Turnaround and Performance Improvement Advisors

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FOR IMMEDIATE RELEASE
Pompano Beach, FL May 1, 2011 – Renaissance Partners’ Thomas H. Hicks, Managing Partner, will serve as moderator of a Commercial Finance Association panel discussion on May 10, 2011 at Country Club of Boca Raton, starting with a noon luncheon. Hicks is Chairman of the CFA-Florida Education Committee. Titled “The Current State of Secured Lending and Private Equity M&A”, the panel will explore buyer and seller trends, favored sectors and deal types and how private equity and secured lenders partner to get deals done.
The panel is comprised of
Todd D. Plosker, Principal and Head of U.S. Capital Markets at Sun Capital Partners
Joseph A. Davio, Senior Vice President, Group Manager Business Banking Florida, Comerica Bank
Kevin J. Gordon, President – Catalyst Financial
Interested guests can register for the CFA event by contacting florida@cfa.com. Price for CFA members is $35; $55 for non-members. CFA-Florida has also arranged for interested attendees to play golf following the event at a special foursome rate of $34 per golfer.

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Renaissance Partners provides a full suite of financial and strategic advisory services including corporate renewal, turnaround and crisis management, performance improvement and guidance in the fund raising process for a wide range of clients throughout North America.

Experience > Value, Integrity, Performance
Cleveland…Columbus…Charlotte…Houston…Lexington…Memphis…Ft. Lauderdale
Tel: (954) 971-3555 Fax: (954) 971-1922 Email: renparlc@gate.net Web: www.renaissancelc.com

FOR IMMEDIATE RELEASE

Pompano Beach, FL April 20, 2011 – Renaissance Partners’ Thomas H. Hicks, Managing Partner, participated in a joint presentation of Turnaround Management Association and The Angel Forum of Florida today at Marriott Boca Raton. Titled “Environment for Entering and Exiting Angel and VC Investments.” Hicks remarked that the fundamentals of business performance apply throughout the cycle, with desirable businesses having:

  • Attractive market and competitive position
  • Attractive key business attributes including talent
  • Positive and growing cash flow
  • Knowledge of the customers, suppliers and financial sources and communication objectively with them (i.e., invest in relationships)
  • Technologically advanced business practices
  • Excellent at strategic and financial planning and focused on execution
  • Seasoned outside, independent advisors and professional

Hicks and other panel members suggested that entrepreneurs keep the capital structure simple, invest early in sound financial/reporting systems, become an accomplished spokesperson for their company and practice cash flow planning and tracking to never run out of cash.

The panel also discussed the current deal activity environment with market conditions being driven by new opportunities emerging from the economic downturn, cash on sidelines waiting to be employed and debt availability at attractive terms.
Renaissance Partners provides a full suite of financial and strategic advisory services including corporate renewal, turnaround and crisis management, performance improvement and guidance in the fund raising process for a wide range of clients throughout North America.

EXPERIENCE > VALUE, INTEGRITY, PERFORMANCE
Cleveland…Columbus…Charlotte…Houston…Lexington…Memphis…Ft. Lauderdale
Tel: (954) 971-3555 Fax: (954) 971-1922 Email: renparlc@gate.net Web: www.renaissancelc.com

Donald C. SmithDon is a 20-year IT veteran of the general merchandise retail, restaurant, media and consulting industries. During that period Mr. Smith owned and operated Business Applications Engineering, Inc., his own network integration and application software development company that wrote, packaged and installed fast food point-of-sale software. Formerly, he operated his own apparel retail chain for 15 years. Mr. Smith has functioned as CIO, Director – Information Services, IT Director, Project Manager, Business Analyst, Systems Developer and Project Designer at Retail Media Systems Networks, 2Connect Express, Inc., American Express, The Alexander Proudfoot Co., Burger King Corporation and Tutor Time Learning Systems, Inc. Don is a graduate of Gannon University.

Many operating companies in a liquidity crisis have been unable, in the current economy and credit environment, to refinance debt and/or meet working capital needs. The affect trickles down as payables get stretched and greater risk is assumed with critical vendors. Troubled businesses have and are struggling to raise financing for turnaround initiatives or to continue same. Traditional restructurings under the Chapter 11 process have been difficult, with section 363 sales and liquidations more prevalent during the last three years.

In the last 12-18 months Chapter 11 filing activity has been lower than expected, and in the current market there have been more out of court restructuring solutions and pre-packaged or pre-negotiated bankruptcies, along with forced liquidations and foreclosures.2009 Chapter 11 filings reached record levels due to tight credit markets, decreased consumer spending, higher unemployment and lower consumer confidence. In spring 2010 improved credit markets and “amend and extend” actions produced fewer Chapter 11 filings. A recent Bank of America Merrill Lynch report said that 60% of proceeds from US high-yield bond issuance were used to refinance existing debt to alleviate liquidity pressures. These refinancings have not “fixed’ companies operating problems, rather they have moved the problem to the future. Therefore, the US corporate-default rate is expected to drop to 4%-5% by end of 2010 versus 13.7% in 2009.Traditional Chapter 11 reorganizations remain relatively low due to continued tight credit markets and scarcity of refinancing or debtor-in-possession financing opportunities. Borrowers and lenders have turned to out-of-court restructuring and liquidation solutions, including UCC Article 9 sales, assignment proceedings and receiverships; and Chapter 11 filings on a pre-packaged or pre-negotiated basis, to save time and cost. Recently the only entities typically able or willing to supply DIP financing are debtor’s pre-petition lenders and acquirers in section 363 transactions.

Traditional Chapter 11 Planning

Nonetheless there remains a place for traditional Chapter 11 restructurings if all parties agree with the goals/plans and particularly if use of cash collateral can be utilized. To do so require intense advance planning, careful determination of timing of disbursements related to a filing and marshalling of resources to fund cash requirements. Debtors seeking to determine how best to deal with a liquidity crisis should carefully review their actual and planned cash flow details and seek the advice of both qualified bankruptcy counsel and turnaround advisors.Chp 11 Planning – Timing
 

  • Operating cash flow peaks – seasonality (as it relates to use of cash collateral); ensure adequate cash for initial costs such as funding retainers, adequate assurance payments, expenses until motions filed and approved of payroll and customer deposits, returns, refunds ordersRent payment timing (unpaid rents at date of filing) and court decisions on partial month rent payments (stub rents, from filing date to end of first month in bankruptcy)
  • Credit card continuity and adequate assurance of bad debt inherent in portfolio held by service provider (alleged bad debts in portfolio and incurred in future credit sales during the case)
  • Utilities, adequate assurance of services post filing
  • Preferences – vendor and other payments before a filing date
  • Lease termination timing in existing portfolio
  • Status of taxes (sales and other tax payments and timing, obligations, delinquencies)
  • Payroll payment dates; leased employees; benefits continuation
  • Employee maximum priority for wages, salaries and commissions is $10,000 and applicable pre-petition time period for calculation of this item is 180 days
  • Debt principal and interest payment amounts and due dates
  • Other contractual payment amounts and due dates including previously negotiated settlement agreements struck before the Chapter 11 filing date
  • Composition of inventory needed to conduct business post-filing and impact of bankruptcy (floor plan arrangements, consignment goods)
  • Projected weekly cash flow – the TWCF budget (must adequately provide for critical advertising, purchased services, supplies and merchandise, critical vendor payments and reflect likelihood of reduced or no trade terms post filing)
  • Post emergence structure, the pre-packaged tactic most prevalent but in any event the pre-filing planning process should address the exit structure and distributions

Other Issues to Consider:

  • Time to assume/reject leases – limited to 120 days plus one 90 day extension; no further extensions without the lessor’s consent
  • Time limit – exclusivity period limited to 18 months from filing date; further the time period that the debtor has to obtain acceptances of a plan may not be extended beyond a date that is 20 months after the bankruptcy filing
  • Administrative claim granted to vendors that delivered goods to the filing entity within 20 days of the filing date; these claims must be paid in full to get a POR confirmed
  • Reclamation – right of reclamation applies to good received by debtor within 45 days prior to bankruptcy and seller has until 45 days after receipt of goods to make a reclamation demand, if a bankruptcy is filed before the 45 days expires the reclaiming seller has 20 days after commencement of the case to demand reclamation in writing. There are other reclamation issues such as payment, adequate assurance and verification of whether reclaimed goods were on hand at the time the reclamation demand was received by debtor
  • Makeup of unsecured creditors committee and their representation
  • Existing senior lender position on DIP loan and debtor’s use of cash collateral
  • Adequate protection if debtor’s seek and obtain court approval for use of cash collateral – requires debtor’s to propose some form of relief that will preserve the secured creditor’s interest in the collateral securing the debt, pending the outcome of the proceeding; adequate protection is a means to protect a secured creditor from being deprived of the benefit of its prepetition bargain; when adequate protection is required section 361 of the Code states that it may be provided by making periodic cash payments to the secured creditor, granting the secured creditor an additional or replacement lien on other property of the debtor, or granting the secured creditor such other means of relief so that the secured creditor will realize the equivalent of its interest in the property• Profit proceeds from augmentation, if any, in full or partial liquidation
  • Position of pre-petition creditors on consignment goods sold post petition, recovery of actual inventory, recovery of sale proceeds
  • Critical vendors and related financial and filing

 

Brand Strength
The March issue of Sporting Goods Business features SOS Research’s 2010 Brand Strength Report. The report finds several attributes (innovation, quality, marketing, etc.) all playing a role in establishing a brand’s strength in consumers’ eyes. But, the drivers differ for each brand and the way brands communicate with consumers continues to change in today’s fast-paced, digital world.
Question: 
What attributes of a brand do you believe are the most important when assessing brand strength with the consumer?
One Response:
In any era successful brands have been created, grown and sustained irrespective of the economic, demographic and psychographic audience in which they play. Recognizable brands are in one’s mind, following from the business elements that created that top of mind brand awareness. Great brands are customer-centric. Great brands reflect value (quality/price/service), continuous positive recognition and a sustainable financial model. Importantly, the developers of great brands followed a principle, that “all cues must be consistent”, creating a visual image in the minds of the consumer and observer of what that brand is, what it looks, smells, tastes or feels like and why it is desirable.

 

Where to find New Opportunities – Look, Listen, Learn
Many researchers and demographers believe that U.S. consumption has reached maturity and certain economic factors are likely to support a future of reasonable consumption, incurred debt and savings levels. The “Baby Boom” population burst and related consumption of these folks as they reached peak earning periods of their lives, supported by easy credit and inflated real estate values, is unlikely to occur again for many years.
Fortunately many of our corporations have survived and are likely to be sustainable entities (and that is not to imply the same future of those bailed out as “too big to fail”). Our corporations have finally taken actions that were inspired by fear. They cut costs and continue to do so. They slashed excess inventory. They reined in wasteful capex and began to manage for positive cash flow and to de-leverage their balance sheets. Non performing assets have been sold or otherwise shut down. Corporations began to go-global for revenue growth in some countries that may be at the lead-point of their economic development. These actions were long overdue, yet the impact in the U.S. may not be all that beneficial to our citizens:
·         Employment has been reduced;
·         Jobs have been outsourced and replaced by technology’
·         Capex and development capital has been directed outside the U.S.;
·         Consumer spending has been de-railed, perhaps forever;
·         Tax revenues have been reduced, leading to unpopular cuts to services and the prospect of higher and new taxes, federal, state and local;
·         Government has continued to grow as a percent of our total economy, yet government has not done what our corporations have done by slashing costs and reducing losses (e.g., US Postal Service)
Now, our corporations have a reborn challenge that is “how to grow revenues domestically and globally”, how to develop new products and services that meet the needs and pocketbook of the “new American consumer”. To do so requires that our corporate leadership invest in research, listen to real consumers, and watch behavior of people that visit and patronize the traffic-central retailers of 2010:
·         Staples, Office Depot, Office Max
·         Wal Mart, Target, Kmart
·         Best Buy, GameStop
·         Dollar General, Family Dollar and other dollar stores
·         Walgreen, CVS. Rite Aid
·         Grocery and convenience stores from the high end to the lower-moderate positioned players
·         FedEx/Kinko’s and UPS
We MUST observe what they buy, what they spend, and what innovative behaviors they embrace to maintain their lives within their financial constraints. We MUST test, partner and lead to develop new products, new services, new sources of revenue and new jobs.

 

What Causes Many Business Failures

·         Management in denial – hope business will improve, cannot admit failure
·         Me-too Boards (support CEO, contribute little of substance and often not asked)
·         Illusionary reporting – not focused on right, actionable numbers, limited or no focus on cash flow and the future
·         Too much debt, limited disclosure of debt service needs in context of cash flow and liquidation value of assets
·         Assumption that landlord or government paid capex is free money – in fact it gets paid back through higher overhead. “Free-money” is too-often the vehicle for growth as distressed businesses attempt to grow and spend their way out of trouble
·         Lack cash flow management on daily, weekly, rolling 13 week basis
·         Lack detailed business/financial plan scenarios and tracking to worst-case scenario
·         Do not get and stay lean while being mean (must focus on top line too, the customer and technology to build loyalty and brand)
·         Fail to use outside, objective, unbiased, independent business assessment and appraisal services and also to vet plans
·         Communication – must listen to associates, customers, vendors, competitors and communicate openly and objectively with key management and associates
·         Talent – must attract and retain best affordable talent and people that take action and not just “say yes”
·         Management must be willing to put skin in the game take whatever actions are required for survival
 

 

 

StineDear Tom,

Thank you for your help with our financial issues that have occurred during this downturn in the economy. We have learned a lot from your expertise in cash flow, bank relations, expense control and inventory management for our chain of retail and contractor building material stores.

The wealth of professional advice throughout the contract period will give us a path to correct our current situation,as well as, serve us in many years to come. Thank you again for your work.

Sincerely, ~ Dennis Stine

President