Navigating a Career in the Industry Speakers: David Johnson & Margaret

Bogenrief February 25, 2011

1

Session Overview • Speakers

• Careers in the Turnaround Industry

• Inside a Turnaround Engagement

• Q&A

2

ACM Partners Overview

• ACM Partners is a Chicago-based boutique advisory and investment firm focused on distressed lower middle-market companies in the U.S. and policy-driven macro opportunities globally.

• The financial advisory practice of ACM Partners is focused on working with companies ranging from start-ups to those with $100MM in sales. Service offerings include: Due Diligence, Entrepreneurial Advisory, Government Advisory, Performance Improvement, Real Estate and Restructuring and Turnaround.

• Key referral sources include: financial sponsors, investment bankers, lenders (bank and non-bank), and lawyers.

3

Margaret Bogenrief

• Margaret Bogenrief is a finance professional with over 10 years of experience in business development, finance, marketing and trading.

• Margaret earned her MBA and Masters of Public Policy from the University of Chicago with concentrations in Economics and Finance.

• Ms. Bogenrief possesses both quantitative and qualitative experience in multi-strategy and commodity-focused hedge funds. She has demonstrated a unique understanding and mastery of macroeconomics within the policy sphere.

4

David Johnson

• David Johnson is a finance professional with over 10 years of experience in business plan development, business process optimization, restructuring and turnaround.

• David earned his MBA from the University of Chicago with concentrations in Accounting and Finance.

• With engagement experience spanning North America and involving companies ranging in size from pre-revenue start-ups to nearly $1bn in sales, David has shown the flexibility to thrive in the dynamic situations that are a constant in turnarounds.

5

The Turnaround Industry • The Turnaround Industry is fairly young, having arisen largely as a result of

changes to the bankruptcy code enacted in 1978 – As a result this is an industry in which many “first generation” practitioners are still

active

• Due to the industry’s relative youth and extreme cyclicality, only recently have many firms started adding junior professionals

– The upside of this relatively immature industry is the extraordinary experience to be gained in a turnaround engagement

• The skills to be gained in working on a turnaround engagement are diverse and impressive

– C-level management exposure – Negotiations with capital providers (Private equity firms, Commercial Lenders,

Mezzanine Firms, Hedge Funds, etc) – High-level management responsibility over mission-critical areas (collections, payables,

inventory management, etc)

6

Entry Points for an MBA • MBAs looking for entry points into the turnaround industry have a variety

of options, among the most common:

– Turnaround Consultant: Serve as financial advisor for Debtor (Company) or Creditor(s) (Lenders). Work involves extensive financial analysis, business/turnaround plan development, negotiations with key constituencies and extensive travel (for debtor-side work).

– Investment Banking: Negotiate new financing or sale of divisions or entire company.

– Commercial Lender (Workout / Special Credits): Manage portfolio risk by monitoring company financial performance, bringing management, financial sponsors (where applicable) and financial advisors together when performance brings to trend down.

– Hedge Fund: Provide high yielding loans to fund turnaround plans or fund emergence from bankruptcy (via DIP loans).

– Private Equity: Seek investment opportunities to acquire companies with a potential to outperform based on an executable turnaround strategy or navigate the turnaround of a troubled portfolio investment.

7

Key Skills • Regardless of entry point, all roles in turnaround, as in financial services at

large necessitate the mastery of certain key skills (in order of importance):

– Pitching / Sourcing Opportunities: All roles in turnaround involve some type of pitching, and an opportunity cannot be pitched until that opportunity has been sourced.

– Networking: The ability to continually grow ones network of quality contacts while ensuring that no contacts become “stale” from lack of attention is crucially important for continued advancement.

– Instincts: A lack of time and/or information is a constant in this industry. Seasoned professionals develop instincts that are a synthesis of lessons learned from their own prior work experience and the methods that work best for them which then allow them to address situations with inexact information and inadequate prep time.

8

Case Overview • In June 2010 the predecessor firm to ACM Partners was retained by a

private equity owned restaurant company that had recently exited bankruptcy.

• The company’s private equity owner wanted a 13-week cash flow forecast, a 3-year financial forecast, and someone to manage the initial months of the firm’s monthly update report.

• Over the course of a nearly four month engagement, David Johnson worked closely with the senior management team of the company in developing the above-mentioned analytic tools.

• Initially, David managed the weekly cash reporting before transitioning that responsibility to a member of the company’s accounting staff. For the length of the engagement David was the sole point of contact for the monthly reporting package to the private equity firm.

9

Inevitable Complications • The nature of a turnaround situation is that something has gone wrong, and

as a result there is always an aspect of a case that takes an inordinate number of man-hours to address.

• In this case, the company, having been run prior to its bankruptcy by an entrepreneurial team, had very spotty financial records and did not have a complete historic balance sheet.

• While the private equity firm that acquired this company knew of the balance sheet issue, the operating Vice President assigned to this company insisted that the turnaround team (comprised of David Johnson, the Interim CFO and the newly hired Controller) create a pro-forma balance sheet.

• Creating a pro-forma balance sheet in this environment necessitated the synching of a cash flow forecast model, an integrated 3-statement model and a separate model developed by the Controller.

10

Key Analyses on Engagement • 13-week cash flow forecast: Standard tool of the turnaround industry, this

forecast is a direct cash flow (receipts and disbursements) that allows all stakeholders to carefully manage liquidity.

• Integrated model: An integrated 3-statement model, complete with a robust set of operating assumptions.

• Variance Analysis: Weekly analysis of actual to forecast variance, this is a key aspect of cash reporting and an area of intense interest in turnaround engagements.

• EBITDA Bridge Analyses: A detailed analysis of the drivers of year-to-year changes in EBITDA.

11

Lessons Learned • Accounting professionals and finance professionals speak a similar but

different language. Accounting professionals will accurately tie-out numbers to the fifth decimal place but are generally challenged to perform “what-if” analyses, whereas finance professionals will generally spin scenarios all day long but be challenged to get high level numbers to tie-out to the sum of their component parts.

• Issues with data are unavoidable in a turnaround situation. Often the best that can be hoped for in the early days is to get a reasonable forecast of cash flow and tweak it as the weeks go on.

• A focus on the capital markets can become a hindrance in a turnaround situation, as the decisive factors for success (especially in the middle-market) are often internal improvements.

12

About ACM Partners

• ACM Partners is a boutique financial advisory firm providing due diligence, performance improvement, restructuring and turnaround services.

• David Johnson can be contacted at: – Email: david@acm-partners.com – Ph: 312-505-7238

• Margaret Bogenrief can be contacted at: – Email: margaret@acm-partners.com – Ph: 312-505-0700

• For more information visit: www.acm-partners.com.

13