Deloitte T&R Newsletter

Views from our leaders

Michael Epstein, Global Situations Leader

Hi all,

As I look toward retiring from Deloitte, I’ve been asked to share some broad perspectives on what I’ve seen in the turnaround industry since I began in 1989, both here at Deloitte as well as the restructuring world at large.  During my 12 years with Deloitte US, the firm remains committed to the practice of restructuring globally, even as the field continues to change. At times our clients' problems are large and complicated which often demand professionals that are able to deploy solutions in multiple jurisdictions, multiple languages, and can be multi-currency in nature. Deloitte does that. I'm proud to have helped bring our teams together to think globally and act locally. We're as small as our clients want and as big as they need.

However, the restructuring world has evolved and our practice has evolved with it. When I began in the late 1980s, capital structures were less complicated and while stakeholders’ interests were not always aligned, we followed a simple motto: let’s figure out how big the pie can be, then we’ll figure out how to best divide it up. In other words, fix the P&L and the balance sheet solution will be more obvious.  We all know that has forever changed. With the advent of financial institutions whose structures have changed, whose risk appetite has evolved and who are adept at operating up and down the balance sheet, the motivations have often been reoriented to one where liquidity needs have allowed those with the leverage (beneficial control) to resolve the balance sheet first and then set about using their own resources or specialized professional services firms to optimize the business model, thus transferring value accretion to the post-restructuring stakeholder.

I have also seen another phenomenon that either promoted the concepts above or is coincidental but aligned to them:  The velocity of capital and its transparency, using electronic information flows, has allowed risk takers to move faster, go deeper and bring capital to situations sooner than ever before. This means that business cycles that might have necessitated the use of turnaround firms, like the ones I had been associated with in my career, have narrowed such cycles. Money stays in longer, returns sooner and the cycles are shallower than ever before.

So what does that mean for my colleagues at Deloitte US and other firms?

We will evolve and shift to continue to provide differentiated services in challenging environments, be they capital or operational services and solutions. Or even simply situational experience for management teams as they enter uncharted waters. Our professionals, though, will need to work harder, work smarter, continue to put in long hours (as we have always done), and go to the burning building, not run away from it. Remote work is nice, but it is no substitute for being shoulder-to-shoulder with management teams and company personnel as they live and breathe the stress of angry stakeholders, frustrated employees, and a short-term lack of capital to execute their plans. This is not a world for the faint of heart. However, when it works… it’s great. We don’t always get the outcomes we want, but when a CEO stands up at a town hall with all employees and says: “without Michael and his team’s efforts, our 200 people and the families that rely on them, would be out of work. So, thank you”, well that’s a job well done.

After twelve years with Deloitte US, I am leaving the firm that has afforded me fantastic opportunities to work with phenomenal people around the world and right here in the US, analyze business models that are as varied as the cultures that permitted them to once flourish and help solve clients’ challenges that were financial, operational or both. I must retire from Deloitte but will not be leaving the turnaround world. I hope to see you all in my next chapter, michael.j.epstein@gmail.com.

Recent engagements

Shipping company

Based on an increased focus due to the impacts of COVID-19, a multi-billion dollar transportation company recognized an opportunity to improve its cash conversion processes and engaged Deloitte T&R to help it improve its working capital performance. With a target of more than $500 million in savings, the increased cash can allow the company to make other strategic investments and technology upgrades.

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Clothing retail chain

Deloitte provided bankruptcy accounting, financial accounting and reporting, valuation, tax, process and systems services to a large retailer with a significant number of North American locations. Our efforts were key in assisting the company to sell off the majority of its assets and operations as well as spin off a large portion of its real estate into a new Securities Exchange Commission-registered reporting entity.

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SaaS Technology Company

Deloitte T&R serves as financial advisor to a private equity–backed technology company that has integrated multiple acquisitions over the last year. The company has engaged Deloitte T&R to help them focus on identifying and achieving working capital improvements across the business focused on the procure to pay and order to cash processes. An initial assessment identified up to a 30% improvement opportunity to reduce their accounts receivable (AR) balance and up to a 50% opportunity to increase accounts payable (AP). To date, the company has achieved a 10% reduction in AR and a 30% improvement in AP.

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Engineering and construction company

Deloitte T&R assisted the executive management team in evaluating strategic alternatives around the issues of operating challenges and management changes that the company was facing, as well as potential sale scenarios. Additionally, Deloitte T&R helped the financial management team with analyses to isolate root causes of underperforming projects, evaluate liquidity sufficiency and bonding capacity needs, and elevate the quality of financial performance. The supporting analysis work shifted to assist management in the company’s needs of diligence responses to interested buyers. Further analysis of long-term incentive plans led to better retention during the sales process. Deloitte T&R remains an adviser to the executive management board around complex issues.

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Strategic aviation lending syndicate

Deloitte teams from the United States and Europe were retained by the lending syndicate (located in London, Paris, New York, and Toronto) to a large global aviation finance company, reeling from the impact of COVID-19 and choking off 90% of its income, and the precipitous downturn of the airline industry. Working closely with counsel, Deloitte assisted with restructuring negotiations on behalf of these lenders and between the lenders, bondholders, shareholders, and borrower. Our ability to bring to bear specialist industry sector experience, contingency planning, and deal implementation experience was pivotal in achieving an effective outcome for our clients.

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Paper Products

Pursuant to its obligations under the Credit Agreement Amendment, the company engaged Deloitte T&R to provide services as the company’s chief strategic officer (the CSO). Deloitte T&R will work collaboratively with management and the company’s investment banker, coordinating with the company’s other restructuring professionals, attorneys, and financial advisors to assist in implementing selected restructuring strategies, including; assessing the company’s business plan and operations to identify potential performance improvement initiatives, developing and implementing the company’s financial and operational turnaround strategy and associated activities, overseeing the management of the company’s liquidity issues, and managing the relationship with the company’s lenders and creditors.

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Wind-down advisor

Deloitte T&R currently serves as the advisor to a manufacturer and its international union as they shut down a joint training and human resources center. Deloitte T&R has developed a work plan and cash flow estimates / budget for the wind-down period and advised the client on various wind-down matters, including, asset sales and transition, document and information retention, and contract disposition.

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