104 Road to Recovery Ch3 Part2

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Best Practices o the Best Dealmakers

Best Practices

of the Best

DealMaKers

cp 3

the roaD to recoVerYPart ii

Mastering the art of DistresseD inVesting

Merrill DataSite and The M&A Advisor Present

Featuring John Wm. (J ack) Butler, Wilbur L. Ross, Timothy Coleman

and other industry leaders


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Drawing on the experience and expertise o the best in class dealmakers, TeM&A Advisor, together with the leading provider o virtual deal management ser-

vices, Merrill DataSite, publishes the quintessential dealmakers guide series - TeBest Practices o Te Best M&A Dealmakers.

Proling the proven strategies and unique experiences o the leading M&A practi-tioners, Te Best Practices o Te Best M&A Dealmakers series is distributed inregular installments or M&A industry proessionals in both print and interactiveelectronic media. Previously published eatures and chapters are also available in the

online library o Merrill Datasite and Te M&A Advisor.

We are pleased to present Chapter 3 - Part 2: Te Road to Recovery - Masteringthe Art o Distressed Investing, which discusses best practices or buyers o dis-tressed companies or its assets. As with Part 1, which ocused on best practices romthe sellers perspective, this installment eatures candid interviews with leading prac-titioners and analysis o the most current trends in restructuring and reorganization.

Introduction


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Mastering the Art o Distressed Investing - Creating Value rom Distressed Companies

Albert Notini, senior advisor at private equity frm New Mountain Capital, and histeam identifed a distressed investment opportunity in a technology company thatwas trying to sell long-term services as well as computer products. Te theory wasthat they were touching so many customers with these products that they could up-sell them with services, Notini said, Wrong. What happened was that both sides othe business were stalling out because the cycle time or selling a product was veryrapid with no backlog, but the cycle time or selling services was multi-year. So they

had this sort o inconsistency where all the profts were coming rom the service sidebut all o the energy rom a sales point o view was going into selling the next hot(computer) box. So you had a sense o living to fght the day, but leaving the bigmoney on the table.

Notini and his team ended up breaking the business intotwo companies. We ound, when we broke the businessapart, all kinds o stranded costs where people had a ootin both sides but werent really adding value. We endedup, by doing that, with two healthy companies, both owhich ending up growing pretty well. We exited at veryattractive multiples.

As Notinis story illustrates, troubled companies can yield an attractive returnon investment (ROI) or distressed investors, provided they have the insight andthe know-how to choose the right targets and reposition them to drive value. Butdistressed investments also carry a decidedly higher degree o risk. o succeed,buyers need an investment strategy and execution plan that steers their eorts

toward the right targets. Te art o the deal is to uncover hidden value, weigh itagainst the higher risk, and establish the right deal structure, price and timing tomaximize value.

Distressed M&A transactions are more complex, require more in-depth duediligence and are subject to even more compressed timerames than M&A trans-actions or healthy companies. Tis is an area o investing where experienceddealmakers usually prevail over newcomers. Te most successul deal teams are

Te art o the deal is to uncover hidden value, weigh itagainst the higher risk, and establish the right deal structure,price and timing to maximize value.

Albert Notini onidentiying hidden valuein distressed companies.
http://www.youtube.com/watch?v=Uq5xaEiDUBw


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those who know their industry/market opportunity very well and who are alsovery experienced in working with distressed companies. As noted in a Deloittestudy Distressed M&A: Leveraging Opportunity in a Downturn, this is an area oinvesting where what you dont know can denitely hurt you.

Creditor Committees and Other Infuential Parties inDistressed Investing

In addition to taking on investments that carry a higher risk, distressedinvestors must be prepared to negotiate with not just one, but potentiallymany stakeholders who are seeking to benet rom the deal. Te purchaseror investor is oen required to negotiate with and/or placate multiple con-stituencies, including (i) senior and junior lien holders (ii) trade creditors,(iii) an unsecured creditors committee, and (iv) a bankruptcy judge.1 As

a result, the buyer must be able to address a wide array o nancial obli-gations and negotiation tactics beyond those encountered in traditionalM&A transactions.

Equally important, various stakeholders oen take an early and involvedinterest in a companys restructuring plans. Consider, or example, thebankruptcy proceedings or American Airlines parent company AMR, apublicly held company with thousands o stakeholders. In this instance,a distressed investor must be ready to negotiate with a large number oshareholders, secured debtors and unsecured debtors, employee unions,creditor committees and more.

For such troubled companies, the uture is built on a oundation o com-promise. In the case o AMR, there does need to be shared and balancedsacrice across the nancial stakeholders, said Jack Butler, internationallyrecognized leading attorney and partner at Skadden, Arps, Slate, Meagher& Flom LLP & Aliates also a member o the legal team or the unsecuredcreditors committee o AMR Corp. Butler noted, I think what the credi-tors are ocused on isnt just the cost side, its the revenue side. How do

you turn this airline, transorm it back into a competitive global airlinethat is going to have an opportunity or uture growth? Because in orderor people to share in sacrice they have to see a uture. Tey have to see adirection.

Te investors o any distressed company, regardless o its size, must under-stand the needs o its various stakeholders. Moreover, they must also be

1. Nathan Coco, Te op Five raps in Distressed M&A ransactions, Te National Law Review.


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able to communicate well and consistently, and balance stakeholders oenconficting desires with their own overall goal to drive value in their invest-ment. Without eective communication to keep negotiations moving, valueis lost rather than realized. For a lively M&A

Summit Panel discussion on the complexities ostakeholder negotiations in industries such as theairlines, CLICK HERE . Distressed Investing -Good Deals in Bad imes.

Tose who have succeeded in this arena have doneso by creating a clearly dened investment thesisthat guides all o their decisions. Indeed, in certainmarket conditions, these investors narrow theirscope even urther to the core business sectorsthey know best. As Wilbur L. Ross noted at a re-cent M&A Advisor Distressed Investing Summit,Our strategy or this year is even more than usual

to ocus on a couple o individual sectors and to try our work there.

Te rewards in acquiring a good distressed target can be high, but theyre usu-ally reserved or those who make the most inormed decisions.

Te Distressed Investing Landscape (Te Players)

Te opportunity to buy or invest in a distressed company attracts a number obuyers and nancial advisors including:

1. Private equity/distressed investors2. Distressed debt purchasers (that either buy the debt or its potential ROI or

to gain a control position in the company)3. Strategic buyers/corporations seeking to solidiy or expand their ootprint

4. urnaround executives or managers who promote the deal and may helpoperate the company aer bankruptcy

5. Distressed investment bankers promoting and nancing the transactions

Some companies participate as purely nancial investors, purchasing the distressedcompanys secured or unsecured debt as a means to diversiy their portolio. Teseinvestors steer clear o targets that will require both nancial and operational man-agement in order to gain the desired ROI. Others take a more strategic approach.Such as acquiring targets at a discounted price and add their own nancial, man-agement and operational resources to turn the company around.

Wilbur L. Ross on distressedinvesting strategies.
http://www.youtube.com/watch?v=Nreldvf6wIohttp://www.youtube.com/watch?v=0b9lKmaRwqc&feature=youtu.behttp://www.youtube.com/watch?v=Nreldvf6wIohttp://www.youtube.com/watch?v=Nreldvf6wIo


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Strategic investors also bring in additional management resources to turn a dis-tressed company around because existing management oen lacks this experience.As noted by veteran investor Mike Heisley, co-ounder and principal o StonyLane Partners, Tere is a world o dierence between someone that can managea distressed company and somebody that can manage a company.2 Nonetheless,no matter how much orethought and planning goes into a distressed investment,there is no guarantee that a distressed asset will yield the value the buyers envi-sioned.

Te ollowing pages provide insights into how the most experienced distressedinvestors approach this area o opportunity.

Sources o Distressed Opportunities

Distressed investors uncover potential targets through a number o channels,including investment banks, bankruptcy courts/lings, turnaround specialists,law rms and other advisors. Many distressed investors also conduct their ownresearch to uncover opportunities that may not yet be on anybodys radar. Teseinvestors monitor potential acquisitions by watching or additional indicators odistress such as:

Ratingdowngradesofthecompanysdebt Assetsalesorequityoerings Changesinseniormanagement Layos Pursuitofunionconcessions Exitsfromcertainbusinesslines

Impendingregulatoryinvestigations3

Given the potential or the high ROI that can be gained, many investors will go togreat lengths to identiy diamonds in the rough. Tere is plenty o competition orgood targets, as observed by im Coleman, senior managing director and head othe restructuring & reorganization group or Blackstone, a leading global invest-ment and advisory rm. Everyone, whether they are an advisor or an investor, is

Tere is a world o dierence between someone thatcan manage a distressed company and somebody thatcan manage a company. ~ Mike Heisley

2. Bright Stars Among Dark Clouds: Leaders in Distressed Investing Strategize, Distressed Investing Report, May 2009.

3. John M. Reiss, Matthew J. Kautz, Tomas E. Lauria and Gerard H. Uzzi, M&A Strategies or Bankruptcy and Distressed

Companies: Leading Lawyers on Asset Valuation, Deal Structure, and Risk Management, Important ools in DistressedM&A ransactions, White & Case, LLP. Aer 2009.


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constantly looking or that angle to nd that something that opportunity thatnobody has been thinking about, he said.

What Investors Need to Know About Distressed Investing

Experienced distressed investors advise any buyer who is new to this arena toproceed with caution. When the target is distressed, its even more critical to gaina clear understanding o the targets operations in order to gain a sense o its truepotential to deliver value. Buyers should be very wary o misjudging the target andbecoming saddled with a turnaround that requires a much deeper investment inskills and resources than they are prepared to take on.

Te best investors establish a clear investment thesis and do not let themselvesbe swayed by outside actors. For example, a company may be tempted to buy a

distressed competitor just to prevent others rom acquiring it. Or it may view theacquisition o a distressed competitor as a way to rapidly expand its product lineand sales territory. Tese decisions, when made in a reactionary mode, can bedisastrous. Te best insurance against making the wrong acquisition or the wrongreasons is to align every step o the process with the objectives o a well-developedinvestment thesis.

Financial and Operational Considerations

In looking or the sources o distress, buyers should avoid the misconception thatnancial distress is solely caused by a company taking on too much debt. Focusingtoo much on a companys debt levels can ool a buyer into thinking that the com-panys problems can be solved simply by restructuring the debt.4 In reality, mosttroubled companies become distressed through a combination o actors. Te chal-lenge lies in getting an accurate picture o the companys nances, its operationsand its potential or uture growth, given the internal and external challenges andopportunities it aces. Tis broader diligence is necessary to uncover the compa-nys true value potential and whether it can realistically be achieved.

Distressed companies can range rom challenged companies with bad balancesheets to good companies with bad balance sheets and everything in between.Gaining an accurate understanding o where the potential target truly sits in thatspectrum is critical. Jay Greyson, managing director and partner o investmentbank Vetus Partners, cautions investors to have a clear denition o the kind odistressed investment they are seeking beore they get too involved with a potentialtarget.

4. John M. Reiss, Matthew J. Kautz, Tomas E. Lauria and Gerard H. Uzzi.


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A company can be in distress or a number o reasons, Greyson said, Tere arecompanies out there that are really good businesses but they have much too muchdebt on the books. Maybe the debt was put on at a time when things were at apeak, but in an economic turndown, i they have too much debt on the books, theymay start breaking covenants and cant service the debt.

For these companies, Greyson says, the investor may be able to drive value by a-ecting a nancial turnaround. However, at the other end o the spectrum are thosebusinesses with a broken business model as well as nancial problems. urningthese companies around will require the investor to invest time and money intoorganizational, operational and nancial restructuring initiatives. Tis representsa much more involved commitment, but it has proven to be a worthy investmentstrategy or companies who know exactly what it will take to turn the companyaround and maximize its value. In these cases, many o the most successul inves-tors bring in a team o senior operational, legal and nancial experts who under-stand both what it takes to run the business and what a successul restructuringneeds to look like.

Deeper Due Diligence to Identiy the Right argets

In the distressed arena, traditional due diligence checklists and models dontnecessarily include all a buyer needs to make an inormed decision. Uncoveringthe value opportunity in a distressed target requires an investigative approach thatgoes beyond traditional due diligence. Practical operational analysis should play asignicant role in the decision process. Moreover, the analysis should be managed

by nancial, legal and operational proessionals with a solid track record o work-ing with distressed companies.

Te due diligence process should be handled very careully in order to prevent theacquisition o the wrong target, according to turnaround specialist Patrick OKeeeo OKeee Associates:

You have to understand why the company may be experiencing some distress

Te most successul investors bring in a team o senioroperational, legal and nancial experts who understand bothwhat it takes to run the business and what a successul

restructuring needs to look like.


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and what makes it an opportunity or an acquisition, so you can then under-stand what needs to change, OKeee said, What you dont want is a companythat is in distress because theyre too early in their growth cycle and have toomany unknowns in ront o them, such as a potentially unproven technologyor customer base that is not yet suciently diversied. On the fip side, you

dont want a company that is too late in their economic cycle, where the bestyou can hope is a dead cat bounce where the business is really dead and youcan maybe run it a little more protably, but the underlying undamental busi-ness is no longer competitive.

Experienced distressed investors also weigh a host o actors that go beyond op-erational and nancial perormance. For example, at a recent restructuring andturnaround conerence hosted by the Wharton Restructuring Club o Te Whar-ton School at the University o Pennsylvania, panelists identied several key ele-

ments that investors should identiy beore making an investment in a distressedbusiness:

Cost position: Know the cost position o your target as it is the ultimatearbiter o corporate confict. An investor must know the cost position othe company it is investing in relative to that o its peers in order to gaugetheir ability to compete.

Competitive Landscape: Avoid industries where competition is savage,this was likened to sharks ghting with knives. Tese types o investmentsrarely work out, particularly when combined with the added constraint oleverage, which leaves very little room or error.

Historical Perormance: How did the company perorm in the 08-09crisis? Several panelists at the Wharton Conerence noted that bankers areleaving the 08-09 nancials out o their condential inormation memorandums, which is a bad sign. It is important to understand how thecompany perormed under stressul scenarios in order to gauge its abilityto withstand another shock and preserve the equity invested.

Management: Finally, it is important to know how management handledthe last downturn. Were they a deer caught in the headlights or did they

respond aggressively and proactively? It is important to see how those whoare going to be managing your company perorm in the ace o adversity. 5

Tere are many actors that contribute to a companys distress. Acquiring onewithout a clear purpose and in-depth risk analysis can destroy rather than cre-ate value or the buyer. Because the risk/return paradox is so dierent in healthy

versus distressed markets, thorough due diligence is even more important when

5. Notes rom the 2012 Wharton Restructuring Conerence http://www.distressed-debt-investing.com/2012/02/notes-rom-2012-wharton-restructuring.html


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contemplating a distressed transaction. Issues that may not be o great concern ina healthy company may be make-or-break actors when considering a distressedcompany.6

Some Additional Considerations Beore aking on Cross-border argets

Experts also advise investors to take care when entering into the global distressedinvestment arena. Companies who have mastered distressed investing on theirhome tur may not be aware o all that they need to know to accurately evaluatea cross-border target. Governmental and cultural actors can play a pivotal rolein creating a winning deal. One o the biggest mistakes an investor can make isto acquire a target without clearly understanding the risks related to cross-borderdistressed investments. For example, according to Marcel Fournier, senior manag-ing director o private equity rm Castle Harlan, distressed investors consideringEuropean targets should be aware o additional actors that can aect their abilityto achieve their investment goals.

Specically, Fournier advises investors to understand the powerul role that gov-ernments and unions play in European companies, particularly in times o reelec-tion and high unemployment. Unions are a part o lie in Europe, much morethan were used to seeing in the United States; and governments are part o busi-ness lie as well, Fournier said, Your ability to restructure the base employee isar more limited, generally, in Europe than in the United States. Fournier added,Essentially in some cases, the government negotiates on your behal whether youlike it or not or entire industries or sectors, and then you have to implement that.

Another important actor to consider in identiying targets, according to Fournier,is that European companies have not been as ree to adjust their workorce asAmerican companies have. It has been very striking to see in an American reces-sion how quickly and prooundly American companies have adjusted in a mattero months, he said, Tis is not the case in Europe and not the habit. Govern-ments, unions, local elected bodies will stand in your way, so that has to be takeninto account in timing and cost and your overall ability to do so.

6. Deloitte, Distressed M&A: Leveraging Opportunity in a Downturn, February 2009.

Companies who have mastered distressed investing ontheir home tur may not be aware o all that they need toknow to accurately evaluate a cross-border target.


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Fournier summarized, Many o the turnarounds we see in Europe suer romgross over-employment and we have passed (on them) in many cases or thatreason. So in terms o distressed opportunities, I would personally ocus on those(turnarounds) that have simply been poorly managed or have suered rom -nancial distress, and I would be extremely careul on anything that requires deep

and substantial adjustment o the workorce. Because governments will give in topublic pressure i they have to.

Additionally, distressed investors interested in cross-border bankruptcies need to take the time to understandhow bankruptcies are handled in the targets country.Bankruptcy procedures are not uniorm across the Eu-ropean Union (EU); they are still managed according tothe specic laws o each EU country. Sorting through the

complexities o a bankrupt company with assets in Italy,France and Germany, or example, may be more chal-lenging than an investor wants to take on.

Investment Strategies o Successul Distressed Investors

o improve their odds or uncovering value-creating opportunities, the bestdistressed investors ocus on the market sectors where they have the most experi-ence and expertise. For this reason, many experts cite serial acquirers rather thanoccasional acquirers as being better at distressed investing. In one study o 26,000transactions executed between 1988 and 2010, Te Boston Consulting Groupcame to the conclusion that serial acquirers produce superior returns when theyocus on distressed assets. Although all acquisitions are complex purchasing adistressed business makes the exercise much more complex because there is oenan urgent need to restructure the target, as well as limited access to inormationduring the due diligence process. Serial acquirers appear to excel at turning thiscomplexity into value. 7

Tis is also an area where strategic investors shine. Te most successul rms ocus

on specic industries and generally take a longer view in terms o quantiying theirupside. In the opinion o im Coleman o Blackstone, Te strategic investors dowell at this, because they know the business so well that they could go in and runit i they had to. He continued, Certain nancial investors also do well, becausethey know how to leverage the operational and industry expertise o their porto-lio companies to assess a target.

Within that ramework, the most successul investors urther rene their invest-

7. Does Practice Make Perect? How the op Serial Acquirers Create Value, (Te Boston Consulting Group, Te Leipzig

Graduate School o Management, April 2011.

Marcel Fournier on

distressed investing inEurope.
http://www.youtube.com/watch?v=HUoMyIfCFvU&feature=youtu.be


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ment criteria to size up opportunities according to their rms specic goals andexperience. For example, an investor may:

Focus on Gaining a Controlling Interest

Some investors may take a minority interest in a targetas a means o getting a oot in the door, but or others,gaining a controlling interest is a must, as explained by

Anthony Polazzi o Sun Capital Partners. Weve learnedas a rm, that or our model to work eectively, we needto have control. We have experienced it rom the minor-ity perspective o being a board member and the rustra-tion o watching the board meet quarterly, and decidingon something, but it doesnt get implemented until the

next board meeting or the next board meeting aer that, Polazzi said. By then itstoo late. So rom our perspective, the rst step is control because you need to enactchange quickly. Even i you make the wrong decision, its better than no decision,

because the Number 1 issue in distressed situations is usually inertia.

Uncover Value in Industries in Decline

Some distressed investors have ound value by capitaliz-ing on companies whose products are acing imminent,but not immediate extinction. However, as Polazzi oSun Capital pointed out, timing is critical. Its importantto understand over what time period and how quickly isthe destruction o that industry, he said. Some indus-

tries move very quickly but some take a long time. Wevery successully owned, or a period o time, a com-pany called Genicom, a dot matrix printer company. O

course when we bought it everyone said, dot matrix printers are going away, andyouve got lasers, ink jets and all o this stu. But the reality was that the govern-ment wasnt going to turn around and get rid o all their dot matrix printers thenext day, even though maybe the cutting edge businesses were. Tere are still dot

Weve learned as a rm, that or our model to workeectively, we need to have control. ~ Anthony Polazzi

Anthony Polazzi ondistressed investing

strategies.

Anthony Polazzi oninvesting in industries

in decline.
http://www.youtube.com/watch?v=Ae_TSHTDZmYhttp://www.youtube.com/watch?v=fgQKpNeTNBI&feature=youtu.be


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matrix printers in use today. You might have a harder time nding them today, butthey are there.

Identiy Opportunities In ransormations

I think another way to look at opportunities is to lookor companies that are undergoing transormations,said Randall S. Eisenberg, Senior Managing Director oFI Corporate Finance practice. Tere are a series ocompanies, that because their industries have evolvedor one reason or another, need to change their businessmodel, and those that move too slowly will get caughtup in some sort o restructuring thats ripe or distressedinvestors to take a look at and be active in.

Focus On Te Market Segment With Limited Access o Refnancing

Henry Miller, Chairman o Marblegate Asset Manage-ment, noted that his rm ocuses on the middle market,where distressed investing opportunities can be oundby identiying troubled companies who have little accessto credit. Financial regulators like the FDIC are leaning

very hard on banks to get rid o assets that are troubled,

and to make it dicult or them to provide nancingin the middle market, Miller said. So the issue to meat least is access to capital. I companies have access to

capital then they can gure out a solution that works. I they dont have access tocapital, whether theyre distressed or not, they are going to be driven to a orm orestructuring because its the only solution available to them in the absence o acapital market solution.

Identiy Assets Tat Can Be Carved-Out

Some distressed investors ocus on carving out assets rom a distressed companyand setting them up to operate independently. Tese investors target large busi-nesses or corporations with embedded business units or divisions that are unpro-itable, oen because huge overhead allocations rom the corporate umbrella arechoking the business unit.

Randall Eisenberg onanalyzing distressed

companies undergoingtransormation

Henry Miller on identiying

distressed investingopportunities.
http://www.youtube.com/watch?v=DyYlJZSlVGMhttp://www.youtube.com/watch?v=PcMr_J9M4bg


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According to Jay Greyson o Vetus Partners, this is a specialized area o investingthat can be very protable or distressed investors i they have the right expertise.In his opinion, this strategy works best when its managed by a deal team and advi-sors with deep knowledge in the targets specic industry. His rm has ound thisindustry knowledge to be so critical to this process that it has ocused its invest-ment banking business on targeted industries. We sit with the managers and weask them, What i we start with a clean slate? I you were taken out o the parentcompany, what expenses would go away and how would you restructure?

In these situations the goal is to create, on a proorma basis, a P&L and balancesheet that will indicate i the carve-out will yield a protable business. Understand-ing what it takes to carve out such an opportunity takes specialized expertise.Firms who have successully engineered such transactions sta their teams withsenior proessionals who have worked in the industry and have directly relatedoperational experience that is necessary to create a workable multi-year businessplan that will drive value.

Te above examples highlight just a ew o the waysexperienced investors work to uncover diamonds inthe rough. For a more detailed discussion o how dis-tressed investors and advisors nd opportunities, clickon the photo on the le to watch an M&A Summit Panel:Te Road Back: Navigating Companies in Challengingimes.

Structure Te Deal

One o the most important decisions that a purchaser must make in connectionwith a distressed M&A transaction is how to implement the sale. Te decisionmay be driven by a myriad o actors, including (1) the nature and complexity othe business and its assets; (2) the sellers need or operating capital in the in-

I companies have access to capital then they can gureout a solution that works. ~Henry Miller

M&A Summit Panel: TeRoad Back: Navigating

Companies in Challengingimes
http://www.youtube.com/watch?v=vLdZJwzkFP4


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terim period prior to a closing; (3) the extent and priority o the existing liens; (4)acrimony among creditor constituencies; and (5) the time available to completethe transaction. Choosing the wrong approach may jeopardize or complicate theexecution o the transaction.8 Experts advise buyers to seek the advice o nancialand legal counsel who have directly related experience in structuring distressedasset transactions.

Plan For A Successul urnaround to Drive Te Greatest Value

Once value has been identied, turnaround experts like OKeee also advisewould-be buyers to actor the cost o integrating the new asset into the purchaseprice. I this is not taken into consideration in setting a price, the buyer may ndthat the asset they purchased in pursuit o adding value to the company may actu-ally have the opposite eect. No one really ocuses, rom the deal team perspec-tive, on the act that once the acquisition is done, how quickly they must moveto identiy the synergies that make the target a good acquisition, he said. Tis

is just as important, because i you have levered the transaction to any capacitywith these potential synergies and you dont get them on a timely basis, then youlloverpay or the transaction. OKeee sees this as a critical aspect o the transactionwhere investors make a lot o mistakes.

In his experience, und managers are oen willing to spend money very quickly onan acquisition in terms o purchase price, but they wont spend money on the duediligence or the turnaround eort, where they could uncork some additional value.From my standpoint, that should just be an added amount to purchase price thatyou have to pay to get the opportunity repositioned in a way that makes sense andto provide the greatest returns, said Okeee.

Defne Te Exit Strategy Upront

Many experienced distressed investors also dene their exit strategy early on, be-ore the transaction is consummated, i possible. ypically a nancial investor suchas a private equity rm has a holding period o three to seven years or the turna-

Many experienced distressed investors also denetheir exit strategy early on, beore the transaction isconsummated, i possible.

8. Nathan Coco.


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round and sale o an asset. A corporate/strategic buyer can and may hold onto theasset or a much longer period o time. Te key is to make sure that the potentialupside o a distressed investment can be realized in the time rame and accordingto a strategy that is aligned with the buyers investment goals and capabilities.

Summary

Success in distressed investing is achieved by having the right experience, a goodinvestment thesis and an exemplary team o legal, nancial and operational ad-

visors who specialize in working with distressed assets. Te successul investorknows how to combine these elements into an extremely eective oundation orsound investment decisions. Equally important, successul investors know how tomaintain a healthy sense o realism in every opportunity and do not lose sight othe end game identiying targets to maximize value or their shareholders.


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Mr. John Wm. (Jack) Butler is a Partner at Skadden, Arps, Slate, Mea-gher & Flom LLP. During Jack Butlers time at University o Michiganslaw school, the bankruptcy code o 1978 was passed, ortuitously provid-ing him with the opportunity to learn the revolutionizing discipline oreorganization o distressed business. Aer a decade spent gaining legalexperience at two Michigan law rms, he joined Skadden in 1990 as apartner and developed, what is today, one o the worlds most respectedrestructuring practices. Since then, Butler has been identied as one othe nest dealmakers by leading notable transactions such as the re-

structuring process o Delphi Corporation in 2010. oday, he is consistently recognized as aleading lawyer as he continues his ocus on corporate restructuring and reorganization. Inaddition to his notable business accomplishments, Butler is also respected or his generous

contributions to the Chicago area.

imothy Coleman is Senior Managing Director and Head o theRestructuring & Reorganization Group at Blackstone. Mr. Colemanalso serves as a member o Blackstones Executive Committee. Since

joining Blackstone in 1992, Mr. Coleman has worked on a variety orestructuring and reorganization assignments or companies, creditorgroups, special committees o corporate boards, corporate parents otroubled companies and acquirers o distressed assets. Mr. Colemansmost notable assignments include Adelphia, A&, Bear Stearns AssetManagement, Geneva Steel Company, Guangdong Enterprises, Harrahs

Jazz Company, JPS extile Group, Inc., Koll Real Estate, Xerox Corporation and XL Capital.Te International Financing Review recognized Mr. Colemans eorts in the restructur-ing o C-BASS by naming the transaction the Restructuring o the Year in 2008. Beore

joining Blackstone, Mr. Coleman was a Vice President at Citibank, where he divided histime between corporate restructuring, real estate restructuring, and loan syndications. Mr.Coleman is a requent guest lecturer at Columbia University and New York University. Heis a member o the in Motion Board o Directors and the Board o Leaders o the MarshallSchool o Business at the University o Southern Caliornia. Mr. Coleman received a B.A.rom the University o Caliornia at Santa Barbara and an M.B.A. rom the University oSouthern Caliornia.


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Marcel Fournier is Senior Managing Director o Castle Harlan. Beorejoining Castle Harlan, Mr. Fournier was Managing Director o theinvestment banking group o Lepercq, de Neufize & Co., Inc., New

York, where he was responsible or the origination and implementa-tion o various acquisitions, both domestic and international, orthe rm and or its clients. Beore joining Lepercq, de Neufize, Mr.Fournier was Assistant Director o the U. S. oce o the agency o theFrench prime minister, responsible or reviewing and assessing all or-

eign investments in France. Mr. Fournier was born and raised in France where he gradu-ated as a Civil Engineer rom the Ecole Spciale des ravaux Publics in Paris. He receivedhis M.B.A. rom the University o Chicago, and his Master o Economics rom the Univer-sit de la Sorbonne in Paris.

Jay Greyson co-ounded and serves as a Managing Director & Prin-cipal in the investment bank o Vetus Partners, the winner o sevenM&A industry Awards in 2009 (Te M&A Advisors 8th Annual M&AAwards) including the coveted Boutique investment Banking Firm othe Year. Personally, he was named Dealmaker o the Year, the high-est individual honor in investment banking. Jay is also a Co-ounder& Partner in Supply Chain Equity Partners (SCEP), the worlds onlycommitted capital Private Equity rm ocused exclusively on mak-

ing investments in the Distribution & Logistics industry. A highly experienced corporate

nance and advisory proessional, Mr. Greyson has a strong background in analyzing,structuring, negotiating and executing complex nancial and capital raising transactions,both domestically and internationally. He ocuses on sourcing and leading the executiono private and public company sell-side Mergers & Acquisitions, corporate carve-outs anddivestitures, management buyouts, buy-side programs, distressed and bankruptcy processsales, and international transactions. Uniquely, Jay combines his nance background withover a decade o extensive experience in the manuacturing, marketing and distributiono industrial products and services. Collectively, Jay has over 25 years o combined invest-ment banking, private equity and business experience during which he completed numer-ous M&A transactions, including a signicant number o cross-border deals.

Randall S. Eisenbergis Senior Managing Director at FIs Corpo-rate Finance practice and is a Co-Practice Leader o FIs servicesor underperorming companies. He has extensive experience advis-ing senior management, boards o directors and equity sponsors onhow to revitalize companies that are stagnant, underperorming or in

crisis. Mr. Eisenberg has led many high-prole national and interna-tional assignments across a multitude o industries. He is a past chair-man o the urnaround Management Association, a past president o

the Association o Certied urnaround Proessionals, and a Fellow o both the AmericanCollege o Bankruptcy and International Insolvency Institute.


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Henry S. Miller is Chairman o Marblegate Asset Management, LLCsince its ormation in 2009. He was also Co-Founder, Chairman and aManaging Director o Miller Buckre & Co., LLC rom 2002, until hisretirement in June 2011, and Chie Executive Ocer until December 31,2009. Prior to ounding Miller Buckre, Mr. Miller was Vice Chairman

and a Managing Director at Dresdner Kleinwort Wasserstein (DKW),where he served as the global head o the rms nancial restructur-ing group. Beore DKW, Mr. Miller was Managing Director and Heado both the Restructuring Group and ransportation Industry Group

o Salomon Brothers. Mr. Miller received his B.A. rom Fordham University College oArts and Sciences (now called Fordham College at Rose Hill) in 1968 and an M.B.A. romColumbia Universitys Graduate School o Business in 1970. He is a rustee o Save theChildren, Te Washington Institute or Near East Policy and Fordham University, a mem-ber o the board o directors o AIG and a member o the Board o Overseers o ColumbiaUniversitys Graduate School o Business. Mr. Miller is a ormer rustee o the urnaround

Management Association and was recently inducted into the MA Hall o Fame.

Anthony G. Polazzi is Managing Director at Sun Capital Partners.Mr. Polazzi has spent more than a decade working in private equityand leveraged nance. Prior to joining Sun Capital Partners in 2003,

Mr. Polazzi worked as an Associate in the Leveraged Finance Groupo CIBC World Markets. He received dual Bachelor o Arts degrees inEconomics and Mathematics rom Claremont McKenna College.

Mr. Patrick M. OKeee is the managing member o OKeee & Associ-ates. Mr. OKeee is recognized as an expert in the elds o corporate re-organization, debt restructuring, turnaround consulting, and renancingsolutions. Over the past 25 years o his career, Mr. OKeee has been activeas a nancial consultant and turnaround advisor to under-perormingbusinesses in various industries including retail, construction, automo-tive, manuacturing, and real estate. He has successully completed as-

signments in out-o-court and Chapter 11 restructurings. Previously, Mr.OKeee was President o the Detroit Chapter o the urnaround Management Association,a past member o International urnaround Management Association Board, and a ormeradvisory board member o the University o Detroit urnaround Management Program.


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Wilbur Ross is the Chairman and CEO o WL Ross & Co. LLC. Hehas been involved in the restructuring o over $200 billion o deaultedcompanies assets around the world. In 1998, Fortune Magazine calledhim the King o Bankruptcy. In 1999, President Kim Dae Jungawarded Ross a medal or his help during Koreas 1998 nancial crisis.Ross is a ormer Chairman o the Smithsonian National Board. Earlier,President Clinton had appointed him to the Board o the U.S.-Russia

Investment Fund, and he served as privatization advisor to ormerMayor Rudolph Giuliani. Ross serves on the Executive Committee o

the New York City Partnership and o the Japan Society and is a member o the ChairmansCircle o the U.S.-India Business Council. He is a member o the Business Roundtable andis a Board member o the Yale University School o Management, which has presented himwith its Legend o Leadership Award. He is also a member o the Committee on CapitalMarkets Regulation.

Albert A. Notini is Senior Advisor at New Mountain. Mr. Notinijoined New Mountain in August 2007. From 2007 to 2011, Mr. Notiniwas the Chairman and Chie Executive Ocer o New Mountainportolio company Apptis Inc. From 2004 to 2007, Mr. Notini was

the President and Chie Operating Ocer o Sonus Networks, Inc.Prior to joining Sonus, Mr. Notini was the Chie Financial Ocer oManuacturers Services Ltd. (MSL) rom 2000 to 2004. Beore MSL,Mr. Notini was Executive Vice President or Corporate Development

and Administration at NASDAQ-listed Wang Global Corporation rom 1994 to 1999. Mr.Notini began his career in 1984 at the law rm Hale and Dorr, LLP (now WilmerHale,LLP) where he was elected a Senior Partner. Mr. Notini served as Law Clerk to the ChieJustice o the Massachusetts Supreme Judicial Court rom 1983 to 1984 aer receivinghis J.D. rom Boston College Law School where he served as Editor in Chie o the LawReview. He holds his masters degree rom Boston University and received his A.B. rom

Boston College, summa cum laude. He is currently a director o Deltek, Inc., Camber Cor-poration, Valet Waste and Iron Bow.


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users worldwide, as well as real-time activity reports, site-wide search at the documentlevel, enhanced communications through the Q&A eature and superior project manage-ment service - all o which help reduce transaction time and expense. Merrill DataSitesmultilingual support sta is available rom anywhere in the world, 24/7, and can have yourVDR up and running with thousands o pages loaded within 24 hours or less.

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Te M&A Advisor was ounded in 1998 to oer insightsand intelligence on middle market activities. Over the pastourteen years we have established a premier network o M&A,urnaround and Finance proessionals.

oday, Te M&A Advisor presents, recognizes the achievement o and acilitates connec-tions between the worlds leading mergers and acquisitions, nancing and turnaroundproessionals with a comprehensive range o services including M&A SUMMIS; M&AAWARDS; M&A CONNECS ; M&A ALERS, M&A LINKS and M&A MARKE

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Proling the proven strategies and unique experiences o the leading M&A practitioners,

Te Best Practices o Te Best M&A Dealmakers series is distributed in regular

installments or M&A industry proessionals in both print and interactive electronic

media. Previously published eatures and chapters are also available in the online library

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Best Practices of the Best DealMaKers

104 Road to Recovery Ch3 Part2

Documents

Transcript of 104 Road to Recovery Ch3 Part2