Back From the Brink and Better than Ever: Debt Deal Gives Technology Firm a Shot in the Arm
Stabilise operations and improve cash flow to enable the company to refinance debt and avoid liquidation
Resolve initial crisis, evaluate operations & recommend business process improvements to restore credibility/bankability and repair damaged reputation
Company rebounded from the brink of liquidation with improved financial operations & restored shareholder confidence; is considering sale for a profit
Back from the Brink and Better than Ever: Improving Financial Operations
No organisation enters a credit agreement intending to default on it, but when a banking relationship sours, trust suffers, and it can be hard for the borrower to move forward.
When a fast-growing technology firm defaulted on financial and operational covenants, its banker demanded immediate repayment in full. Unable to come up with the cash or find another bank willing to refinance, the firm was quickly running out of options. Liquidation loomed.
This type of crisis is not uncommon among fast-growing companies. As is often the case, the founders were so focused on sales that they did not have time to develop appropriate checks and balances. When a financial discrepancy eventually did arise, the skillset needed to demonstrate accountability to the bank’s satisfaction did not exist at the company. The bank began to doubt the veracity of the company’s financial statements. Communication deteriorated to the point where the bank called the loan.
“This was a classic case of a small business that grew rapidly,” says a Managing Director and leader of Protiviti’s Restructuring and Litigation Services practise. “They were so focused on sales growth that they didn’t take the time to establish proper internal controls.”
Sometimes, one of the most difficult things for an organisation in trouble is knowing when to ask for help. It was the healthcare technology firm’s attorney that recommended the company hire Protiviti to help restore a constructive dialogue with the bank. The lender, having worked with Protiviti successfully on other engagements in the past, agreed.
Bringing in a mutually acceptable third party helped diffuse a tense situation. The lender agreed to a loan modification that allowed the company to continue to operate while Protiviti developed business process and working capital improvements to restore confidence and accountability.
With the crisis under control and normal operations restored, the lender agreed to a series of modifications over four years, before the company was able to reach its restructuring goal of refinancing with another lender. With Protiviti’s help, the company was able to work through several tax issues for both the company and its shareholders.
A critical success factor in this engagement was the company’s willingness to fully integrate Protiviti into the process, allowing our team lead to serve initially as chief restructuring officer. Our internal investigation found no intentional wrongdoing, but revealed several areas for fundamental improvements, particularly in staffing and accounting for long-term contracts.
Today, the company is back on track and thriving, thanks to the timely restructuring and business process improvements. Instead of facing liquidation, shareholders are considering the sale of the company.
With the original lender paid in full and the company’s business restored to an upward trajectory, the board asked Protiviti to stay on to help prepare the company for sale. The relationship between the two has remained one of trust and cooperation — and challenges are overcome most easily when that’s the case.