Strategic & Operational Consulting Case Studies

Turnaround and Restructuring

Below are some examples of how we have confronted difficult situations and delivered optimal results for our clients.

 

What do I do with this Business?

 

Client Profile
Family-owned retailer

 

Situation
An iconic retail company sought out DCA’s assistance in the wake of the founder’s passing. The Company struggled in a down economy with decreasing revenues, a maturing customer demographic, an aging location and absence of good financial controls or reporting. The Company was requiring monthly infusions of cash and was increasingly contemplating bankruptcy. Additionally, the Company had a sizable lease obligation for several more years which was personally guaranteed. The owner’s widow and estate engaged DCA to help them make an informed decision relative to the business’ future and to maximize value to the estate resulting from the sale or wind-down of the Company.

 

Solution
DCA placed one of their Professionals in Residence at the Company who, along with a multi-disciplined DCA team, provided a top to bottom objective assessment of the Company’s operating performance and future prospects. This assessment identified key financial and operational opportunities for cost savings that the DCA team helped implement alongside the Company’s internal management team. While efficiencies were realized and financial controls put in place, DCA still determined that near-term profitability was likely to remain out of reach for quite some time as the business climate remained unfavorable. DCA evaluated the Company’s options to preserve its equity and maximize the value to the shareholders.

 

Results
DCA concluded that the Company’s value in a sale would likely be less than the value DCA could deliver to shareholders through an orderly wind-down and liquidation of the business. DCA negotiated a settlement with the Company’s landlord and suppliers to allow for an orderly liquidation outside of bankruptcy, saving the Company roughly $1 million dollars. DCA then assisted management to conduct an orderly liquidation of its remaining inventory. As a result of DCA’s efforts, shareholders were able to wind-down the business, take care of the Company’s loyal employees and customers, and still exceed their targeted cash value remaining in the business after satisfying all creditors and liabilities.

 
Will this downturn ever end? (#1)

 

Client Profile:
Business Services Company

 

Situation
The Company decided to expand and offer new services to a new market. Although somewhat related to its original business in terms of internal processes, the new services represented a distinct business sector and opportunity. Executive management contacted DCA to help them evaluate how best to structure the new enterprise within, or outside, the current business structure. DCA recommended the formation of a separate operating company, assessed funding requirements, established a shared services agreement, and designed incentive plans for employees to successfully separate the two distinct business units.

 

Solution
DCA worked with executive management to develop a plan which identified cash flow requirements; a break even analysis; valuation analysis based on public information and comparables; recommendations regarding formation of the separate operating company; development of a shared services arrangement; assets to be contributed to the new company; and incentive plan for employees including cash and stock compensation. In addition, by leveraging DCA’s strong relationships with expert legal counsel, the Company was able to streamline the entire process and complete the incorporation within 60 days. DCA also met with management regularly to track and provide feedback on the team’s performance on both the existing and new business units.

 

Results
As a result of the above efforts, the Company was able to establish the new business as a stand-alone company, improve the cash flow and profitability of its existing business, and position both businesses for significant future success and a potential sales as distinct, highly-valued assets.

 

Will this downturn ever end? (#2)

 

Client Profile:
Private Construction Services Company

Situation
The Company’s revenue had shrunk by 75% and was continuing to fall. They had already been through 6 rounds of layoffs, salary reductions, benefit reductions, and other cost-cutting measures. Still, the Company was hemorrhaging cash. As a result, their bank was becoming nervous and decided to renegotiate the terms of their credit facility. The Company, once a powerhouse within their industry, was on a slippery slope toward insolvency.

 

Solution
DCA worked with executive management to develop a written plan which identified additional cost cuts, streamlined operations and jettisoned non-critical business initiatives. In addition, by leveraging the Company’s strong vendor relationships, the Company was able to make up for the reduction in their credit line through improved vendor terms (with no associated interest, which further reduced costs). We also worked to renegotiate the terms of their facility lease which provided additional cash flow benefits. Finally, we were able to help the Company acquire other struggling contractors which were folded into the Company’s infrastructure, providing additional, profitable revenue. DCA met with management regularly to track, and provide feedback on, the team’s performance on the turnaround plan.

 

Results
As a result of the above efforts, the Company was able to improve its cash flow by nearly $3 million in less than 60 days, thereby providing the cushion it needed to weather the seasonal winter downturn and operate on a cash-flow positive basis almost immediately.

 

What happened to my bank?

 

Client Profile:
Private Business Services Company

 

Situation
The Company’s bank was recently acquired and had notified the Company that the acquiring bank did not want to renew the Company’s credit facility. Around the same time, the Company was named in a lawsuit for a considerable amount of money. As a result, new banks were reluctant to step in to provide a credit facility to the Company in light of the uncertainty surrounding the litigation. The Company would become insolvent and potentially have to declare bankruptcy if we could not replace their credit facility within 30 days.

 

Solution
DCA worked with the Company to develop a strategic plan and financial model to submit to various banks and alternative financing sources. By anticipating the needs of these financial institutions, DCA was able to accelerate the financing process. In addition, we helped the Company negotiate a 30-day extension to their expiring credit facility to allow the new lender to complete their due diligence and ensure a smooth transition.

 

Results
By leveraging their preparation and our strong reputation and relationships with these financial institutions, the Company was able to attract several competing offers and secure a new credit facility on attractive terms. This was all completed prior to the expiration of the prior credit facility, allowing all Company operations to proceed without interruption or inconvenience.

 

Help…I am running out of Cash!

 

Client Profile:

Private Software and Services Company

Situation
The Company’s lender called us concerned about the Company’s cash burn rate and diminishing cash balance. When we first met with the Company, we discovered that they had only about 60 days of cash on hand at their current cash burn rate. They wanted us to help them raise more capital to ensure they did not run out of cash. We advised them that it would be very difficult, and costprohibitive to raise additional capital given their current operating performance.

 

Solution
We facilitated a strategic planning session with their management team, developed a revised strategic plan and operating model, and assisted them to reduce their cost structure while focusing their finite resources on those areas of the business that were critical to ensuring their long-term success and maximizing shareholder value. DCA also conducted weekly coaching meeting with the management team to track progress relative to the established plan.

 

Results
We helped the Company to reduce their operating expenses and increase revenue from existing customers to get the Company from a $1.5 million annual loss to cash-flow positive within 60 days. This allowed the Company to accumulate cash, regain the support and confidence of its lender, and renegotiate the terms of its credit agreement and eliminate its current default. By focusing its efforts and resources on fewer – but more critical – initiatives, the Company was able to return to operating profitably and accomplish its strategic goals.

 

Fairness Opinions

Below are select examples of how we have confronted difficult situations and delivered optimal results for our clients.

 

Sometimes the Right Answer is “NO”

 

Client Profile
Private Company with Sole Customer

 

Situation
The Company had a longstanding relationship with the exclusive customer for its services. Our client invested heavily in the front–end of the relationship and was now reaping the sizable benefits from their labor and investment. As a result, their customer proposed to buy out their contract in exchange for a partnership position in the customer company, with our client then joining the customer company as an employee.

 

Solution
We did a detailed and complex valuation and cashflow analysis of the two scenarios, negotiated with the bidder, and ultimately advised our client to decline the proposal.

 

Results
The client declined the proposal and continues to reap tremendous financial reward under the terms of the contractual relationship between themselves and their customer.

 

Public vs. Private

 

Client Profile
Small Public Company

 

Situation
This public company estimated that it was costing them over $1 million to remain publicly traded and was considering going private and redeploying that $1 million a year toward building their business.

 

Solution
We conducted a thorough analysis of the costs, benefits, drawbacks, and risks associated with going private versus those associated with remaining publicly–traded. We presented this analysis to the CFO, who in turn shared the analysis with the CEO and Board.

 

Results
The Company saved several months of time and tens of thousands of dollars embarking on a likely–unsuccessful attempt to take the Company private. In addition, the Company also insulated themselves and their Directors and Officers from potential liability that a going–private transaction may have brought about.

 

Quick Turnaround on Fairness Opinion

Keeps Transaction on Schedule

 

Client Profile
Public Software Company

 

Situation
Company Board evaluated an opportunity to merge with another public software company in a stock-for-stock exchange requiring a complex fairness opinion to be completed within one week. The quick turnaround required rapid and efficient coordination of all parties on both sides of the transaction.

 

Solution
DCA quickly mobilized a broad but well-coordinated team to evaluate the proposed terms of the merger; assess the historical and projected financial performance of the Company; analyze public company comparables, precedent transactions and other relevant financial metrics. With this information in hand, DCA was able to issue a definitive opinion regarding the fairness of the merger.

 

Results
DCA completed its analysis within the required time frame, allowing the Board to respond to the merger opportunity and file the SEC documents on time. One experienced board member complimented the quality of DCA’s valuation work as being of “exceptionally high quality – particularly given the short time frame.”

 

 
The Perfect Storm: Operational and Financial Issues at the Same Time

 

Client Profile:
Private Manufacturing and Distribution Company

 

Situation:
The Company had put itself into a difficult financial position due to product quality issues and some unsuccessful new product introductions. As a result, the Company was insolvent and had to resolve both operational issues and financial issues concurrently. The Company hired a DCA Principal to come in and orchestrate the turnaround.

 

Solution:
DCA’s Principal stepped in and focused initially on resolving the product defect issues and restoring its customers’ faith and confidence in the Company. Once that was accomplished, DCA helped the firm raise a small private placement to serve as a bridge until the Company could raise enough capital to return themselves to solvency. As a part of this process, DCA facilitated a merger with a publicly traded “shell’ company, making the capital raising process much easier and less expensive.

 

Result:
The Company raised three additional rounds of debt and equity capital, established a dominant market position in their core product line, and diversified into other complementary businesses. Over the ensuing couple of years the Company was recognized by several organizations (Including the L.A. Times, Ernst & Young, and Business Week Magazine) as one of the fastest growing and most successful companies in the United States.

 

DCA Helps get Public Company Righted

 

Client Profile:
Publicly Traded Medical Device Company

 

Situation:
The Company was in the process of being sanctioned by the SEC for accounting irregularities and other improprieties related to some members of the management team. The Company had just been delisted from NASDAQ. The Board reached out to DCA to have one of DCA’s Principals join the Board of directors to get the company back into compliance with the SEC and relisted on NASDAQ.

 

Solution:
A DCA Principal joined the Board and worked to improve corporate governance, compliance, and reporting transparency. He also was appointed as an Audit Committee Financial Expert as well as a member of the Compensation Committee and Special Committee dealing with the SEC investigation. In addition, the DCA representative assumed the role of negotiating the ultimate separation between the Company and its CEO, as well as the appointment of a new CEO.

 

Result:
The Company’s saw its stock price increase from $2 per share when DCA got involved to $40 per share when DCA’s involvement concluded. During this time, the Company improved its operating performance, increased transparency, terminated and replaced its CEO, settled all issues with the SEC and regained its listing with NASDAQ. The Company was ultimately acquired by a large European company, resulting in one of most successful turnarounds of its era.

 

My Business Model has to Change – Help!

 

Client Profile:
Privately Held Retail Services Company

 

Situation:
A slowing economy, the housing crash, and decreasing consumer discretionary spending were having a significant impact on the Company’s ability to grow and caused the Company to experience an increasingly difficult time finding the capital and personnel to continue its geographic expansion by opening new stores.

 

Solution:
DCA first evaluated cash flow from current and projected revenues resulting in a recommendation to restructure the Company’s cost structure to reflect the new, lower revenue reality. Recommendations also included consolidation of buying functions and inventory management, reducing headcount, renegotiating real estate leases, selling stores in remote locations and closing unprofitable stores. Finally, DCA worked with management to leverage the Company’s reputation and legacy video library to create a new business model based on recurring, monthly subscription revenues. The new software-as-a-service model focused on developing and distributing on-line educational materials, a marketing system, and customer relationship management system that would allow independent store owners to teach their customer service representatives to become more effective in dealing with their customers, accelerate the acquisition of new customers, and better manage the customers’ relationships with the stores.

 

Result:
The Company has achieved positive cash flow from operations ensuring that it is the master of its future and destiny. It has also launched the new product to significant acclaim within its industry and anticipates significant, profitable growth over the next several years positioning it well as an attractive partner or acquisition candidate.

 

Who is on First? What is on Second?

 

Client Profile:
Privately Held Professional Services Company

 

Situation:
The Company had for years operated as an egalitarian collection of partners. In an effort to grow through acquisitions, it discovered that other companies were organized in a more formal, traditional hierarchy which separated management responsibilities and authority from mere share ownership. In order to adopt best practices related to corporate governance, become more competitive and attractive to potential partners, the Company decided to reorganize itself and its approach to governance.

 

Solution:
DCA reviewed the Company’s organization structure, executive management and board of director roles and responsibilities, and accountability for operational and financial performance. It compared the Company with other companies in the same industry and surveyed current practices related to governance, board and executive management structure, roles, and responsibilities. It also evaluated and recommended changes to the Company’s compensation, bonuses, and shareholder distributions including the adoption of a new incentive stock option plan for employees.

 

Result:
The Company reorganized its board of directors formerly comprised of the eleven shareholders to a new board comprised of three inside directors and two independent directors. The new board is evaluating the Company’s organizational structure, management structure, and compensation policies. It is also revisiting the Company’s strategic plan including appropriate practice areas, growth opportunities, acquisitions, and liquidity strategy. Today the shareholders, employees, and directors know who is on first, what is on second, and how they are going to work together to get to third base.

 

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