Corporate Turnaround Artistry

Chapter 9Strategic Exits

“Jeff, this division has been losing money for years and offers no strategic advantage to the parent company. We need you to visit and let us know how to shut it down as efficiently as possible,” said the private equity chairman. I drove deep into central Pennsylvania to a rundown, tired, and well‐past‐its‐prime metal widget factory. They didn't even produce their own widgets, they were a low‐tier job shop for mostly automotive customers. The division had been starved for cash since the bankruptcy of its parent company 10 years prior. What happened since was pure financial mismanagement, and this scrappy little division was now having to beg customers to buy the input materials because they could not get basic requisitions funded from headquarters far away in Kansas. This was driving customers away, and sole‐sourced parts were now getting shopped around. Blood was in the water.

Long story short, I liked the business and I thought it would be a perfect acquisition for a strategic buyer but a risky acquisition for a financial buyer. My liquidation plan would net about $10 million for creditors, which would be a fair recovery from this level of mismanagement and neglect. But all the jobs would get wiped out, the county would lose its biggest employer, the tax base would take a hit, and hundreds of families would struggle to recover in an already depressed region. If I did everything right, got lucky on valuations, and tidied up all loose ends, it would ...