Classical Turnaround Process 16712299

8/2/2019 Classical Turnaround Process 16712299

1/7

T he C lassic F ive-StepTurnaround Process :Cas e Study o fV rodiG ene, Inc ,R U S S E L L K . B U R B A N K

K . B U R B A N Kn.igint; d irecto r o t

tliL' board ot di roc tors otr a n c is c o C l i a p tc rt h e T u r n a r o u n d M a n -

Tl t ' bus iness l i t ecycl t f i s o n e TOIIL']"c o . i s t c r t h a t a ll c o m p a n i e s r i d et h R ) n g h d u r i n g t h e c o u r s e o t t h e i re x i s t e n c f . W h i l e e ^ i c h c ( ) n i p a n y ' sl i fecycle m a y d i f f e r i n c r e m e n t a l l y in t e r m s o fi t s u l t i m a t e l e v e l o t s u c c e s s a n d d i s t r e s s , o rf a i l u r e , n o o r i ^ a n i z a t i o n is e x e m p t t r o n i e x p e -r i e n c i n g c e r t a i n d e g r e e s o t t h e l i t e c y c l e s h i g h sa n d l o w s .

M o s t f i r m s e x p e r i e n c e e a r l y d a y s o fa c h i e v e m e n t t h e in i ti a l u p h i l l c H m b - ^m a r k e d f i r s t by c a u t i o u s o p t i m i s m a n d t h e nb y i n c r e a s e d e x c i t e m e n t . T h e s i g n i n g o f a k e ys t r a t e g i c p a r t n e r s h i p o r t h e s u c c e s s f u l l a u n c ho f a c o r e b u s i n e s s p r o d u c t m a y b e l i t e c y c l em i l e s t o n e s d u r i n g t h is p h a s e . W i t h i n c r e a s e dr e v e n u e s , a p o s i t i v e c a s h f l o w , a n d s t r o i i ge m p l o y e e a n d s h a r e h o l d e r c o n f i d e n c e , t h ec o m p a n y ' s t u t u r e l o o k s b r i g h t .

J u s t a s g r a v i t y p u l l s t h e r o l l e r c o a s t e rt o w a r d t h e g r o u n d a f t e r r e a c h i n g it s p i n n a c l e ,c h a l l e n g e s t h r e a t e n a c o m p a n y ' s s u c c e ss a t s o m ep o i n t . A l o st c o n t r a c t c o u p l e d w i t h p r o d u c td i s t r i b u t i o n p r o b l e m s m a y i n i t i a t e t h i s n e wp h a s e . F o r c o r p o r a t e l e a d e r s , i t m a y s e e m e a s yt o o v e r l o o k d i t B c u l t i e s a t f ir s t . Ho we v e r , i f a no r g a n i z a t i o n d o e s n o t i m m e d i a t e l y a d d r e s sl o o m i n g p r o b l e m s , i t w i l l h e m o r r h a g e k e ye m p l o y e e s , c a s h , a n d c u s t t j m e r s . R e v e n u es o u r c e s w i l l d r y u p , a n d t h e o n c e r o s y f u t u r eb e c o m e s d i m . A n o v e r a l l s e n s e o f t e a r , p a n i c ,a n d d e s p o n d e n c y s e t s i n .

T h i s s c e n a r i o is t h e p a r t o f t h e r i d e a n yc o m p a n y w o u l d l i k e t o a v o i d . H o w c an b u s i -

n e s s l e a d e r s l e s s e n t h e i m p a c t o t a d o w n t u r n ?W h a t c a n o w n e r s a n d i n v e s t o r s d o w h e n t h efirst s igns o f d i st re s s b e c o m e e v i d e n t ? W h a ts t e p s s h o u l d t h e y t a k e t o s a v e t h e c o m p a n yfrom di s t ress?

S m a r t c o m p a n y o w n e r s a n d b o a r d s o td i r e c t o r s r e c t ) g n i z e t h a t t h e b u s i n e s s l i t e c y c l ei s p a r t o t d o i n g b u s i n e s s . T h e y s e e k w a y s t om a x i m i z e t h e p r o f i t a b l e g o o d t i m e s , a n d s e e ks t r a t e g i c g u i d a n c e a n d e x p e r t i s e t o c u r t a i l a n dr e m e d y p o t e n t i a l l y l e a n p e r i o d s . S u r p r i s i n g l y ,t h o u g h , m a n y b u s i n e s s l e a d e r s d o n o t e v e re x p e c t t h e i r o r g a n i z a t i o n s t o p e r f o r m b e l o wa v e r a g e o r w o r s e . T h e y d o n o t p l a n fo r t a l l o wp e r i o d s o r e v e n p e r i o d s o t dis t ress . In t a c t , t h e ym a y e v e n d e n y t h e i r c o m p a n y is in t r o u b l e int h e t i r s t p l a c e . L i ke a n o s t r i c h , m a n a g e m e n tm a y b u r y it s h e a d i n t h e s a n d , n o t w a n t i n g t ok n o w t h e e x t e n t o t t h e d i t f i e u l t i e s . T h e w a k e -u p c a l l u s u a l l y c o m e s w h e n a c o m p a n y h i t s ac a s h c r i s i s a n d o w n e r s a r e r e q u i r e d t o ca l l o ni t s b a n k o r i n v e s t o r s , a n d p a n i c i s s e t i n t om o t i o n .

T u r n a r o u n d p r a c t i o n c r s . in p a r t i c t i l a rt h o s e c e r t i t i e d as C T F s b y t h e A s s o c i a t i o n o fC e r t i f i e d T u r n a r o u n d P r o f e s s i o n a l s ( A C T I ' ) ,a r e t r a i n e d t o i n t e r v e n e a n d p r e v e n t c o m p a -n i e s t i o m s l i d i n g i n t o d i s t r e s s . C T P s , w h o h a v em a s t e r e d t h e A C T P ' s B o d y o f K n o w l e d g e ,e m p l o y t h e t i v e - s t e p t u r n a r o u n d p r o c e s s , am e a n s o f r e -e s t a b l is h i n g a c o m p a n y ' s v a l u e fo ral l o f it s c o n s t i t t i e n t s .

T h e f i v e - s t e p t u r n a r o u n d p r o c e s s w a sc r e a t e d m o r e t h a n 2 0 y e a r s a g o b y D o n a l d

SlTCIAI TURNAKOUNI) M A N A ( ; K M ( : N T THI=.JOURNAL o r PRIVATL Eijuiiv 5 3


2/7

E X H I B I T 1C o m p a n y Li fe C yc le w i t h P r o f e s s io n a l T u r n a r o u n d A s s is t a n c e

evue

prs

a>"ctu

//

/f Thrill

// Excitement

//

// Opt imism

/

Euphor iay^ ^ ^

Anxiety )k

\Deniai

Fear

. HopeV .\\\Panic \

\

Despondency

Opt imism

Reief /

y Turnaround with^ Early Professional Assistance

Optimism '/Turnaround with I

Late Professional Assistance //

\ Reief y\ ^ Hope ^ ^

Time

B i b e a u l t , a u t h o r ofC o r p o n u c ' t i in iaiv i i iu i: t low M a n a g e r sT u r n Lo s e r s I n t o W'liincts! I t h a s s i n c e b e e n a d o p t e d b y t h eA C T ! * a s p a r t o t it s o t l i c i a l t r a i n i n g a n d c c r t i t i c a t i o n c u r -r i c u h m i . B i b e a u l t ' s a p p r o a c h g u i d e s t u r n a r o u n d p r a c t i -t i o n e r s t o r e s t o r e c a s h f l o w , p r o t i t a b i h t y , a n d s t a k e h o l d e rc o n f i d e n c e . T h e h v e s t e p s a r e a s f o l l o w s :

S i tu a t i o n An a ly s is M a n a g e m e n t C h a n g e E m e r g e n c y A c t i o n B u s in e s s R e s t r u c t u r i n g R e t u r n to N o r m a l

W h i l e e v e r y t u r n a r o u n d s c e n a r i o is u n i q u e , e a c l is t e p is im p o r t a n t a n d m u s t b e a d d r e ss e d t o c o m p l e t e t h et u r n a r o u n d s u c c e s s f u l l y .

A n e x c e l l e n t e x a m p l e o t t h e s u c c e s s o t t h e t i v e - s t e pt u r n a r o u n d a p p r o a c h m a y b e s e e n w i t h P r o d i G e n e , I n c .,a p i o n e e r in t h e e m e r g i n g " b i o p h a r m i n g " " i n d u s t r y t h a tf a c e d b a n k r u p t c y m l a t e 2 0 0 2 . W h e n P r o d i G e n e e n t r u s t e di t s s i t u a t i o n to T h e S c o t l a n d G r o u p , I n c . , an A L T M AG r o u p , L LC c o m p a n y , it re s t o r ed t h e c o m p a n y 's m o m e n -t u m toa c h i e v e i t s g r o u n d b r e a k i n g o b j e c t i v e s .

T h i s a r t i c l e e x a m i n e s t h e s t e p s t a k e n t o t u r n a r o u n dP r o d i G e n e a n d r e s t o r e its e n t e r p r i s e v a l u e . B y s h a r m g

th i s c a se s tu d y , it is m y h o p e t h a t c o r p o r a t e b o a r d s a nb u s i n e s s o w n e r s w i l l r e c o g n i z e m o r e q u i c k l y s i g n s ou n d e r p e r f o r m a n c e , a n d k n o w t h a t e a r l y i n t e r v e n t i o n ba C T P c an p u t c o m p a n i e s ba c k o n t r a c k .

A s a sp e c i a l n o t e : I n d i v id u a l s i n t e r e s t e d i n l e a r n i nm o r e a b o u t t h e c o r p o r a t e t u r n a r o u n d p r o f e s s i o n c a n s e eo u t p r o fe s s io n a l e d u c a t i o n a n d a c c r e d i t a t io n t h r o u g h t hA C ^ T P { w w w . a c t p . o r g ) . Its r i g o r o u s c o n t i n u i n g e d u ct i o n p r o g r a m e n s u r e s th a t C T P s a r e a d e p t a t m a k i n g r a pa sse ssm e n t s o f a c o m p a n y in c r i s i s . Fu r th e r , t h e y a re sk i l l ea t d e l i v e r i n g a c t io n a b l e r e c o m m e n d a t i o n s w h i c b caq u i c k l y r e s t o r e t l i e c o m p a n y ' s w o r t h .T H E F IV E -S TE P T U R N A R O U N DM E T H O D E X P L O R E D

Bu sin e ss d e c l in e a n d fa i lu re c a n b e c a u se c i b y in t e rno r e x t e r n a l f a c t o r s , or a c o m b i n a t i o n of t h e t w o . A s( C e r t i f i e d T u r n a r o u n d P r o f e s s i o n a l . I tm d it is e sp e c i a l li m p o r t a n t t o u n d e r s t a n d t h e c a u s e s o f fa i lu r e a n d t l i e c h al e n g e s f a c e d b y o u r c l i e n t c o m p a n i e s .

W h y dob u s i n e s s e s f a i l ? A c c o r d i n g to t h e A C Te x c e s s l e v e r a g e , m a n a g e m e n t s h o r t c o m i n g s , t e c h n o l o gc h a n g e s , l o s s ot m a r k e t s h a r e , a n d a n i n e f f e c t i v e b o a r d d i r e c t o r s a r e s o m e o f t h e l e a d i n g c a u s e s o f b u s i n e s s fa i lu

54 T U T . C.\AS S I C Fiv[;-Srr;i' T U K N A I U H I N D PRnc:F.ss: C A S E S T U D Y OF PiuiiirdENE. ; 20


3/7

E X H I B I T 2ProdiGene, Inc.Enterprise Value ( J a n u a r y 1 99 7 t o J u n e 2 0 04 )

Washington PostBio Pharming Bounces Back

USAToday:Corn Nearly Escapes" LA Times:"Fearing Fields of Genes"

Aug-9e May-9B Aug-03

t o d a y . O t h e r s o u r c e s s a y t h a t i n d u s t r y w e a k n e s s , l a b o rp r o b l e m s , a n d o v e r al l e c o n o m i c c o n d i t i o n s b r e e d a n e n v i -r o n m e n t r i p e f o r d e c l i n e a n d f a i l u r e .

M a n a g e m e n t ' s i n i t i a l r e a c t i o n t o c r i s i s o f t e n g i v e sa n i n d i c a t i o n o l " t h e l o n g e v i t y o t t h e i r o r g a n i z a t i o n . T h o s el e a d e r s w h o u n d e r s t a n d t h a t p e r i o d i c d i t F i c u l t i e s a r e p a r to f t h e b u s i n e s s h fe c y c l e a n d w h o s e e k c o u n s e l e a r l y t e n dt o p r o s p e r i n t h e H i t u r e . F u r t h e r , t h e s e e x e c u t i v e s r e a l i z et h e i m p o r t a n c e o t k e e p i n g c l e a r a n d o p e n c h a n n e l s o fc o m m u n i c a t i o n w i t h a ll s t a k e h o l d e r s by p r o v i d i n g k e yi n t o r m a t i o n o n a t i m e l y b a s is .

A l t e r n a t i v e l y , s o m e c o m p a n i e s s e e . b u t i g n o r e , t h ewa rn in g s igTi s. T h e se f i rm s o ft e n d e c l in e , a n d th e n fa ilw i t h o u t i m p l e m e n t i n g d e c i s i v e r e c o v e r y m e a s u r e s .

W h a t m a n y o r g a n i z a t i o n s d o n o t r e a l i z e i s h o wqu ic k ly th e b u s in e ss Hf e c y c le c a n sh i f t . On g o ld e n d a y s ,i t is d i t l i c u l t t o i m a g e t h e w o r s t h a p p e n i n g , a n d y e t s m a r tb u s in e s s l e a d e r s k n o w i t is i m p o r t a n t t o p r e p a r e f o r anu n e x p e c t e d d o w n t u r n .

P r o d i G e n e w a s n o t p r e p a r e d f or a d o w n t u r n i n i tsb u s i n e s s l i t e c yc l e b e c a u s e i n i t ia l ly , i t h e l d s t r o n g p r o m i s e :

P r o d i G e n e . f o u n d e d in 1 99 5, d e v e l o p e d a n d c o m -m e r c i a l i z e d r e c o i n b i n a n t p r o t e i n s d e r i v e d f r o mt r a n s g e n i c p l a n t s f o r u s e i n t h e p r o d u c t i o n o f s u c h

p r o d u c t s a s e d i b le v a c c i n e s , a n im a l - fr e e t h e r a p e u t i c s ,a n d i n d u s t r i a l e n z y m e s .

In e a r ly 2 0 0 2 , t h e c o m p a n y c o n t r a c t e d wi t i i fa rm e rst o gr o w g e n e t ic a l ly m o d i h e d c o r n t o p r o d u c e a n e wl i n e o t p h a r m a c e u t i c a l i n t e r m e d i a r i e s . T h i s w a s am i l e s t o n e in t h e fo o d , t a n n i n g , a n d p h a r m a c e u t i c a li n d u s t r i e s , as it w as t h e f ir st l a u n c h b y a n y c o m p a n yo f a t r a n s g e n i c p l a n t p r o t e i n .Th e n d i tF i c u l t i e s e m e rg e d . I n No v e m b e r 2 0 0 2 , t h e

U.S. De p a r tm e n t o t Ag r i c u l tu re a l l e g e d th a t m a te r i a l t ro inP r o d i G e n e p l a n t s w as t o u n d i n a si lo o f s o y be a n s , t h u s c o n -t a m i n a t i n g it s c o n t e n t s . T h i s a l le g a ti o n s u b je c t e d t h e c o m -p a n y to u n we lc o m e e n v i ro n m e n ta l p ro t e s t s , a n d th e c o m p a n ya g re e d to p a y a $3 .7 m il l io n fin e a n d c o s t s . W i th o u t n e wc a p i t a l . P r o d i G e n e f a c e d i m m i n e n t b a n k r u p t c y

W h e n T h e S c o t l a n d C J ro u p , I n c . w a s e n g a g e d i nM a r c h 2003, P r o d i C i e n e w a s n e a r l y o u t o f c a s h , t h e b o a r dw a s l o s in g c o n t i d e n c e in t h e c o m p a n y 's t u n d a i n e n t a l m i s -s i o n , i n v e s t o r s w e r e d i s i l l u s i o n e d a n d e m p l o y e e s d e s p o n -d e n t . B y e m p l o y i n g t h e t l v e - s t e p t u r n a r o u n d p r o c e s s .h o w e v e r , w e w e r e a bl e to t u r n t h e c o m p a n y a r o u n d in s ixm o n t h s , a c h i e v i n g a s u bs t an t ia l t ) u t - o t - c o u r t r e s t r u c t u r i n ga n d r e c a p i t a li za t i o n u n d e r n e w o w n e r s h i p a t a S 3 0 m i l -l i o n v a l u a t i o n .

Si'KI.M TuKNAKdUNH MANAGEMENT ISSUE TH Ejc lUR NA t (IF PRIVATE E


4/7

Using ProdiCJene as a case study, this ar ticle e xploresthe t t i rnaround process tounde r s t a nd the un ique .\nd sub -stantive role each step plays in a company's recovery andres t r t ic t t i r ing.Step #1: Situation AnalysisE v e r y c o m p a n y has p e r t b r i n a n c c g a p s , but s t r u g -g l i n g c o m p a n i e s h a v e w i d e p e r f o r m a n c e g a p s t h a tc a n e n d a n g e r t li t- ir s t i rv i v a l . The S i t u a t i o n A n a l y s i si s a b s o l u t e l y e s s e n t i a l to j s c e r t a i i i the m a g n i t u d eo t the gap andtod e t e r m i n e the av a i labi l i ty t i f sp e -c i f i c r e s o u r c e s to c l o s e the gap. If t h e gap c a n n o tb e c l o s e d to a c h i e v e at l e a s t a b r e a k - e v e n r e t u r nw i t h i n a reasoTKible time, the c o m p a n y is not v iable .

D o n ald BihiWih, CTP(Prcs id a i t ,Bihcatili & Asfo d ak ' s )

M u c h ot the f ive-s tage turnaround process tocuseson the pr e se n t andp l a n n i n g tbr the future. Step #1 Sit-ua t ion Ana ly s i s , how e ve r , e x p lo r e s the past to revea lins ights in to why the c om pa ny l a ng u i she d . F r om th i sinvest iga t ion, a turna roimd prac t ion er can lea rn t rom pastchallenges to build a new business strategy.W h e n P r od iGe ne 's boa r d de c ide d toengage a t u r n -a r ound p r a c t ione r , it t irst sought adv ice and referrals fromits legal counsel and ou t s ide inve s to r s . The board con-d u c t e d a se a r c h , i n t e r v ie w e d se ve r a l c a nd ida te s , andengaged The S c o t l a nd Gr oup , Inc. in March 2003. Weimmedia te ly examined such quest ions as :

Is t he r e a core business and isit viable?" Is cash or bridge f inancing available to c om ple tethe tu r na r ound p r oc e ss? Are sut l ic ient manager ia l and organiza t iona lresources on board?Our analysis determined that FrodiCienc had a viablecore business , a l though the c o m p a n y was nearly brokea n d n e e d e d a n in t e r im C E O toguide the organiza t ion torecovery. I assumed the CEO role andbegan to lead thecompany's recapi ta l iza t ion and r e s t r uc tu r ing p r oc e ss byd e v e l o p i n g a p la n tha t w ou ld ke e p the company af loa twhile crafting a strategy to ensure its l ong - t e r m he a l thand profitability.

S t e p #2: M a n a g e m e n t C h a n g eT h e t ; i i l u r e o f a n e n t e r p r i s e w i t h a v i a b l e c o r e b u s i -n e s s IS i n v a r i a b l y a t t r i b t i t e d to d e c i s i o n s m a d e bym a n a g e m e n t . C o m p a n i e s in t h u m c i a l d i s t r e s sr e q u i r e s k i l l s t h a t ared is t in c t ly d i t fe ren t tVo Ti i p ro s -p e r i n g c o m p a n i e s . The r o l e otthe t u r n a r o u n d pro-t e s s i o n a l is not to "s la sh and b u r n , " but r a t h e r toa u g m e n t e x i s t i n g m a n a g e m e n t , .ind o n l y w h e nn e c e s s a r y , r e m o v e t h o s e who w o u l d i m p e d e thet u r n a r o u n d p r o c e s s .

Diji'i'i// Aiiilnciionic, C'iP( C E O , The S c o t h u u l C h v i i p , Im: a i u i

Past Clhi in ihu i . ' r i in ianmiid Md ihi i;n i ic i i t A.


5/7

' Possess s t rong negot ia t ion and in te rview ing skil ls ino r d e r t o u n d e r s t a n d a n d c o m m u n i c a t e w i t h e m -ployees and s takeholders Be ac t ion or ie nte d: se t t ing c lear , torward th inkin gobjec t ives t roni which his employees can fol lowBy th i s po in t , i t i s im por ta n t f o r t u r na r ound p r a c -t i o n e r s t o h a v e s t a t e d h o w a n d w h e n t h e t u r n a r o u n dw i l l b e c om ple te d . C TP s . l ike p r iva te e qu i ty a nd ve n -ture cap i ta l profess iona ls , t ry to de te rm ine a fixed en d -p o i n t w i t h e a c h e n g a g e m e n t a n d p r o v i d e k e ya c c om p l i shm e nt s w i th m e a su r a ble va lue a long the w ay.W i th P r od iC Je ne , fo r e x a m ple , w e de t lne d tha t o u r e x i tw o u l d o c c u r a t t h e p o i n t o f r e c a p i t a l i z a t i o n , a n d t h eb oa r d of d i r e c to r s a l loc a te d s ix m onths to a c h ie ve ou rm iss ion . O the r a s s ig nm e nt s c ou ld b e long e r o r sho r t e r

due to c i r c t in i s t a nc e s .Step #3 : Emergency ActionIn c r i si s s i t u a t i o n s , a d e b t o r m a y n e e d a d d i t i o t i a lt i m e o r c a sh t o a c c o m p l i s h a b u s in e s s r e s t r u c t u r i n g .a Tu i o f te n t h i s l e a d s t o c o n s i d e r a t i o n o t b a n k r u p t c y .H o w e v e r , b a n k r u p t c y i s a c o m p l e x p r o c e s s , it n d byi t se l f d o e s n o t s o l v e b u s i n e s s p r o b l e m s . T o e n s u r ea s u c c e ss fu l r e s u l t , t h e d e b t o r a n d i t s b a n k r u p t c yp r o f e s s i o n a l s s h o u l d , w e l l b e f o r e f i li n g , a n t i c i p a t et h e i s s u e s t h a t a r e c r i t i c a l t o s u r v i v i n g t h e b a n k -r u p t c y p r o c e s s a n d d e v e l o p a n e x i t s t r a t e g y t h a ta d d r e s s e s t h e p r o b l e m s t h a t l e d t o t h e f i l i n g . A p r u -d e n t d e b t o r w o u l d p r e p a r e a c o n t i n g e n c y p l a n f o rb a n k r u p t c y ev e n w h i le o u t - o t - c o u r t r e s t r u c t u r in gs t i l l lo o ks p r iHi i i s in g.

/.). Bobhill iSocI, Jr .(Piir t i ic i; I ' i i iso ii & Elkii is . LLP)

Du ring Step #3 . Emergency Act ion, the turnaro un dprofessional implemen ts a sho r t - te rm surviva l p lan. So me-times, this means initiating layoffs or eliminating entiredep ar tments . Und er tun ded organiza t ions may seek bridgeloa ns to t l i nd the tu r na r ound p r oc e ss un t i l t he i r r e s t r uc -t u r i n g is co mple te . In Pro diC ene 's case , aggress ive ac t ionwas required to s tem negat ive cash How and secu re su t l t -c i e n t f und ing to a c c om pl i sh the tu r na r ound .CMiapte r 11 was considered tor ProdiCiene , bntrejected. The company's irreplaceable "toolset" ot l icensedpa ten ts was a t stake and cou ld be p erman ent ly lost in aC^hapter 11 fi ling. Witho ut these pa tents, ProdiGene couldno t func t ion . An ou t - of - c ou r t r e s t r uc tu r ing wa s the on ly

viable solut io n, a lbe it a gutsy one because i t d id no t pro -tec t br idge th iancmg f rom ins ider investors , nor d id i tof te r a s tay of c redi tors . Never the less , ins ider investors ,b e he v ing in the tu r na r ou nd p la n , s te ppe d up a nd financ e da n o u t - o f - c o u r t r e s t ru c t u r i n g.Emergency action brought almost immediate changeto P r od iGe ne ' s f oc us , d i r e c t ion , a nd c om pa ny c u l tu r e .Biotechnica l pr ior i t ies were redirec ted t rom research andde ve lopm e nt to e nv i r onm e nta l s t e w a r dsh ip . O pt im is t i csa les forecas ts were sca led down, and produc t ion objec-t ive s w e r e r e p r io r i t ize d . F r e que n t a nd o pe n c om m u nic a -tions were initiated with all stakeholders. And we cu rtaileda l l non-core ac t iv i t ies whi le acce le ra t ing bi l lable work,w hic h r e su l te d in a 33 % w or k to r c e r e duc t ion a nd a 511%mon thly cash savings.W h e n i m p le m e n t in g a w or k to r c e r e d uc t ion , w e t r yto make cuts quickly and deeply. In the shor t r t in . doingso may be emotion a l ly pa inful for remaining emp loyees.However , employee mora le becomes weakened dramat-ically if layoffs are stru ng ou t. C o nc ern s over jo b stabili tydemoralize staffand paralyze rebound efforts. During thisc r i tica l s tage, res tor in g cash f low is paramo un t, but so isemployees ' fa i th in the tu ture .Step #4: Bu siness RestructuringW h e n r e s t r u c t u r i n g o r r efu K ti ic in g i s p a r t o l a t u r n -a r o i m d p l a n , t h e d e b t o r ' s m a n a g e m e n t m a y n o th a v e t h e r e s o u r c e s n e e d e d t o r e s p o n d t o i n t o r m a -t i o n a n d o t h e r d e m a n d s f r o m e x t e r n a l p a r t i e s . I nt h e s e s i t u a t i o n s , a n e x p e r i e n c e d t u r n a r o u n d p r o -f e s s i o n a l o r f i r m c a n h e l p m o v e t h e r e s t r u c t u r i n gp r o c e s s fo r w a r d . H o w e v e r , i t is i m p o r t a n t t o r t h ed e b t o r c o m p a n y t o a s se ss it s s i t u a t io n a n d t o m a t c ht h e s t y l e s a n d c a p a b i l i t i e s o f t h e c u r n a r o u n d p r o -f e s si o n a l w i t h i t s s p e c i f i c n e e d s .

No m ta C o r io (Ahi i i i i i^ i i i i i D irec to r .R e s t r u c t u r i n g G r o u p , J P M o r i ^ i ii i )

If the goa l of S tep #3 is to restore cash tlow. the aimof S tep #4 . Business Restruc tur in g, is to res tore the co m-pany's capital stru cture and profitability as a way to e nsu rea c om pa ny ' s l ong - t e r m suc c e ss . I f a c o m p a n y c a n n o temerge from this stage profitably and on the r ight track,the l ike l ihood of a success t i i l turnaround is s l im.None of ProdiCiene 's management and few t i t i t sinvestors had exper ienc e in negot ia t ing a t iuanc ia l res t ruc -tur ing, e i ther in or o ut of cour t , which was one of the rea -sons tha t i t s b oa r d of d i r e c to r s soug h t a t u r na r oundSi-ncu: T U R N A R OU N D M A N A G E M E N T I S S U E T H E JOURNA L oi- PK IVA IL EI,)U1TY 57


6/7

p ro f e ss io n a l . W e f o rm e d a n i n t e rn a l t e a m to so l i c i t s tr a t e g ici n v e s t o r s , a n d u l t i m a t e l y o n e w a s s e l e c t e d f o r e x c l u s i v en e g o t i a t i o n s . A c o n d i t i o n o f t h e n e w i n v e s t o r w a s a s u b -s t a n t i a l r e s t r u c t u r i n g o t t h e b a l a n c e s h e e t . N e g o t i a t i o n sw i t h c r e d i t o r s , l e s s o r s , a n d v e n d o r s t o e x c h a n g e d e b t f o re q u i t y a n d / o r a c c e p t c a s h - o n - c a s h d i s c o u n t s c o n t i n u e d u pu n t i l t h e v e ry h o u r o f c lo s in g th e sa le o f a m a jo r ity ' i n t e re s to f t h e c o m p a n y . A f t e r t h e c l o s e , t h e e n t e r p r i s e v a l u e o fP r o d i G e n e w a s m a r k e d a t $ 3 0 m i l l i o n . T h i s v a l u a t i o n w a sa q u i c k a n d d r a m a t i c s h i f t f r o m w h e n t h e c o m p a n y t a c e da d i tF i c u l t b a n kr t i p t c y a n d a lm o s t c e r t a in t o t a l lo ss o f v a lu e .

T o r e s t r u c t u r e a b a l a n c e s h e e t , tu r n a r o u n d p r o f e s -s i o n a l s m u s t b e c o n t i d e n t i n a c o m p a n y ' s b a s i c b u s i n e s st h r o u g h o u t t h e e n g a g e m e n t . W i t h o u t a s ol id c o r e b u s i -n e s s , t h e c h a n c e s o t a s u c ce s sfu l t u r n a r o u n d a re m j e o p -a r d y . E v e n i t a b u s i n e s s i s d e c l a r e d s o u n d d u r i n g S t e p # 1 ,i t is i m p o r t a n t t o r e - e v a l u a t e i t in e a c h s u b s e q u e n t s te p .A f t e r t h e r e f i n a n c i n g a n d r e s t r u c t u r i n g p h a s e s , w ea c k n o w l e d g e d P r o d i C J e n e ' s c o r e b u s i n e s s w i t h c o n t i n u e dc o n f i d e n c e .

A t t h i s p o i n t . T h e S c o t l a n d G r o u p , I n c . h a d m e tt h e o b je c t i v e o t i ts e n g a g e m e n t , an d P r o d i G e n e c o u l dc o n t i n u e o n i t s g r e a t e r m i s s i o n .

Step #5: Return to N ormalcyT h e h a r d e s t p a r t o f a s u c c es s fu l t u r n a r o u n d is t oc h a n g e t h e c o r p o n i t c c i i i n n c w h i c h , m o r e o f t e nt h a n n o t , is a d i r e c t l e ga c y o f t h e a c t i o n s o r s h o r t -c o m i n g s t h a t c a u s e d t h e e n t e r p r i s e t o f a i l . U n l e s st h e t u r n a r o u n d p r o c e s s i n c l u d e s e n o u g h t i m e t oe n s u r e t h a t a n e w c u l t u r e h a s ta k e n h o l d , t h e r e s t r u c -t u r e d c o m p a n y m a y fi n d i ts e l f b a c k i n t r o u b l e a g a i n .

Peter L. To n r tc l lo t , C TP (Pr in c ipa l ,A n d c K u v i B d u n i i v i I ' o u r t e l l o t l b s & C o n i p a n y

i i i n i P a s ! C h a i r m a n ,T u r n a r o u n d M a u a i i e i i ie n t A s s o c i a t i o i i)

F r o m P r o d i G e n e ' s d r a m a t i c t r a n s t b r m a t i o n . t h ec o m p a n y., a s w i t h m o s t o t h e r s u c c e s s ti il t u r n a r o u n d c o m -p a n i e s , d i d n o t r e t t i r n t o i t s f o r m e r " n o r m a l " s t a t e . P r o d i -G e n e s o l d p a t t e r n s i n c l u d e d l o s i n g m o n e y a n d n o t a c t i n ga s a r e s p o n s i b le e n v i r o n m e n t a l s t e w a r d . U n d e r t h e " n e wn o r m a l , " h o w e v e r , t h e s e u n f a v o r a b l e c o n d i t i o n s d i d n o tc o n t i n u e . T h e S c o t l a n d G r o u p , I n c . i d e n t i t l e d P r o d i G e n e ' sp r o b l e m s q u i c k l y , t h e n c r e a t e d a n e n v i r o n m e n t o f r e n e w e de m p l o y e e c o n f id e n c e a n d e n h a n c e d t bc u s o n i ts c o r e bu s i -n e s s , w h i c h w a s n e x t - g e n e r a t i o n s c i e n c e fo r a g r i c u l t u r ea n d b i o l o g y i n d u s t r i e s .

L E S S O N S L E A R N E D : S E E K C T P C O U N S E LE OR R O U T I N E A S S E S S M E N T S A N D A T T H EF I R ST S I G N O F D I S T R E S S

P r o d i G e n e ' s t e a m e m e r g e d fr om t h e t u r n a r o u np r o c e s s e x p e r i e n c e w i t h a h e a d i n e s s n o t f e lt s i n c e it s e a r ld a y s . I n h i n d s i g h t , c o u l d c o m p a n y o f f i c i a l s h a v e c u r t a i l et h e c o m p a n y ' s s l i d e i n t o d e s p o n d e n c y a n d p r e v e n t ep e n d i n g b a n k r u p t c y a n d lo s s o f v a lu a t i o n ?

G T P s a d v i s e bo a r d s t o s e e k a th i r d - p a r t y a s s e ss m e no f b u s i n e s s p e r f o r m a n c e a t t h e t l r s t s i g n o f d i s t r e s s . Ju s t ap a t i e n t s s e e a d t ) c t o r t o r A U a n n u a l c h e c k - u p , t u r n a r o u np ro f e ss io n a l s c a n p e r f o rm ro u t in e c o m p a n y "h e a l th " a sse ssm e n t s . C T P s c a n c o n d u c t a n i n d e p e n d e n t a n a l y s i s a nq u i c k ly d e t e r m i n e t h e e x t e n t o f t h e p r o b l e m a n d m a kr e c o m m e n d a t i o n s t o s o l v e i t . M i n o r d i t T i c u l t i e s m a y o n ln e e d a s i m p l e t i x, w h i l e m a jo r o n e s c o u l d r e q u i r e ae x t e n s i v e o v e r h a u l .

If a n o r g a n i z a t i o n h a s s l i p p e d i n t o c o r p o r a t e d i st r e s s , b u s in e s s o w n e r s a n d b o a r d s n o w k n o w t h e r e i s p r o v e n , ti m e - t e s t e d f iv e - s te p t u r n a r o u n d p r o c e s s t o a s c et a i n a n d , w h e n t e a s i bl e , r e s t o r e a c o m p a n y ' s v a l u e , a nth a t t r a in e d p ro f e ss io n a l s a re a v a i l a b le t o e m p lo y i t . I f s igno f t r o u b l e s u d d e n l y a p p e a r , a l l i s n o t l o s t . T h e f u t u r e c as o m e t i m e s b e ev e n b r i g h t e r a n d m o r e p r o t l ta b l e th a n t hp a s t . E a r l y r e c o g n i t i o n a n d a g g r e s s i v e a c t i o n a r e t h e o p e ra t i v e w o r d s .

7( ' o rd er repr in t s o f th i s a r t ic le , p lease co n ia c t Ajan i Mal ik aa in a i ik@ ii jo u r n ah.co u i o r 212-224-3205.

58 T HL C~LA.SSIC FIVI-.-STF:I ' T URN MU IUNU I' IUXIESS: O^ r STUDY ot I ' IUIIUGKNE. INC Sl'RlNG 200


7/7

Classical Turnaround Process 16712299

Documents