ul><li>large resource of professionals within The Experion Group </li></ul></ul>
  23. 23. Newhouse Partners Inc., Oakville Ontario, info@newhousepartners.com, www.newhousepartners.com 416-873-8684 revitalize, reposition, rebuild Questions!!

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