Often times in distressed situations management has become reactionary. They have tried too many options that have failed and they are fearful of taking the next step. Their focus is on self-preservation. The red flags for this type of behavior are easy to identify, but can only be picked up by spending time on the ground. Severn Partners knows how to fix these challenges, and often times it involves keeping them intact. Through this process reporting becomes clear and timely, goals are achieved, and the team believes that there is a way through the storm.
Foreclosures and Formal Liquidations
During any business transition you have to assume that your decisions, documents, and processes will be reviewed and questioned with great scrutiny. This is particularly true during formal and informal liquidations and restructurings. At every turn you will have to defend your logic and the choices you have made. Only having gone through this process can you gain the experience needed to understand the key phases and pitfalls. Existing management struggles with objectivity and the ability to make the hard choices. They are compelled to make assurances and worse, promises, to partners and loyal customers that will not be kept or in their control.
Business Relations, Contract Re-Negotiation, and IT Upgrades
When businesses are struggling they often put off critical capital expenses and internal, non-revenue generating, investments. These decisions are typically correct, but at times can hamstring a businesses ability to react and grow. Often we see businesses that have teams stuck in their IT investment and unwilling to let go of their process in order to embrace a less expensive and more efficient solution. This decision is a byproduct of self-preservation and at times a lack of knowledge or perspective. The problem is not just IT focused - have you asked the landlord for a reduction or shifting of rent? What is preventing the team from approaching the top 10 vendors and requesting a discount? Only after you remove artificial barriers and expand your network do new ideas become real possibilities.
Severn Partners excels in the following areas, and has a deep experience base to draw upon to ensure that the right decisions are made the first time.
Structured finance defines the transfer of risk, through the securitization of financial assets (accounts receivable, credit card receivables, auto loans, pre-paid assets, etc.). This securitization provides increased liquidity and a funding sources to businesses. Distressed businesses often find traditional financing tools are not available to them. We have the experience and the relationships to provide this unique solution. These options do not work for all situations, but at times this is an ideal option.
The buying and selling of businesses is at the core of Severn Partners business model. We have structured virtually every type of transactions commercially available for a boutique private equity firm. We have personally completed Asset Acquisitions, Article 9 Foreclosures, 363 Sales, Stalking Horse transactions and Stock Purchases. Our experience is our greatest asset as it ensures that we correctly price a transaction, and have the ability to see it through to closing. Purchasing a company at the right price is the only way to ensure that the buyer and seller’s objectives are met.
Mezzanine Debt Investment
When looking at financing options often business owners do not want to give up control. Mezzanine debt offers a unique solution because it provides capital to a business without the excessive burden of a high-risk interest rate. Mezzanine debt offsets a high-risk interest rate with an equity component. Typically this type of debt is subordinated to bank debt, and can fit perfectly on a growing company’s balance sheet. Mezzanine debt is a fast, low cash burden, and a quickly deployable solution.
A recapitalization can be utilized in a variety of situations, including a desire by current shareholders to partially exit an investment, re-balancing a company’s cash position or protection from a hostile takeover. In its essence, recapitalization involves a substantial change in a company’s capital structure through an adjustment of equity and debt, executed as a leveraged recapitalization or buyout, with an end of goal of stabilization and improved liquidity.