David Teed, Principal with Dauntless Capital, spoke to an over-flowing audience, at the Las Vegas CEO-CFO Group on corporate turnarounds on Friday, September 28th. Several attendees, including Daniel Montano, CEO of CardioVascular BioTherapeutics, said, “David was one of the best speakers that the CEO-CFO has ever had.” Daniel Montano has been involved in number of turnarounds in California. David spoke on his insights into corporate turnarounds and his experiences on several large turnarounds.
David said that there can be a number of reasons for a crisis that requires a turnaround, such as poor management, single product obsolescence, over reliance on a single customer, an industry in structural transition or cyclical changes or economic recession. In addition, crisis companies have no sense of market position or competitive advantage, no written action plans, a senior management not aware of the details, uncertain where the breakeven point is for the company, no monthly financial targets for managers, no critical financial or no-financial metrics, no clear lines of authority, and no clear incentive plans for employees. Most importantly, these companies don’t have a 13 week rolling cash flow forecast.
Companies in need of a turnaround have all of these problems, including a near disastrous cash situation and a management team that is paralyzed to take action, like a deer caught in the headlights.
A turnaround manager is a “fresh face, an experienced crisis manger, an impartial arbiter of future viability and often a builder of long-term enterprise value.” The turnaround manager obtains the “stakeholders’ support”, the owners, lenders, suppliers, customers and employees. The turnaround manager first buys time to complete a diagnosis of the situation and to start immediate action plans. The next two steps are restructuring the company and a plan to create a new value proposition for the long term health of the company.
The restructuring is an overhaul of the company’s liquidity, finances, internal control, management team, operations, marketing, sales and distribution. The focus on a value proposition is to find the sustainable competitive advantage for the company’s future viability.
David Teed is an equity investor-turnaround manager. He actually takes a stake in the operations that he is turning around. He has “skin in the game.” His biggest turnaround was Core Mark International which had revenues of $2.5 Billion, 37 retailers, 20,000 SKUs, and 3,000 employees. The company was a major distribution company but it found itself with a negative EBITDA of $23 million and a stock that had dropped from $18 per share to $1.80.
Once David took over, he sold off assets and operations that were not part of the core of the business to raise cash. He refinanced the credit lines, cleaned up the current assets, and underwrote convertible debentures. At the same time he began reorganizing management. The most important move was to set up a single management information system for the company; previously the company had a mish-mash of systems and reporting. He also gave his managers full P & L accountability, strengthened the regional support structure and developed an incentive plans for all employees.
The operational turnaround consisted of improving the operational efficiencies such as the fill rates and on-time delivery, better warehouse utilization and route optimization. The company reduced “shrinkage” and employee theft significantly. He built a sophisticated inventory system. The company began taking advantage of upcoming price increases in inventory by buying large quantities.
He turned the sales and marketing around to have national, regional and product specialists. He evaluated what products and customers had high margins and focused on those areas.
After the company had stabilized, it was the time to build the “Value Proposition.” The company was essentially a delivery service that competed on price. He created merchandising and value added distribution. They set up full service programs, merchandising assistance, Telzon order entry, proprietary-private label food service and monthly promotions.
The results were such that in the 3rd year the company made $21.5 million and he was able to sell the company for five times the cash on cash investment. Core Mark is the largest broad line, full distributor to the convenience store industry with an estimated $5.6 billion in sales.
His next turnaround was Loomis Armored Car Transport. It was the largest armored transport company with 5,000 employees and a negative EDITDA of $27 million. Again, he had to get the company to break even as fast as possible. He shrank the business by closing non-strategic, money losing branches, exited entire markets, sold branches in Florida, sold the air courier business and consolidated two head offices.
The company has major inefficiencies from a lack of a good management information system. The company suffered from a lack of incremental pricing in which competitors would steel customers by lowering the cost. The company has high turnover and had to contend with unions. The company had also high internal and external theft.
David focused on the improving the culture since the company was so people dependent. He began training managers, holding people accountable, creating pride in employees to do the right thing and provide good customer service. He also improved the management information system which led to route optimization and cash vault and currency processing which became the valued added proposition of the company. The company later merged with Wells Fargo Armored and sold with a 10 times return on investment.
He summarized his finding on corporate renewal. First, companies are always in a state of transition; second, the company must have benchmarks, internal and external such as comparisons to the competition, and third, always search for the sustainable competitive advantage. It isn’t always found in value added. It could be a price advantage or a combination of both. You can reach David Teed at http://www.dauntlesscapital.com/
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