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Slowly, traditional financing sources – banks and private equity (PE) – are coming out of their multi-year hibernation, and that should be welcome news for companies seeking to turnaround their financial conditions.
The collapse of Lehman Brothers in September 2008 and the subsequent financial crisis closed the credit markets. In response, the U.S. government moved in to stabilize the situation by enacting the Troubled Assets Relief Program (TARP) and its related programs, such as the Term Asset-Backed Securities Loan Facility, the Public-Private Investment Program and the Small Business Administration 7(a) Securities Purchase Program.
The government never intended to stay in the banking business and last October closed these programs to new customers. As the U.S. economy has stabilized and shown signs of recovery, traditional sources of financing are re-entering the picture. In the two years since the crisis began, banks have strengthened their balance sheets and PE funds have continued to build their war chests. The hunt for returns is on.
There is growing interest
Moody's Analytics reported at the close of 2010 that commercial and industrial (C&I) lending in the fourth quarter rose by an estimated 0.2 percent from the third quarter to $1.22 trillion, the first quarterly increase in two years. The firm's forecast for 2011 is a 3 percent increase in C&I lending.
As for private equity, the alternative investment research firm, Preqin, surveyed 100 leading PE investors and found that their top areas of investment interest in 2011 were small to mid-market buyout funds (55 percent) and distressed private equity (20 percent).
For owners of a business facing liquidity challenges, either as a result of a disruption to operations caused by recent global events or the need to invest in new assets to support new opportunities, this pendulum swing is encouraging. From our experience, we've seen growing interest in investing in opportunities like these throughout the capital structure during the first quarter of 2011.
If you are the owner of or an investor in a business that has survived the recession but remains overleveraged, there is hope. Since mid-2008, many otherwise healthy businesses that faced default because of excess leverage were forced to liquidate because there were simply no other alternatives.
The re-opening of the credit markets once again creates the possibility of achieving an out-of-court restructuring or even a strategic sale. It's a good time to consult with advisers and explore the options, particularly since the process may take time and being prepared puts you ahead of the game. |
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Chemical manufacturer sets out in a new direction
Huron recently served as the financial advisor to a leading specialized chemical manufacturing and services company with a technology/equipment division. In that role we provided strategic advisory services related to the sale of a division and conversion of the existing offering to a web-based service, cash flow and profitability analysis, and assistance in negotiations with the buyer. We also led the strategic development of a new web-based offering. As a result, the company's legacy software assets were sold to a third party, the money losing division was shuttered, a restructuring and asset sale led to a 40% increase in cash flow and profitability, and cash burn was eliminated, resulting in significant improvement in consolidated P&L. Also, a web-based product was developed to serve the needs of a wider market with an appropriately sized cost structure and was adopted by the client's customer base, and important existing customers were served by the acquired entity.
Huron assists food retailer with M&A activities
Huron is serving as the financial advisor to the debtors of an operator of conventional supermarkets, combination food and drug stores and limited assortment food stores. In that role our team carried out a shareholder value analysis and M&A advisory services. We also divested certain regional operations and conducted strategic sourcing for the brand, COGS and contracted services. |
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Upcoming Events
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CFA Ohio Golf Outing
June 9, 2011
Aurora, OH
Huron under the leadership of John DiDonato is a sponsor.
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Michael C. Sullivan
Mike leads Huron's Fresh Start Reporting services group and is an organization-wide resource to clients in Chapter 11 providing guidance and assistance specific to the implementation of FASB Accounting Standards Codification Topic 852 Reorganizations (formerly SOP 90-7 ). He lectures frequently on this topic and has worked with a number of global organizations on their implementations of ASC 852, including extensive evaluation and modeling of their post Chapter 11 financial statements.
He has served a wide variety of clients in many industries including: airline, construction, distribution, financial services, hospitality, manufacturing, pharmaceutical, publishing, real estate, retail, service, shipping, and transportation. These organizations include publicly traded companies as well as closely held businesses and have ranged in size from venture capital start-ups to Fortune 100s.
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Huron Consulting Group helps clients in diverse industries improve performance, comply with complex regulations, reduce costs, recover from distress, leverage technology, and stimulate growth. The Company teams with its clients to deliver sustainable and measurable results. Huron provides services to a wide variety of both financially sound and distressed organizations, including healthcare organizations, Fortune 500 companies, leading academic institutions, medium-sized businesses, and the law firms that represent these various organizations. Learn more at www.huronconsultinggroup.com.
Huron's Restructuring & Turnaround Group has a proven track record of success maximizing value. We provide comprehensive solutions to companies in transition, creditor constituencies, and other stakeholders in connection with out-of-court restructurings and bankruptcy proceedings. Our professionals work closely with management to create, analyze, lead, and implement strategies to improve and enhance operational and financial performance, as well as the capital structure in order to maximize enterprise value for all constituencies. Our flexible staffing model, experienced leadership, and management depth allow us to efficiently lead projects for companies of varying size.
Learn more about Huron’s Restructuring & Turnaround team.
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