Turnaround Boom Slows

Bankruptcies have kept consultants busy

MENTION turnaround consultants, and you'll either get a smile or a shudder from business people. Some see them as white knights who ride in at the 11th hour to save a company from bankruptcy. Others view them as hatchet men hired to trim jobs and shut down factories.

Over the last few years, debt restructuring experts and business reorganization consultants have had plenty of work to do. Almost weekly, newspapers have heralded new bankruptcies. Well-known companies such as Trans World Airlines Inc., Macy's, and Pan Am Corporation have been among the casualties.

Last week, Olympia & York Developments Ltd., the world's largest property developer, became the latest prominent restructuring case.

Consultants who advise and sometimes actually run companies in crisis have seen demand for their services soar. Billings at many turnaround consulting firms grew by 20 to 25 percent annually between 1988 and 1991.

These firms project modest growth of 10 percent this year and next. While the economy may not improve quickly, many of the largest failures have already occurred, says Wilbur Ross, senior managing director of Rothschild Inc., a New York investment bank. "We're right near a cyclical peak," says Mr. Ross, who has coordinated some of the biggest recent debt restructuring deals, including TWA, Maxwell Communications, and LTV.

"Macy's symbolizes the end" of the era of the big leveraged-buyout bankruptcies, Ross says. "The number of new cases will decline in 1993."

Stephen Gray of Gray & Co., a turnaround consulting firm in Boston, agrees: "We've seen things stabilizing, at least in New England." As the economy deteriorated from late 1989 through the first half of 1991, the Federal Deposit Insurance Corporation was "going through the Boston banks like Sherman going through Georgia," Mr. Gray says.

Tougher federal regulation "put the banks into a position of cutting back their lending strategies, and also [of] policing their existing loans in very aggressive ways," Gray says. This drove problem companies into the arms of turnaround consultants.

Leland Goldberg of Leland B. Goldberg & Associates in Boston says his practice is moving south and west. As "the Feds ... apply the same regulatory requirements and pressure down the [East] Coast that they did up here, new pockets of work are opening up," he says. California's economic woes have already produced consulting opportunities for him.

In turnaround consulting, "We're focusing on two things: lowering the break-even level of the business, and optimizing cash flow," Gray says. Outside consultants provide managers with the tools to accomplish drastic change: political savvy, consensus building among financiers and managers, and detailed analysis of finances and operations.

Though banks push many companies into crisis, they don't always play the bad guy. If a troubled real estate firm has "a reasonable chance of being turned around, the lenders ... usually have a very open mind about dealing with them," says Robert Harlang of Richter and Partners Inc., a Toronto accounting firm specializing in real estate debt restructuring cases.

"Recession-induced workouts and ... real estate workouts will be with us for quite a while," Ross predicts. "Financial institutions that have gotten into trouble - banks, S&Ls, and insurance companies - are ... a big growth sector." Rothschild and other firms specializing in this area have added staff in recent years.

Dean Silverman, a director at the management consulting firm of Temple Barker & Sloane in Washington, D.C., forecasts that turnaround consulting will continue to grow somewhat in 1992. "Companies are figuring out that they cannot just recast the debt, and ... rely on wild projections of economic growth," he says.

Yet despite the downturn in industries ranging from real estate to retailing, consultants say managers still resist seeking advice.

"Company management is usually reluctant to accept the concept that they need outside help," says Abraham Getzler, of A. E. Getzler in New York.

News-media focus on business bankruptcies has not encouraged CEOs to ask for assistance before problems become dire, turnaround consultants say.

"People just hate to think that they cannot solve their company's problems," says Ross. "Some things ... get better with age, but troubled companies do not. They generally get worse."