High Tech Holding Company
A multidivisional company had overextended its resources. The company had invested heavily in a new segment of the wireless industry. Due to adverse market conditions and an unfriendly regulatory environment, the new division did not perform as expected. In fact, the financial drain on the parent company was proving to be a detriment to the development of other operating divisions.
Avant Partners was retained by the management of the parent company to find a solution. In this case, a three step methodology was employed:
Step 1: Develop an understanding of the client’s goals and analyze the situation.
This was accomplished through a series of teleconferences, face to face meetings, a review of corporate materials and secondary research.
Step 2: Provide Recommendations and Plan of Action.
In this case, the recommendation was to continue operation of the unprofitable division until a desirable buyer could be found for the division’s assets. Closing down the division would have destroyed the most valuable asset, the customer base.
Step 3: Hands-On Implementation.
In order to stop the negative cash impact on the parent corporation and reduce the division’s debt accrual until an acquisition could be completed, Avant Partners stepped in to oversee the operation of the division. Critical division personnel were employed to maintain the value of the company assets. By taking a hands-on role in the management of the division, Avant Partners was able to significantly increase the valuation of the division’s assets. Avant Partners was also able to satisfy the needs of customers, service providers and key employees during a period of difficulty and uncertainty. At the same time, Avant Partners negotiated and consummated the sale of the assets to a desirable purchaser.
The proceeds of the sale allowed the parent to relieve itself of the debt accumulated by the division. This allowed the company to move forward with its plans to expand its presence in the high growth security industry.
Public Company Turnaround
A five year old public company had ceased operations due to a significant shortfall of funds. Despite the apparent lack of performance, the company had a loyal customer base which included several high profile corporations and government agencies.
Several key investors and secured creditors retained Avant Partners to revive the company. In this case, a five step methodology was employed.
Step 1: Analyze the situation and determine the viability of reaching the clients goal.
Avant Partners spent a total of two weeks meeting with key employees, reviewing corporate documents, internal operations and financials, performing secondary market research and interviewing customers. All findings and analysis were provided to the client in the form of a written report.
It was determined that the customer base could be maintained if the products were bought up to date. The company had not launched a new product or update to their existing product line in over 3 years. The long term viability of building the business and adding new customers was questionable given the introduction of new industry standards and technological advancements that had the potential of changing the competitive landscape to the detriment of the company.
The client(s) made the decision to revive the company and provide funding for an interim period under a new CEO. The long term viability of the company would be determined as the competitive situation developed. A new CEO was hired and an initial round of funding was provided.
Step 2: Develop Implementation Plan
The new CEO retained Avant Partners to help in the management of the operation. Avant Partners personnel assumed the roles of VP of Manufacturing, VP of Marketing, VP of Engineering and General Counsel.
During the subsequent 8 months, the company achieved several goals:
- The company’s share price went from $0.0025 with no trading volume to $0.20 with trading volumes in excess of 25,000,000 shares per day. The stock price fluctuated with market conditions, but did not drop to the low levels it had seen prior to the engagement.
- Introduction of a new product line
Avant Partners managed the engineering team to complete development of a new software product. Detailed program management, documentation and coding standards were implemented in the company for the first time.
- Demonstration of a new and improved revision of the original product
Through a combination of the internal engineering team and outside contractors, a badly needed revision of the company’s main product was developed.
- Significant reduction of corporate debt
Avant Partners negotiated settlements with several creditors to reduce the company’s debt and continue operations. The overall debt was reduced by over 30% and key suppliers continued to work with the company during the turnaround.
- Several new customer contracts
The company acquired new customer contracts through a targeted marketing program.
US Magnetics was a designer and manufacturer of magnetic tape heads for the quarter inch and half inch backup tape systems market with annual revenues exceeding $20 million. It was the leading supplier of tape heads to Archive, Wangtek, Cipher Data, Maynard and Connor Peripherals and was working on the first Digital Linear Tape (“DLT”) prototype head for Digital Equipment Corporation.
As of 1991, the company’s manufacturing operations in South Korea had encountered severe labor strife and had been shut down for three months. The company had missed the last Quarter Inch Cartridge (“QIC”) product cycle and had accumulated substantial amounts of inventory. Its United States manufacturing location could not fulfill its current purchase orders due to its high labor costs. The company was in the midst of two major lawsuits as well as major litigation regarding its South Korean operations. The previously profitable company was losing $3 million per quarter.
Roy Kim was brought in to manage the turnaround of US Magnetics. He focused on the negative cash flow condition of the company and settled the lawsuits resulting in a $1,000,000 cash settlement. He then worked with existing vendors to rework inventory to meet current purchase orders resulting in ongoing cash flow to the company while the company continued to develop the DLT prototype. He oversaw the development of a manufacturing facility in Costa Rica and created the first Technology Free Trade Zone in Costa Rica. He hired local management, engineers and factory workers, and supervised the technology transfer to these engineers from the U.S.-based engineers.
At that time, the QIC industry was rapidly changing to new technology and the company was unable to pursue research and development in both the DLT market and the QIC market so he transitioned the company from its QIC customer base to the DLT market. These changes resulted in the company reaching cash flow break even. He then negotiated with DEC to purchase the DLT operations from the company. The company continued on as a small but profitable magnetic tape head design firm.
Their products and technology were rapidly facing commoditization by Taiwanese manufacturers. As a result, profit margins were in a tailspin. The company attempted to launch several new products, all of which failed to hit the mark. Based on the companies declining market position the board of directors hired a new CEO, who in turn, replaced the entire management team in an attempt to breath new life into the company. Rick Ono was hired as the Vice President of Marketing and later assumed the role of Sr. Vice President of Sales and Marketing.
A complete realignment of the Company’s channel strategy reduced direct selling costs dramatically. The headcount of the sales team was reduced from 25 field sales reps to 10 without a disruption in the order flow. A new product line was launched which met with high praise from the channel partners as well as the industry press. Sales from the new, higher margin products replaced declining margins from the company’s older products. Thus, maintaining the company’s EBITA.
The new market position of the company attracted the attention of several potential buyers. The assets of the company were eventually sold to a major competitor. All creditors of the company were paid.