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James Wheeler talks to NIM Europe’s Pierre van den Broek

Established businesses go wrong because management fails to react to change. When faced with a crisis, management feels that by doing what has always worked in the past will work again: and it does not; because things have changed.

Failure to react strategically or operationally results in degraded operational performance and from there on to a shortage of cash. It is at this point that lenders become interested. “You have moved me to a position where I feel at risk” they say. The client is of course unaware that he has moved anyone anywhere. What to do?

The client company needs two things: cash and management. Cash it likes. But cash as we see above is a dependent variable, depending on operational performance, which in turn depends on management of change. But the client company does not like outside interference. Only the best companies willingly accept management support; the bulk of companies do not, or at least not without an “arm wrestle” with the lender.

Currently lenders in general and banks in particular are “bad” because they have loaned too much in the past and “bad” because they are not lending currently. The banks have in general picked up the tab from a succession of failed governments, and currently have a bad press. Being almost universally unpopular means they are loath to press companies to accept turnaround management support.

So the banks do not have the money to lend, and also do not have the muscle to push compromised management to take on the support they need to manage out of their problems. But cash and management are what the client company needs.

A current Collingwood project shows the above to perfection, set against a political backdrop that restricts bank intervention:

Client company experiences significant volume change

• Client company fails to react
• Cash pressure ensues
• Bank approached for more money
• Bank suggests “use Collingwood” – February 2009
• Bank persuaded to put in more money
• Client company uses money and needs more
• Bank presses repeatedly to use a change management specialist or turnaround director e.g. Collingwood
• Client company agrees to “brief review” of the situation
• Collingwood selected for “brief review” (September 2009)
• Notwithstanding Collingwood and the client getting on well, Collingwood not engaged until November 2009
• Collingwood role restricted to finance
• November to January client loses £220k
• “Showdown” talks between Collingwood and the client: client agrees to extended role
• February to April client makes £170h profit: major and accelerating changes throughout the client firm

If the client had reacted earlier, the client company would only have had a £500k “hole” in their cash – reflecting the cost of responding properly to the external economic climate. But now, more than a year after they had the chance to benefit from external expertise, the client has a £2.5m “hole”, something the bank will not entertain. The client now has management support: the question is where can it get its money.

The traditional route for the client company would have been to borrow more from a bank. This option is clearly closed. An alternative would be asset based lending, but the condition of the firm is such that it would be inappropriate, and ABL funds seem to be becoming scarce.

An ambitious company might be prepared to part with equity and to opt for private equity involvement. But this takes months to organise. What to do? The road Collingwood took was to seek cash on theXtraMarket. The advantages of taking this route are:

• Quick response
• Strategically proactive partners
• A tailor made financial solution

Fortunately (and recently) the client’s situation is well on the way to resolution to the benefit of all involved.

Profile: Aidan Condie

aidan-condie@btconnect.com

Collingwood Management Limited (Collingwood) specialises in the management of change. So for example when a small company becomes a medium sized company, Collingwood can change organisation and procedures throughout to be more appropriate to the new scale of client company operations. And it can take a company from medium to large and can also manage change in shrinking companies. Collingwood works in virtually any sector, but there is a specialisation in manufacturing and to-business service. It enjoys a strong reputation with lenders, equity providers, professional advisers and other institutions.

PILOTpartners resources executives quickly for permanent, interim, non executive and short term advisory appointments from our network. They can adopt an entirely flexible approach to job hunting because they are immediately available. Very few executive search firms can function in this way. When you need a senior executive immediately for a ‘permanent’ position we offer our unique ‘RapidSearch’ service. This service is all about speed and a truly effective response to our clients’ needs.

In particular we access those executives who have been identified by us as not necessarily committed to an interim management career. Given the speed with which interim management assignments are typically sourced through PILOTpartners – 24 hours is normal – you can see how RapidSearch can transform the time it takes to get a great shortlist on to your desk.

We ask for a small retainer for RapidSearch which is not linked to remuneration. This enables us to bring all our resources to bear when the PILOTpartners research team is already busy. On successful execution we deduct the retainer from the introduction fee which is itself discounted from traditional search fee levels.

Experienced interim executives or independent directors, using their long standing professional expertise, sector knowledge, bi-lingual or bi-cultural experience, are ideally placed to support businesses needing only a ‘quick fix’ to move things on or as part of a much larger transformation programme. Here are some examples of quick fixes we have completed recently:

• Negotiating TUPE issues for investors acquiring stressed businesses;
• Renegotiating onerous leases for a retail group as part of a wider restructuring deal;
• Improving working capital by disposing of stock and improved supply chain & warehouse management;
• Untangling discredited cash flows so that the management accounts could be believed by the bank;
• Getting a failed SAP implementation programme back on track;
  At the request of a bank ‘having a quick [independent] look at a business’ as part of a proposed lending decision;
• Advising on equitable disposals of property in a family enterprise being split up;
• Short term, early stage, commercial due diligence assignments, especially in emerging markets.

Not all interim executives will consider ‘permanent’ opportunities but we find that many will do so if the opportunity is right for them and hits their sweet spot. In particular we can also access those executives who have been identified by us as not necessarily committed to an interim management career.

Given the speed with which interim management assignments are typically sourced through PILOTpartners – 24 hours is normal – you can see how RapidSearch can transform the time it takes to get a great shortlist on to your desk.

We ask for a small retainer for RapidSearch which is not linked to remuneration. This enables us to bring all our resources to bear when the PILOTpartners research team is already busy. On successful execution we deduct the retainer from the introduction fee which is itself discounted from traditional search fee levels.

They have probably achieved financial independence but want to continue their business careers by guiding start-ups, acting as devil’s advocate to understandably bullish owners,
safeguarding investor’s interests, opening doors, providing technical or scientific input or in some other way add value and weight to an existing board.

Many of our NED contacts have been the first point of client contact for senior interim assignments. If they liked the way we performed in that context, they are happy to be represented by us in their own networking.