In this issue, we look at the role of managing to a more simplified business platform in crisis situations as a way to create value, and we review some of AEG’s successes in operational leadership roles.
Best regards.
The AEG Partners Team
SIMPLIFYING THE BUSINESS MODEL CREATES VALUE
By Stephen L. Kunkel, Managing Director, AEG Partners LLC
Improving the quality of processes within a business provides a higher quality outcome, measurable in both performance and value.
There are common themes seen in almost all business transformations, including the closing of unprofitable divisions, company-wide cost reductions, decreases in workforce, the elimination of vendors, and the renegotiation of contracts.
Often times overlooked, though, is the detailed evaluation and potential improvement of the “healthy” parts of a business. While concentrating on the myriad of corrective actions that all restructurings require, it may be that continuous critical reviews and operational adjustments of the business units that work aren’t necessarily considered.
CASE STUDY – TELECOM During a recent telecommunications engagement, it was found that a customer procurement process, described by the company as “integrated”, actually involved twelve manual steps. Further, it was uncovered that a customer’s call may have to be transferred five or six times in order to get the proper attention, and that these “required” transfers were specifically defined within the Company’s procedures. All of this was part of the “healthy” division. Encouraged by the same positive and action-oriented energy derived from the restructuring process, this division’s processes were streamlined to one manual step, the first step, “answering the phone”, with no transfers needed. |
The argument has been made that these types of internal improvements, streamlining what already works, takes time, cash, human resources, and detracts attention from the “emergencies” inherent in the restructuring process. While some critical evaluation is always prudent when extending the use of resources beyond the immediacy of a company’s restructuring priorities, there is, nevertheless, a value-based argument that the “simplification” of a business’s operations, specifically that part of a business that is being “saved”, provides immediate and measurable payback, both during and after the process.
CASE STUDY – TELECOM – CONTINUED In the case of this telecom engagement, the total effort in refining the go-forward business provided an additional $25,000,000 in cash to the restructuring process, eliminating the need for DIP financing, and continues to provide value to the go-forward business, having now emerged from the bankruptcy process. |
If managed effectively, the value generated by activities such as these more than justifies the use of resources. In addition, and again, if managed effectively, distraction from the restructuring process will be minimal, and the benefit, in terms of measurable value, to that same process will be substantial.
CASE STUDY – DISTRIBUTION
The cost of an oversized distribution network While on a recent engagement with a distribution Company, it was revealed that stagnant inventory was routinely “shuffled” from location to location within an overly complex “spider web” network, which led to duplicative orders being placed with vendors for product that the company knew it had but that was “lost” in the distribution network, often times with the same items “crossing paths” in the system. True simplification includes right-sizing and focus Simplification in this case was culturally difficult, but was based on eliminating the opportunity to move product internally, closing unneeded stocking locations, stocking only high volume SKUs, compelling local management to deal with stagnant inventories, and the establishment of a sales compensation scheme that promoted only those sales that profitably moved inventory through the distribution network. |
As was the result in both these examples, the alliance of company resources with specific operational goals, and eliminating those practices that complicate business operations in costly ways, provides a more reasonable business platform from which to reach the goals established by a restructuring.
In the course of a business transformation, simplification of the go-forward operational model has an impact, allowing a company to focus and providing an atmosphere fully in line with the restructuring process, looking to establish best practices, and providing measurable capital value.
While cost reductions and the elimination of unprofitable business segments are appropriate exercises in any restructuring effort, more and more, distressed businesses are in need of, and the company’s constituencies are requiring, the discerning eye of true operational expertise, looking not just at “what to do”, but critically deciding “how to do it” best.
If effectively managed, the simplification of a go-forward business model can add measurable value to a restructuring process.AEG WORKS TO ENHANCE MANAGEMENT AND PROVIDE VALUE
AEG Partners is often engaged to lead operational improvement efforts and take on executive leadership roles in companies looking to improve performance and increase value.
Some of our recent engagements have included:
Telecom Service and Back Office Provider
A team from AEG revised a growth plan for and facilitated the resolution of deadlocked negotiations for a major telecom back office provider, and, in concert with the Company’s investment banker and outside legal counsel, facilitated the out of court restructuring of the Company with an infusion of $27,000,000.
Here, the key to moving negotiations forward was found in revising the business plan and refocusing all business operations on that singular strategy.
Tier One and Tier Two International Automotive Supplier
AEG negotiated the relocation and eventual purchase of an international automotive manufacturing and supply company, providing contractual rights for single source non-bid supply avenues through direct talks with the major automobile manufacturers, valued at more than $200,000,000 over three years.
This Company found itself being asked to “do more than they were capable” in an aggressive arena. AEG focused on the core production expertise of the Company and found value in promoting this expertise to customers.
Industrial and Commercial Distribution Company
AEG was engaged by a $500,000,000 distribution company looking to improve divisional performance. AEG’s successful plan included the integration of divisional departments under the umbrella corporate structure, the modification of sales compensation, a realignment of management, and the elimination of one division, incorporating the operations as a product line into a sister division with better market presence.
This divisional improvement was founded upon true process alignment and defining concrete business objectives.
Heavy Manufacturing
Engaged by a $1.5 billion heavy manufacturing company, AEG provided process integration and modification expertise on the manufacturing floor level, provided financial analysis for go-forward strategies, and instituted performance measurements that assure the continued improved performance of operations.
This “gem in the rough” divisional improvement was predicated on true process improvement and the implementation of operational controls.
Construction Distribution Company
AEG was initially engaged as Financial Advisor to a $500,000,000 distribution Company serving the housing and construction industry. After successfully stabilizing the Company’s liquidity situation, while negotiating a forbearance agreement and subsequent amendment to the Company’s credit facilities, it was determined that the current strategic direction of the Company was no longer viable. AEG was appointed Chairman of the Board and continued to work closely with the management team to lower the overall cost structure, rationalize unprofitable markets and business segments, and redefine the organization, while supporting the transition to a new Chief Executive Officer.
Success in this situation required AEG to play a variety of important leadership roles, addressing the needs of all constituencies and stakeholders.
Tier Two Automotive Electronics Manufacturer
AEG was engaged by a privately held, long-established, automotive electronics manufacturer to provide a valuation review of operations and facilitate the sale of the Company. A successful transaction, including the transition of intellectual property to an OEM, provided a full recovery of committed capital to the ownership.
Understanding that, in a few cases, synergies with other companies provide the best value, AEG moved to vertically combine the talent and resources of two well-run manufacturers.
For more information regarding the contents of this newsletter, opportunities at AEG, or about AEG Partners LLC, please contact us at (312) 948-5600.
200 W. Madison Street, Suite 2410 Chicago, Illinois 60606
Phone: 312-948-5600
Facsimile: 312-948-5639
messages in the future, click here and type remove in the subject field.
© Copyright 2007 AEG Partners LLC