leadership had been focused on revenue growth at the expense
of profitability. Without a true understanding of its cost structure,
contract bids were routinely underpriced. New processes and standards were put in place, with all contract bids reviewed with the
CRO and interim-CFO to ensure an adequate level of profitability
and cash flow throughout each project based on an accurate costing
model. A number of key managers were also replaced who did not
have the ability or willingness to shift to new practices. With these
changes, the Compressor business significantly boosted performance and started to win new, profitable projects including a major,
multi-stage contract with a key customer.
Because of these actions, the company survived the liquidity crisis,
avoided bankruptcy, improved profitability and ultimately refinanced the senior debt in full. The cancerous Pipeline construction
business was successfully shut down, utilizing the remaining assets
to negotiate an out-of-court settlement with that business’ vendors.
While the rejuvenated operations were notably smaller from a
revenue standpoint, the company’s performance as measured by
EBITDA improved from a significant loss to its most profitable year
in 2016. The lender also realized a full recovery and the company
will continue to be a family-owned operation, adding to its history
of more than 50 years.
The restructuring team was empowered to act by the company’s
board of directors and quickly gained control of the situation. Open
communication with all stakeholders was critical to success as any
one of them could have changed the direction of the turnaround
to a liquidating bankruptcy. The restructuring team was able to
clearly outline a path forward that respected each of the stakeholder’s rights, based on a plan with superior economic outcomes.
Alternative options were preserved and respected by the turnaround team with risks mitigated throughout the process. As such,
each stakeholder was willing to support the process and provided
the company the time to achieve the turnaround successfully.
This case highlights the importance for a clearly defined turnaround plan that respects the rights of all stakeholders, preserves
options in multiple outcome scenarios, and is openly and actively
communicated. Moreover, it illustrates how industry players
“around the table” can work together to generate value for all as
opposed to a one-sided win. abfj
CRAIG DEAN is managing principal of AEG Partners, and JON MORRISON
is a principal in the firm.
Corporate structure posed a major hurdle to resolving
issues at the troubled Pipeline unit through legal means,
since the problem business was a division. A bankruptcy
filing would place the entire company at risk. Survival
of the Compressor operations and the “good” Pipeline
business was critical to rebuilding the confidence of key
stakeholders, maintaining debt service and providing a
runway to execute a successful turnaround.
Given these constraints, the turnaround team
focused on four critical areas: separating the Pipeline
operations into a “good” and a “bad” business, opening
communications with all stakeholders, gaining full
control of liquidity and improving oversight and operating procedures within the Pipeline business.
Good Business/Bad Business
The team separated the receivables and payables associated for the good and bad portions of the Pipeline
business. Leadership was terminated, and existing
construction projects were wound down. For the bad
business, while losses were incurred, the quick action
of the shutdown mitigated even worse results. By
educating vendors on the implications of the alternatives, they were willing to accept an out-of-court settlement. In short, cash generated by receivables of the
“bad” business funded a settlement to those vendors.
Within 24 hours of finding the reporting errors, the
restructuring team reached out to the lender to review
the issues and discuss alternatives. Not only was the
company in an over-advance position, it required
additional liquidity to manage through the seasonal
slow period. Additionally, the vendor settlement would
require the use of the lender’s collateral. The team was
able to illustrate a path forward successfully, predicated
on operational improvement, asset sales and financial
commitments from certain family members that would
partially reduce the over-advance. The team consistently and aggressively communicated with the lender
to ensure its understanding of the turnaround plan
execution and progress.
As with all liquidity crisis situations, visibility and
communication are critical to successfully navigating the
crunch times. The company’s 13-week cash forecast was
overhauled to gain greater insight into individual project
level outflows and timing of customer progress payments.
Vendors were ranked by priority but all received open
communication on status and ability to pay. Collection
of receivables was pursued with vigor, and all assets were
reviewed for potential sale and cash generation.
Improve Core Operations.
Moving beyond classic restructuring tactics to address
operational improvements is core to an effective turnaround, and the CECO case was no exception. While
the business performed high quality work and enjoyed
strong relationships with its customer base, Pipeline
This case highlights the importance for a clearly defined turnaround
plan that respects the rights of all stakeholders, preserves options in
multiple outcome scenarios, and is openly and actively communicated.
Moreover, it illustrates how industry players “around the table” can
work together to generate value for all as opposed to a one-sided win.