Turnaround specialist Alvarez & Marsal has launched a private equity practice to work with firms with struggling portfolio companies.
The company has been working with private equity firms for several years, but decided to formalise the practice, bringing in 30 “seasoned” professionals to focus solely on private equity portfolio companies, according to Jeff Feinberg, a managing director with the company.
Alvarez will be working with companies that are in early stages of distressed situations, rather than on the brink of bankruptcy, Feinberg said.
In the financial crisis, firms have learned to be much more proactive than in the past on getting help for their portfolio companies before a crisis sets in and before bankruptcy is inevitable, according to Feinberg. Management of the portfolio companies has also become much more open-minded to restructuring before a crisis spirals out of control.
“Private equity shops have been more open to taking action earlier. Before, they would wait and then some major event would take place like a covenant bust or a missed interest payment,” Feinberg said.
Alvarez’s private equity group will work with private equity firms on cutting costs for struggling portfolio companies, including eliminating unprofitable business lines and getting control of cash flow – a corporate rationalisation process, Feinberg said.
“It’s not just about headcount,” he said.
Lenders have put more pressure on companies in trouble, because they’re “not opening their checkbooks”, Feinberg said. In the past, struggling companies could expand lines of credit to make up for shortfalls. These days, companies are negotiating simply to unfreeze lines of credit lenders close off after covenant violations.
“We want to make sure they’re not turning off the switch,” Feinberg said.
Alvarez has worked with some of the biggest private equity firms in the world on restructuring their portfolio companies. Feinberg declined to name the firm’s private equity clients.
The group's leadership includes Feinberg, Nick Alvarez, Kathy Iverson, Richard Jenkins, Markus Lahrkamp and Charles Lowrey.