or the more advanced the stage of decline, the fewer options to
remedy the situation will exist, and the more dramatic they will be
to be to address the issues at hand.
business leaders in denial are not facing enough pain at that moment
in time to implement meaningful remedies. The sad part, is when
they decide they are ready to take action, it could be too late, too
costly or even impossible to salvage their business.
In Canada, just over 1million businesses are privately owned with
under 99 employees. These businesses represent over 95% of the
market. They consist of what we call the SMEs (Small to Medium
Sized Enterprises). These businesses are hungry for capital and for
engaged investors. They are a volume market for many traditional
investors. In reality, only about 2-3% of the remaining Canadian
businesses are public or large private companies with over 100
In today’s environment, sophisticated investors know how to source
and pick winners, and they know how to manage deal flow. They
live and breathe EBITDA growth, Purchase Price Multiples, IRRs,
ROI and Leverage. They make money on multiples and deal flow
and don’t get stuck in the weeds. Imagine now, that an investment
has stalled or is underperforming. Suddenly, it requires close attention. Perhaps the business that possesses unique technologies or has
been steadily growing and was considered a star, has precipitously
“hit a wall”. Now management is telling you that its underperformance is “just a bump”, “one transaction away” or due to “market
shifts”. Or perhaps the niche business you’ve invested in is not
yielding the multiples, but you are faced with explanations that
make you feel as though your concerns are unreasonable or overblown.
Under such circumstances, if your gut tells you that something “is
not right”, it might be time to consider bringing in a turnaround
professional who can review the operational, financial and managerial issues of your investment. As niche operational professionals
in the stagnating, troubled, or declining space of the corporate
world, they will be able to assist in providing insights into a business that are unique, prior to you having the need to call an insolvency professional into a file.
A “Looksee” or review under certain business circumstances can
provide investors with insights, options and viable solutions.
Consequently, an investor or dealmaker who is not an operator can
make strategic decisions quickly and with minimal pressure. Given
the tendency of human nature to protect personal ego, the power of
denial, the gravitational pull of vested interests, careerism and the
desire to preserve personal life styles, turnaround expertise is
another option for active investors to consider adding to their toolbox.
Milton A. Parissis
Parissis Partners Inc.
Corporate Turnaround Management Practice
In general, if a company has experienced losses for 2-3
years, has a shrinking order book or is facing significant staff
turnover, it is probably in need of a turnaround. Suffice it to say,
that every business is unique (even within the same industry), and
requires individual assessment. However, depending on the level
of decline, there are specific “red flags” to be noted.
In a turnaround situation where a company has been stagnating or declining over a period of time, it is a mistake to
assume that ownership, management or the board of directors can
fix the business. Why? Because if they could fix the business, they
would have done so already…and, they would have done so
quickly. Sadly, given human nature, pride, ego or denial often
prevails. Moreover, while it is sometimes thought that “those who
grew a business can also stop its decline”, the opposite is actually
true. Management usually finds it difficult to make hard, objective
decisions quickly, and they are not trained to “manage” troubled
businesses back into profitability. This is because the critical and
urgent nature of leadership and decision making is completely
different in declining business circumstances.
Operational turnaround professionals are not consultants in
the traditional form. They do not go into a business, analyze
the situation and write a report. Rather, they take a C-level operational position within a business and work shoulder-to-shoulder
with owners, their board of directors and employees. They lead
from within. They work on location, and are there daily within the
business until all goals are met. More importantly, they become the
key contacts with creditors, investors, shareholders and the board.
They become full C-level representatives of the business. A typical
engagement can be anywhere from 1-3 years in tenure. Their
unique expertise is in understanding declining businesses, and on
how to pivot them. They work within fixed timelines to provide
“options”. Turnaround professionals are the ICU of the corporate
world. They don’t control the “state of their patient”, but their goal
is to achieve optimal or “best case” outcomes given the unique
challenges they face.
Why do operational turnaround professionals have to work for such
prolonged time within a business? Well, let’s be frank: Have you
ever heard of anyone trying to fix a business via Skype? By parachuting a consultant into a business once a week to make “
recommendations” without being accountable for the outcomes? Or
succeed by generating a report and handing it over to the same
management team who tanked the business and expecting them to
effectively implement transformation? Is this viable, even after
their employees have lost respect of their leadership? Really?
Would such actions possibly address the “root issues” impacting a
business?... and if they did, could it happen in a timely fashion
before the business took a “deep dive?” Probably not.
The irony of the turnaround space is that the greatest impediment
to a successful turnaround is human “denial”. Unfortunately,