THE TURNAROUND ARTISTS [ top ]
Insolvent companies can find alternative to shutting down

Tom McShane is the founder of the McShane Group, a Timonium-based business that specializes in turning around small to medium-sized companies in financial straits.
The Jeffersonian
Published 04/08/03
By Virginia Terhune
TIMONIUM

High-profile bankruptcy filings are one way for companies like Integrated Health Services, Bethlehem Steel and Bibelot bookstores to get out from under financial difficulties.

But there are other routes that people like Tom McShane, founder, president and CEO of the McShane Group in Timonium, would prefer to take.

"Bankruptcy is cumbersome, expensive, and it takes a lot more time to do anything," said McShane, a business consultant who specializes in turning around ailing companies.

Instead, McShane typically tries to work with managers, directors, lawyers, lenders and creditors to resolve the problems out of court.

"You can renegotiate terms with the creditors, restructure bank debt, sell excess assets to raise cash and speed up the collection of receivables," he said. "You can achieve the same results ... and save hundreds of thousands of dollars."

McShane is one of a growing number of certified turnaround specialists with the training and experience to help companies deal with a financial crisis.

The volatile economy, combined with regulations that prevent banks from taking over clients who have defaulted on loans, are increasing the demand for specialists, according to the Turnaround Management Association in Chicago.

Solutions can be anything from restructuring the business, replacing management or directors, preparing the company or its assets for sale, filing for bankruptcy or liquidation.

Sometimes a turnaround specialist will serve as an interim CEO to get the company back on its feet, much like New York-based turnaround specialist Stephen Cooper is doing at Enron.

"You're there for whatever it takes," McShane said of interim CEOs. "You run it until you have a solution."

That can mean having to make tough, unpopular decisions like selling off divisions or laying off workers.

But in the long run, the goal is to find a solution that benefits the most people.

"At the end of the day, a success for us ... is retaining the highest value for the greatest number of stake holders," said McShane. "(That includes) treating everyone fairly, the creditors, the banks, the employees."

Relationships Count

Both McShane and Cooper belong to the Turnaround Management Association, a national group of consultants, turnaround specialists, lenders, lawyers, accountants and investors based in Chicago.

McShane, who is also a CPA, co-founded the local Chesapeake chapter to develop relationships with others in the field.

While business is about relationships, in the insolvency and corporate renewal industry, that maxim rings especially true.

"We don't do any marketing or cold calling," said McShane. "We get our referrals from banks, lawyers, other business people, former clients _ that's the nature of the business."

Hired and paid by the company, turnaround specialists typically work for an hourly fee. They also work on contract, sometimes functioning as a company CEO for several years.

"You're trained to deal with companies in crisis," said McShane, who is also one of only 200 turnaround specialists certified by the Association of Certified Turnaround Professionals based at Northeastern University in Boston.

To be certified, applicants must meet experience requirements and pass an exam covering management, accounting and taxes, contracts, and commercial, business and bankruptcy law.

CPA background

A Baltimore native, McShane is a fifth-generation member of the Henry McShane family that once made bells at its Dundalk foundry.

McShane earned an accounting degree from Florida International University and worked as a staff accountant for Deloitte Touche in Atlanta.

Later he worked as CFO for several companies, including Arvida residential and resort developers in Florida and CompuSave, makers of touch-screen kiosks, in California, before returning to Baltimore to start his own company.

Founded in 1987, the McShane Group now employs specialists in Timonium, Atlanta, Richmond and Portland, Maine.

Business in all its manifestations is clearly McShane's passion, and in this industry he gets to exercise it regularly.

"You've got to love business," he said. "You've got to love the dynamics of businesses and people."

He and his three partners have worked with more than 100 companies in manufacturing, service, distribution, retail, finance, technology, contracting and health care. HIs clients typically generate between $10 million to $200 million in revenues.

Three years ago, McShane helped Frederick Trading Co., a hardware distributor in Frederick, recover from financial problems by restructuring its bank debt then arranging for its sale.

"We kept all the jobs, all the creditors got paid, and shareholders all received $15 a share," he said.

Special Skills

McShane said turnaround specialists tend to be straightforward, upfront extroverts who listen, understand the situation and intuitively interact well with people.

Those skills are necessary since the turnaround specialist is the one others count on to get them through the crisis.

"You don't have time to study everything down to the last detail," he said. "You have to make decisions on limited information ... and move forward."

McShane says he will typically meet with senior management, look at the books and sometimes talk to the employees.

"It doesn't take long to get a picture of what's going on," he said. "They live with it, they know the problems. (It's up to me) to prioritize what to do."

Keeping calm in the midst of the storm and projecting confidence is also critical.

"You try to keep as positive as you possibly can ... you try to get everybody's consensus," said McShane.

"There are a lot of subtleties and nuances _ financial, legal and also the psychological reactions," he said.

A worst-case scenario is when the owner, who may have worked for years building the company, is paralyzed by the problem.

"They're in such a state of personal distress that they've ceased to function," said McShane. "It's like a ship without a rudder."

In other situations, managers may have chosen not to deal with the situation.

"They have their heads in the sand ... they're in denial, they think everything's fine," said McShane. "They have deluded themselves into thinking that things are going to get better."

But sometimes turnaround specialists will encounter managers who might not have initiated the call for help, but embrace you when you get there.

"They recognize they've got a problem, that they're in over their head in a game they don't understand, " said McShane.

In some cases, interim CEOs will also uncover possible malfeasance or fraud. Faced with that, McShane said he would confront the company with it.

He would recommend ``that they stop it, disclose it, then move forward with a plan ... or I can't be part of it," he said.

McShane said that while turnaround managers are paid by the companies that hire them, they must also preserve their reputations within the industry.

They need to be regarded as straightforward and independent by the banks and creditors of the companies they're working for.

"The industry can't function without ground rules," said McShane.

Never Boring

As the TMA says, being a turnaround specialist "is not for the fainthearted."

It's like being an emergency room doctor who has to diagnosis a failing business and act quickly to save it in an environment fraught with stress.

In this business, said McShane, "Everything's difficult, nothing's that easy."

But, he added, "It's always new and different ... it's very dynamic."

In the end, his greatest satisfaction is preserving value.

Said McShane, "If a business isn't delivering value to its customers, it will cease to exist."

For more information about the McShane Group, see www.mcshanegroup.com.

For more about the Turnaround Management Association and the Chesapeake chapter, see www.turnaround.org.

For more about the turnaround specialist certification, see www.actp.org .

Copyright 2007 McShane Group
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