PRINT THIS PAGE Turnaround specialist Jon White on working with private equity portfolio companies06/09/2006. Source: AltAssets. Cindy Heidebluth 
Turnaround specialist Jon White, head of the Turnaround & Change Management Practice at interim management provider AshtonPenney talked in an interview with AltAssets about how his team works with private equity firms and their portfolio companies, the structure of turnarounds, and the hurdles that turnaround professionals need to overcome in a very limited period of time. Jon White manages a network of about 350 turnaround/change management specialists. He knows their professional backgrounds and personalities in detail so that he can call in the best senior executives as his turnaround mandates require. About 55 per cent of White's clients are private equity firms with portfolio companies that need the services of turnaround specialists.
White previously spent several years working at Price Waterhouse. He also helped build start-up companies in the business services sector (mostly focused on interim management/restructuring management), worked in a specialist turnaround group, and held senior positions in the army.
When do private equity firms require your services?
'Private equity firms call us in either when they are about to acquire a distressed business or when one of their existing portfolio companies has got itself into a difficult situation. We tend to see the companies that do not just make a loss but a significant loss. Typically, there are related problems with the business such as weak management or fraud. We deal with companies with a turnover of between £5m and £300m which includes divisions of the FTSE 250.
We prefer to be called in early. The least we need is three months to stabilise a business. After six months you usually see the company grow again.'
Can you give us an example of your work?
'We recently had a call from private equity investors saying that they were looking to buy a manufacturing company and wanted us to help them with their due diligence. They wanted our opinion on how dramatic a turnaround this would be. We assessed the situation and then helped the private equity firm profile the ideal candidate for this turnaround.
The candidate had to be someone who had worked in some fairly large businesses before, under difficult circumstances or in a turnaround situation. Experience with contracts was also essential. In our network we have experts who do the dramatic turnarounds and those who specialise in change management. The more dramatic the situation, the more leadership (as opposed to management) is required. The candidate we put into a business needs to be someone who fits in culturally with the private equity firm as well as the portfolio company and other shareholders, although we bear in mind that turnaround professionals do not necessarily join a distressed company to make a huge amount of friends, but do give confidence to all parties.
Speed is very important in a turnaround, although you cannot cut corners. We put together a profile of the ideal candidate in about a day. When we take on a distressed company there is a critical problem and we have to deal with it immediately.
Our job is, of course, not finished when a turnaround specialist has been appointed. We help him put together a team with which he can manage the process and provide guidance. Our network is key to the success of our turnarounds.
A turnaround team will also unlock the talent which already exists in a company. They look at the incumbent management team and use their skill set. There is a myth in turnarounds that people go in there and cut out lots of jobs. Real turnaround professionals do assess costs, resources & customers amongst other issues, making very difficult decisions to restructure the business. They may not have as much sympathy with a board that has neglected staff or made some critical errors of judgement.
It is quite easy to identify the problem and often solutions are in front of you. When, for example, someone who has been running production for years comes to us and says that he has been asking the management team for years to do this, this and that to improve production by that much, our turnaround specialists have a quick look at the situation and let them go ahead with it. It is a lot about facilitation and decision-making.
A turnaround is usually completed within six to nine months.
How do you figure out whether a turnaround is possible?
'Through our due diligence. I and possibly one or two other turnaround specialists take a very careful look at a situation before we get involved. We analyse the facts and figures in the documents that we get from the private equity firms. They send us financial statements, their own analysis and the information they used in their own due diligence. Our initial focus is on whether we can we take this on or not. I do not want my people to be engaged only to find that it is too late.'
What are the reasons why companies end up in a distressed situation?
'There are several reasons, for example poor management decisions or changes in the market. Management teams do the most unusual things when a company starts going wrong, when it starts to make a loss and they know they cannot recover it. Some of the managers find excuses to top up their bank accounts and take money out of the business before the situation gets worse however this only intensifies the problem.
Overtrading is another problem and a sad one because the company may have performed well until recently. All of a sudden they have a huge increase in demand and the business will be in trouble because it cannot deliver what it is supposed to be able to deliver under the existing contract terms. Customers can become disgruntled & start to approach competitors.
One problem is that when private equity firms see one of their portfolio companies move towards a distressed situation they tend to throw cash at it first. There might be genuine reasons why a company's management asks for additional cash, but in the cases that we see as turnaround professionals, the reasons can be factored to suit the management teams new found aim. Integrity at this stage is essential.
A company that is leaking cash is going to continue to do that until something fundamental changes. A turnaround specialist would be employed by a private equity firm as the CFO of the portfolio company and work alongside the incumbent management team to find out what the figures really are and then reports back to the stakeholders.'
What are the main hurdles you and your team have to overcome to complete a turnaround successfully?
'Denial is a big problem, at various stages. Firstly, the management of a portfolio company often denies the fact that there is a problem and, as a consequence, they will give information to their private equity owners which does not explain the situation in detail. Information can also be hidden in these situations. Private equity firms then take a while to admit that there is a problem that they cannot solve by themselves. Our job is to clarify that there is a problem and we can fix it.'
How do you manage your relationship with private equity firms?
'There is a certain way in turnarounds to report back to a stakeholder - that is another skill set. It is about passing on only relevant information and backing it up with evidence. There is no point in shocking the owners of a company with bad news if you do not have all the facts. Relationship management in a distressed business is key to a successful turnaround.'
What makes a good turnaround specialist?
'Turnaround management requires a skill set based on a turnaround experience. You have got to be very decisive and show leadership. Generally, you find turnaround specialists in businesses with £5 -300m turnover.
Turnaround specialists tend to be people who held senior positions and suddenly found themselves managing a distressed situation or company. They then tend to specialise in this field & have multiple assignments to their name.
In which industry sectors have you seen significant turnaround activity recently?
'Generally it has been very busy for us recently. Retail, manufacturing, construction, and healthcare (both private and public sector) have shown increased activity.'
What general advice would you like to give to private equity firms?
'Due diligence of a distressed business should be even more detailed, question everything and know exactly what you are investing in. Turnaround specialists can help with your due diligence & will be able to spot issues that others would not see as critical. It is easy to buy a company & even easier to buy one that is distressed: the trick is to know exactly what you are buying.'
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