Turning Around the
           Middle Market

Times Maybe Tough but Proven Leadership Can Weather the Toughest Storms

We are now in our sixth year of honoring and recognizing the accomplishments of the top professionals and firms in distressed investing, restructuring and turnaround dealmaking. 

As industry experts know a good Financial Advisor can make or break any Company because delivering improved profitability, streamlining operations and negotiating a sea of creditor and shareholder concerns, while instilling senior lender confidence, formulating workouts and recovering liquidity in the context of bankruptcy is no job for the faint of heart and nothing in a company’s lifecycle is a guarantee.  

The changing financial climate has sometimes left companies, firms and municipalities of all sizes in tough situations.  To turnaround a troubled business and to bring about a healthy balance sheet—more times than not—requires making equally tough decisions.

Today’s turnaround experts must find ways to reinvigorate troubled assets and formulate restructuring plans with a focus on shorter-terms and narrowing recovery strategies.  Gone are the days, at least for now, of the long-term restructuring plan. 
Chief Restructuring Officers, and Chief Liquidation Officers must work diligently and expeditiously at liquidity events that preserve equity and save jobs while operating within limited frameworks.  For companies in crisis, a good turnaround firm is nothing short of a life preserver. 

Experts that can turnaround seemingly impossible situations are rare indeed.  Yet over the last three years, for 36 months, O’Keefe and Associates has been at the forefront of effectively managing over 60 transactions and saving hundreds of jobs, while retaining millions of dollars in owner equity and local economic activity. 

O’Keefe and Associates is a transactional financial consulting and strategic advisory firm specializing in debt restructuring, corporate finance, mergers and acquisitions, turnaround consulting, real estate, business valuations, litigation support, public sector consulting, creditor and bankruptcy services including receiverships and chief restructuring officer (CRO) assignments, forensic accounting, investment banking, and due diligence in M&A transactions.  

Most recently, O’Keefe and Associates assisted a company that faced bankruptcy—as a result of the economic downturn—by stabilizing their business operations, negotiating violations of bank covenants and fending off law suits that would have ended company operations and cost over 300 jobs in a community that was already facing difficult economic stability. 

The firm holds numerous awards, from the M&A Advisor, TMA and range of business publications.  O’Keefe & Associates is recognized for its creative financing strategies for middle-market companies and in the last 24 months has received national awards for debt refinancing, turnaround, and sale financing transactions.

Patrick O’Keefe is Founder and Managing Member of the firm and is himself a turnaround professional, certified in financial forensics, past member of the International Board of Directors for the Turnaround Management Association (TMA), Past President of the Detroit Chapter of TMA, member of American Bankruptcy Institute, Institute of Business Appraisers, AICPA, MACPA, Cleary University Board of Trustees, and MSU’s Accounting and Information Systems External Advisory Board. 

O’Keefe has over twenty five years experience in turnaround management assignments.  He is a former partner at Deloitte & Touche and Conway MacKenzie & Dunleavy. 

He has been an operating Chapter 11 Trustee as well as a Court Appointed Receiver and Chief Restructuring Officer. 

O’Keefe is a frequent guest lecturer and writer, frequently quoted on automotive, real estate, manufacturing and retail industry.  He has recently received Corp! Magazine’s Top Executive of the Year, Outstanding Individual Contribution Award by TMA, Cleary Business Medal of Honor as an outstanding businessman, and the Small Business Administration’s Financial Services Champion of the Year Award.

His firm is nationally recognized for its creative financing strategies for middle-market companies and has received national awards for real estate, debt financing, turnaround and sale financing transactions of the year.

O’Keefe graduated Cum Laude from Michigan State University with a Bachelor of Science in Accounting and earned his MBA with a Concentration in Finance, from Wayne State University.

We asked O'Keefe, based on his 25 years expertise in turnarounds, for his thoughts on today's middle-market resturcturing options.

M.A.: In a turnaround are there any consistent concerns that secured lenders have across sectors in these economic times?

P.O.: The Banks want to know, is the business viable and can the operation generate sufficient cash flow in a turnaround without further support from the Bank.  If the Bank’s position in terms of collateral does not erode, you have a good chance at support.

M.A.: What are some debt terms that middle-market companies should most welcome these days? 

P.O.: Longer-term deals – working capital lines for 2-3 years, covenant-light terms.

M.A.: You and your firm have a reputation for great negotiating skills; for example, how do you reconcile creditors and shareholders having different agendas?

P.O.: Being a good listener, finding common ground then building on it.  Understanding why parties need what they want and proposing mutually acceptable alternatives that work for everyone.

M.A.: When it is time for a middle-market company to sell in today's economy, how do you help sellers find "more favorable terms than (say) others can achieve?" In this regard, does your marketing strategy differ from other turnaround firms; and if so how?

P.O.: If growth is stagnated by limited capital it might be a good time to sell before competitive advantages erode. Finding strategic buyers who can see the opportunity and develop a competitive niche.  We shy away from financial buyers who often are just looking to buy cheap and have no strategy or operating acumen.  If seller expectations are too high, we try to bridge offers with additional earn-out provisions. We never let money sit in escrow or reserve for future events that our seller doesn’t control.

M.A.: Do you think middle-market buyers have an advantage in deal terms and deal value, given slower GDP growth?

P.O.: Not necessarily.  Middle-market buyers may be at a disadvantage in that larger amounts of equity are required.  The best buys are deleveraged to whether any economic downturn.  The traditional buyers have been addicted to leverage.

M.A.: How realistic is receivership for small to mid-size businesses in distress?  In other words, what is the likelihood of receivership as compared to bankruptcy proceedings for middle-market companies in particular; and what are some key defining characteristics of such companies—in terms of their balance sheets or any other matters? 

P.O.: I think because rates are low and the Banks have boosted their Tier 1 Capital they can hold a troubled credit longer without worrying about its cost.  We have recently seen lenders get more aggressive in playing ball for longer terms for a piece of equity in the form of warrants or convertible  preferred.  The Courts are generally tired of seeing Banks crush borrowers in this economy.  Unless the lender can demonstrate fraud through collateral misappropriations or show their collateral eroding, they have almost no chance of getting a receiver in the first hearing if it is adversarial.  The Court wants the owner to get something (release of guarantees or limited liability) in the process.  Consensual receiverships move faster and can be better in long run for both bank and borrower especially if the borrower has specific trouble (i.e. lawsuits and garnishments) that impair his ability to liquidate the collateral.

M.A.: How are you helping your clients with navigating the short-terms that senior lenders require these days?

P.O.: Nothing good happens in just 90 days. We try to put realistic and measurable metrics in front of lenders so we do not have to go through the Chinese fire drill of negotiating new forbearance terms that often require more fees, which is good for the lender and attorneys but rarely good for the Company.  Credible well-thought plans get traction and lenders will grant longer terms, especially with financial advisors with a solid track record of successes like our firm.

M.A.: What are some consistent specifics that lenders of all stripes are requiring these days? 

P.O.: They want a plan that is achievable, they do not want to put more money into the deal and they want to see over time they can have a credit that is performing from a regulatory standpoint which means adequate debt service, collateral coverage and operating ratios.

M.A.: Are there any specific changes to the bankruptcy code or tax laws that middle-market companies should pay particular attention to these days?

P.O.: Cancellation of indebtedness income when a Company receives a discounted payoff from a Bank on a recapitalization can create tax burdens. Tax advisors can be extremely helpful to mitigate tax risk.

M.A.: Thanks, Pat for your time here, and for helping companies and other institutions in this tough economic climate.