Turnaround Management

We all know the warning signs of when a business is in trouble. The revenue is off, and the EBITDA is lower than expected, indicating that the company is not as profitable as it should be.

There may have been a sudden CFO departure, a shortening of the cash runway, or stretched accounts payable. The company’s stock price may have declined, or resources like capital and labor have been poorly managed.

What do you do if you’re involved with an organization that’s underperforming? This is a situation that requires expert guidance from professionals who have been there before and know how to quickly right the ship. You don’t just need a report full of recommendations that might never be implemented. You need purposeful actions and a partner that is hands-on and ready to do the work, side by side with your team.

At SierraConstellation Partners, we take a deep dive into the situation, create a comprehensive strategy for a sustainable solution, and then roll up our sleeves to get it done.

What is a Turnaround Strategy?

This comprehensive business recovery plan combines initiatives and actions to help an organization overcome financial problems, performance decline, or operational challenges. A turnaround strategy occurs prior to insolvency and aims to dramatically reshape the business for greater profitability.

A turnaround strategy differs from a restructuring strategy. Restructuring, undertaken when the business is insolvent, focuses mainly on the company’s financial structure, capital allocations, and balance sheet.

Is Turnaround a Growth Strategy?

Growth strategies are for companies and brands on an upward trajectory, with the long-term mission of accelerating revenue growth. Turnaround management addresses an urgent situation of a business headed in the wrong direction. It’s a short-term plan to make the company profitable again and/or improve the company’s liquidity position.

What Does a Business Turnaround Consultant Do?

In addition to deep analysis and recommendations, a professional turnaround consultant implements and leads the process of making the company viable and profitable. They create a highly comprehensive business recovery plan and act as inspirational leaders, collaborating with the internal team, to turn the company around.

As part of our turnaround management services, we aim to go deeper than any other business advisory firm. In collaboration with our client’s internal teams, we:

  • Develop a detailed cash flow model to accurately forecast liquidity.
  • Actively manage cash flow to optimize expenditures and cash collection procedures.
  • Re-establish credibility and communication between the company and its key stakeholders.
  • Propose and review reorganization plans that are in line with company and stakeholder goals and are consistent with projected cash flow.
  • Establish valuation criteria, ratio analyses, and other metrics for various capital structures.
  • Determine assets and business valuation.
  • Assess existing financial reporting methodologies and propose improvements.

Oftentimes a financial restructure is part of the turnaround process. Let us analyze and manage your cashflows for better optimization.

Throughout complex financial reorganizations, SierraConstellation Partners delivers the trusted advice, meaningful insights, and stable leadership necessary to reach the right decision. We combine deep financial expertise and an extensive understanding of the restructuring process to solve the most challenging situations a company may face.

SierraConstellation: Your Turnaround Partners

We’ve worked with many clients to create and execute a successful turnaround or restructuring strategy, whether it’s a complete retail turnaround or helping a manufacturer face an acquisition with risk mitigation, cash flow solutions, and robust financial reporting. We’ve assisted businesses navigating acquisitions or mergers with major company restructuring including the need for reduction in force (RIF). As premier turnaround advisors, we’ve helped organizations conduct operational assessments and initiate cost-cutting measures. We’ve acted as a liaison between parties after a covenant breach and have helped companies analyze and find solutions for customer loss (churn) and missed opportunities (revenue miss). See our case studies for details.

Our expert team of former CEOs, CFOs, COOs, investment bankers, and private equity investors have been there, done that, and have led companies through these situations many times before. With our extensive field experience, we know what works and what doesn’t. We have teams who work together with colleagues who have performed these services for companies of all sizes throughout their careers.

Start the transformative process today. Connect with one of our experts and see how we can help.

Case Studies

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Autonomous Vehicle Technology Company

Situation

  • San Francisco-based autonomous vehicle technology company went public via a SPAC reverse merger in November 2021 at a $5 billion valuation. The business required massive amounts of capital to reach commercialization of its developing product and was unable to raise ample capital in the public and private equity and debt markets. This led to the evaluation of strategic alternatives, including a sales process, bankruptcy or out-of-court liquidation process.
  • The situation was unique and complex as interest in capital-intensive autonomous vehicle businesses had dried up in the current debt and equity market environment, causing the collapse of several competitors.
  • As a publicly traded high-profile Silicon Valley company, the board sought to appropriately evaluate all options to serve stakeholders best and fulfill obligations of the company.
  • SCP was hired by a special committee of Company’s board to evaluate liquidation and bankruptcy alternatives to the existing sales process.

SCP'S SOLUTION

  • Working with the management team, SCP’s extensive network and knowledge of the sector, SCP prepared a robust analysis of strategic alternatives for the board of directors, including the cash needed to continue operations, cash required to orderly wind down, cash required to file Chapter 11, and a strategy to reduce settlement amounts.
  • Given the fact that the Company had ample cash but was contemplating liquidation only 18 months after going public, the threat of shareholder litigation was inevitable, meaning thoughtful precision, independent verification and sound advice were paramount to SCP’s analyses presented to the board and shareholders.
  • Since the sales process yielded low valuation offers, the Company pursued a dual-track approach, in which SCP successfully negotiated with major creditors, reducing the settlement amounts exponentially and increasing value to stakeholders.

Results

  • SCP’s analyses and advice to the board’s special committee enabled them to improve recovery to stakeholders, preserve employment for many key employees, fulfill their obligations, and minimize potential litigation claims.
  • In May 2023, Company was purchased by Applied Intuition Inc. for $71 million.
  • SCP played a critical role in preserving valuation for stakeholders and advising the board through a unique and challenging situation during uncommon times in the capital markets.
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Dance Education And Competition Event Business

Situation

  • Company was an L.A. headquartered nationwide event business in the dance education and competition category, operating under several industry-leading brands with 250,000+ attendees annually across 135+ events in 60 cities.
  • The Company had gone dark on communicating with lender while facing financial challenges and triggering events of default. Against that backdrop, an investment banker was in the market seeking out junior equity opportunities on its behalf.
  • The Company pivoted to attempting to pursue a sale transaction to a private equity firm, alongside an acquisition of a much more profitable competitor, but management claimed closing had been delayed. The transaction was scheduled to close in the next few weeks.
  • Against that backdrop, liquidity began to deteriorate as the Company was approaching its most important summer events season.
  • Initially, SCP was engaged to review cash flow and assist the Company in communications with its senior lender, a private credit firm.

SCP'S SOLUTION

  • Immediately upon engagement, SCP performed an on-site visit to review cash flow and understand business situation on the ground in the L.A. headquarters with the management team.
  • SCP reviewed the cash flow forecast and confirmed an imminent liquidity need for the company to continue operations and meet priorities such as payroll within 10 days.
  • However, the private equity buyer sought to delay the sale transaction by 1 to 2 months upon finding out about the near-term liquidity challenges, which called for a bridge solution.
  • SCP assisted in negotiating a term sheet and facilitating a loan amendment to provide for a capital infusion, whereby the lender took on board control, however, if the transaction did not close by a certain date, the lender had the ability to foreclose on the equity.
  • SCP took on a revised Chief Restructuring Officer and Chief Restructuring Officer Support role during the interim period before the pending sale transaction to exercise cash flow oversight and manage liquidity and funding requests reporting to the Board.

Results

  • Assisted the Company in achieving a bridge funding solution with its existing lender by improving communication and restoring confidence in the situation.
  • Supervised cash flow decision-making prudently on a day-to-day basis, which allowed the Company to successfully operate its major summer events without disruptions - management reported that the summer events were considered the best ever by attendees.
  • Prepared LBO/merger model and extensive analysis on transaction attributes and facilitated a series of conversations regarding transaction alternatives including operational improvements, which helped the Board of Directors build negotiating confidence and extract value in their ongoing negotiations with the private equity buyer.
  • The Company closed on the sale and merger transaction; the senior lender received improved recovery in the transaction during last-minute negotiations – receiving all original loan principal in cash - and the lender, equity, and management obtained various equity interests with further upside for recovery.
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Sporting Goods Business

SITUATION

  • Confidential sporting goods business operating in snow and paddles sports segments with significant direct-to-consumer operations and 11 retail locations across Michigan, Kentucky, and Texas.
  • OAB was facing challenges in cash flow with both inventory and A/P positions:
    • The paddle sports business, Austin Canoe & Kayak, had built up excess A/P balances with no near-term cash flow prospects to repay.
    • The snow business, Summit Sports, was under-inventoried heading into peak season, risking margin opportunity.
  • Vendor relations deteriorated significantly as OAB’s liquidity picture weakened over the course of the year, with threatened lawsuits due to poor communication.
  • OAB was working on a refinancing process to allow it to buy inventory and catch up on A/P but was in a challenged collateral situation.

SCP'S SOLUTION

  • Initially, SCP was hired to provide a viability assessment of the Company’s cash flow and business plan.
  • After OAB closed a refinancing, SCP was engaged to oversee all cash flow/vendor issues for the entire organization.
  • SCP was then provided with the mandate to sell the Company to maximize recovery to stakeholders.
  • SCP conducted a robust sale process, which attracted strategic interest due to healthy inventory position and valuable URLs such as skis.com and snowboards.com.
  • Upon closing a sale, SCP assisted the company in arranging an Assignment for Benefit of Creditors (“ABC”) transaction to complete a bankruptcy-like process at a low cost.
  • SCP supported the Assignee in the wind-down process thereafter.

RESULTs

  • Resolved vendor issues to obtain a critical mass of inventory heading into the winter season and enhance margin and borrowing base.
  • Implemented cash discipline to increase the likelihood of recovery to stakeholders and bridge the company through a sale process.
  • Successfully sold the Company at year-end 2021 to the House, a subsidiary of Camping World.
  • Well-timed sales enhanced the benefits of the sale to creditors due to the capture of season margin in Q4 2021 and selling inventory at its full value.
  • Senior secured lender was paid in full and returned significant recoveries to junior secured creditors.
  • Conducted an efficient wind-down of the Company through an ABC transaction resulting in additional monetization of balance sheet assets in excess of process costs.
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Manufacturer of Vitamins & Supplements

SITUATION

  • Contract manufacturer of vitamins, supplements, and personal care products.
  • Leading up to its acquisition, an overall industry slowdown resulted in the Company facing challenges including achieving short-term sales and collection targets and cash flow volatility

SCP'S SOLUTION

  • SCP was engaged to collaborate with the Company’s management to mitigate risks relating to the sale process and ensure maintenance of sufficient liquidity for the company through the target closing date.
  • Over a two-month period, SCP closely monitored the Company’s cash flow. Weekly reports jointly prepared by SCP and Company management were shared with the bank, providing a comprehensive overview of the Company's financial position while the sale transaction proceeded.
  • SCP created an enhanced 13-week cash flow monitoring tool, met weekly with the Company’s management on the sale process and risk mitigation, advised the client on vendor negotiations needed to maintain liquidity, and had regular communication with the bank on the sales process and any risk-mitigating strategies to maintain liquidity.

RESULTs

  • Through closely working with the Company’s management team and diligent monitoring and proactive risk mitigation, SCP helped ensure that the company maintained sufficient liquidity. As a result, the Company successfully completed the sale transaction, achieving its strategic objectives.