How Onionomics Uses Technology To Create Ant Colonies in a Restructuring or Turnaround

Adam_Meislik — 2009-04-29T18:35:55-07:00

In crisis you want to form an ant colony. Ant colonies are majestic because individual ants follow the trails of others, and direct, small-scale interactions between individual ants lead to sophisticated, self-organized structures. Using the right technology can provide the framework for a colony to form.

Companies are large and complicated, and no single person has all of the bright ideas, answers, or bandwidth to complete every task. A chief restructuring officer (CRO), or turnaround manager, shouldn�t come in as an autocrat; he or she should come in as a technocrat who is also a coach and a leader. When a turnaround team first arrives on the scene, there may be an initial shock from existing management. The team must make everyone feel important, and let everyone know that the tasks at hand will only be accomplished by teamwork.

A good coach knows how to get the most out of his or her players. A player�even a highly talented athlete�who is disruptive will be sidelined because a good coach makes decisions that benefit the performance and morale of the team as a whole. Therefore team athletes are both competitive and cooperative. Part of a CRO�s job is to facilitate a feeling of teamwork for people who may be tired and under-motivated. A CRO strives to create a command center that is collaborative; a place, where good ideas are merit-based, and can be created, tracked, executed, and plainly seen by the workforce.

To facilitate this positive, performance-driven work environment (where there is some competitive tension that pushes people to work efficiently and seek out good ideas), you have to abandon old channels of communication and attempt to create one company brain. The key to success is fluidity. In my opinion, inefficient communication and lack of codified institutional knowledge can cause as much as a 30 percent drag on efficiency for the CRO and the team.

We can learn something from our kids about how to make our communications and data sharing more efficient. They live in an online world where thoughts, right or wrong, are distributed freely. Online conversations around an idea or thought are threaded instantly and come to a conclusion, often with the crowd voting on the best answer. In the fast growing social networking world, people sign-on to Facebook and Twitter, and in the corporate world, people use e-mail. Although e-mail is useful and the defacto communications standard today, it doesn�t foster rapid communication, isn�t easily threaded or searchable by a group, and doesn�t produce a knowledge base. This leaves new entrants to a situation on their own, unable to leverage what has already been discussed or concluded.

A turnaround demands that everyone climb a steep learning curve. The energy around a turnaround should result in a knowledge base from unstructured data (conversations) and structured data (reports, documents). You must weave them together in a way that is searchable and supports decisions. Ideas that turn into conversations must result in tasks, and effort around those tasks must be tracked. The process of creating this knowledge base will flatten the learning curve. Old forms of communication promote mistakes because participants lack understanding of the logic behind an idea or a task. In a fast-paced turnaround situation, employees and consultants must work to organize the workforce and allow everyone to function at their highest and best use. The lack of drag on efficiency through utilizing technology will result in higher satisfaction among workers because they can focus on what they think they do best. People rarely make mistakes if they have a holistic view of a situation.

There are some inexpensive technology-based tools that can be rapidly implemented to foster fast communication and knowledge-base building while reducing friction on productivity. All of these tools come from the evolution of the Internet. I will discuss the major components of these tools based on their core strengths. Keep in mind that software development is often Darwinian, and the best attributes of one product often find their way into others.

FOUNDATIONAL TECHNOLOGIES

Bring Employee Profiles to Life

Facebook and Linkedin
Facebook and Linkedin are popular social networks, and they both have many valuable benefits. One of their benefits is the ability to offer a quick overview of a peer, co-worker, or new team member�s background, responsibilities, and skills. The profile attributes of Facebook or Linkedin are essentially replicated across all social networking platforms. In a turnaround situation, it is helpful for the CRO to quickly understand the team�s skill sets. Using profiles, a CRO can easily digest the talents and functions of each employee. An employee�s profile is brought to life when their skills and responsibilities are hooked into the communication and content described below.

Crowd-source Knowledge

Twitter
Twitter is a versatile communications tool that was originally used by the technorati to further their celebrity around other technorati. It has now taken over the business of short messaging. Twitter is all about velocity�the velocity of information and communication. E-mail cannot compete with Twitter in this regard.

Most people do not make careless mistakes. Most people make mistakes due to lack of information. Siloed information, such as e-mail, drags productivity. One of the most important of Twitter�s many applications is status. Status is simply what one is doing or working on at the moment of messaging. One�s status could be, �I am sitting in my Lazy Boy� or �Working on #month-end report.� In the latter example, �#� tags a searchable key word that allows group users to subscribe to �#month-end report� updates. Rapid and frequent notifications strike micro-management fear into some employees, but this need not be the case if this tool is used properly. For instance, if an employee broadcasts their work on #month-end report, another employee may know something of relevance pertaining to that procedure that wouldn�t otherwise be queried, and may then respond, �final A/R balance from Southern Region delayed on #month-end report.�

A CRO could implement Twitter, but it isn�t secure. A few vendors have jumped in to fill the enterprise gap, including Yammer and Presently. Peruse their sites for more case studies.

Wikipedia
The strength of Wikipedia is the collective wisdom of the crowd. As a turnaround proceeds, a CRO could request that pertinent knowledge, such as workflows, quarter-end closings, industry outlooks, or an entire data room be codified into a wiki. Enterprise wiki solutions also have various possibilities for project management, FAQs, profiling, document storage, and nearly any other content management. Use of a wiki is paramount to create one company brain.

For more about wikis, Wikipedia�s list is a good start.

Digg
Digg is a system that allows web surfers to submit content they find around the web and then allow it to be voted on. It is often credited with igniting the wave of Web 2.0. This system, although easily gamed, is good at organizing content and sending the most popular items to the top of the charts. At a company, you need a similar system to foster idea generation. You could ask a question such as, �How do we save money at every level?� The force of collaboration around the question facilitates rapid idea generation and refinement resulting in a list of great ideas for the CRO to then assess and assign. Dell uses a system similar to Digg to collect ideas from customers.

A Brief Use Case to Get You Thinking

A company�s board calls on Onionomics to turnaround the company. We put in place an enterprise-wide collaboration platform. Onionomics, as CRO, sends an e-mail to everyone in the company asking employees to register their profile on our collaboration platform (much as they would for Facebook or Linkedin), and list their job functions and expertise. The employees will then create groups and subscribe to all messaging and content in their domains. We then communicate via a short messaging service like Yammer or our collaboration platform. We could create a wiki entry on new money-saving initiatives and describe the priorities, goals, etc. A short message would then be sent out asking employees to submit their ideas. The entire group would then prioritize those ideas using a voting tool, and the best ideas would go to the top. We could change the ranking if need be, and then post each idea and individual project goal with an associated #tag. For instance, every time an employee communicates with the team about an opportunity to stretch payables, he or she could include the tag �#payable stretch,� and the unstructured content suddenly becomes structured, searchable and actionable. All of the #tags can then be presented on a dashboard revealing their popularity indicating what people are working on or which topics are hot. Perhaps a new division then enters the scene and reviews how the other division stretched payables and gets some bright ideas of their own. This type of collaboration is hardly possible through e-mail or phone. The board can now peruse all of the new collaboration and increased velocity, and gain comfort from the fact that more is getting done, faster. The board can also look at the results of this process on a real-time basis and accelerate decision-making in conjunction with Onionomics.

Onionomics can provide you with this nearly no-cost infrastructure while implementing a turnaround or restructuring. The result will be vast improvements in efficiency that we will leave with you long after we are gone.

Algae To Oil Pioneer OriginOil Appoints Adam Meislik To Company Board Of Directors

Adam_Meislik — 2009-03-25T14:01:27-07:00

Los Angeles, CA March 25, 2009 � OriginOil, Inc. (OOIL), the developer of a breakthrough technology to transform algae, the most promising source of renewable oil, into a true competitor to petroleum, announced the appointment of Adam Meislik to the company�s Board of Directors, effective immediately.

�Adam possesses a unique background in energy and technology capital markets, and has the strategy and execution skills necessary to help bring OriginOil to the next level,� said Riggs Eckelberry, the company�s CEO. �We are honored that he has joined our board and are optimistic about what lies ahead.�

�Having been involved in both the energy and technology sectors for two decades, it was clear to me that OriginOil holds immense potential, especially given just how much progress it has made in only a few short months,� commented Meislik. �The company�s breakthrough technology, coupled with the unmistakable energy of its team, makes me very enthusiastic about working with OriginOil, and I am looking forward to helping the organization become a global force within the new algae industry.�

Meislik is the founder of Irvine, California-based Onionomics LLC, a consulting firm that specializes in providing companies and stakeholders with crucial management and leadership expertise by evaluating advantage, assessing competitive environments and identifying industry trends and how they relate to capital formation and liquidity.

With a long history of advisory and private and public capital markets transactions, Meislik has successfully structured and closed over 100 equity and debt transactions, mergers, acquisitions and restructurings with an aggregate value of over $10 billion. In his ten-year history with CIBC World Markets, a full-service investment bank, Meislik developed and managed hundreds of relationships with high-growth companies and sponsors in technology and energy sectors.

Meislik presently serves on the Board of Directors of Lateral Data, a leading provider of software and services supporting e-discovery, and is a member of numerous professional organizations, including the Turnaround Management Association, Association for Corporate Growth and the Forum for Corporate Directors. He graduated from Tulane University with a Bachelor of Science in Management and currently resides in Irvine, California with his wife and two children.

About OriginOil, Inc.

OriginOil, Inc. is developing a breakthrough technology that will transform algae, the most promising source of renewable oil, into a true competitor to petroleum. Much of the world's oil and gas is made up of ancient algae deposits. Today, our technology will produce "new oil" from algae, through a cost-effective, high-speed manufacturing process. This endless supply of new oil can be used for many products such as diesel, gasoline, jet fuel, plastics and solvents without the global warming effects of petroleum. Other oil producing feedstock such as corn and sugarcane often destroy vital farmlands and rainforests, disrupt global food supplies and create new environmental problems. Our unique technology, based on algae, is targeted at fundamentally changing our source of oil without disrupting the environment or food supplies. To learn more about OriginOil�, please visit our website at www.OriginOil.com.

Economy in a nutshell

Adam_Meislik — 2009-03-12T21:17:15-07:00

deals

Economy in a nutshell

View more presentations from adam.onionomics.

"And now we're back where we started, here we go round again." - Ray Davies, The Kinks

Adam_Meislik — 2009-02-26T09:30:23-08:00

deals

Way back in September 2008, the Bush administration announced the Troubled Asset Relief Program (TARP) to introduce liquidity into the credit markets by being the bid of last resort for troubled assets. At the time, I thought efficient market theory would take hold: the government would set a price and everyone would be willing to pay a dollar more. By early October, however, the administration had abandoned the original game plan and decided to follow Great Britain's lead by directly investing in the capital structures of financial institutions. Now we're back where we started, and the Obama administration is revisiting the game plan to create a market for troubled assets.

Last month we discussed an overview of the cost of risk and how it relates to capitalizing the distressed business and prior to that, we discussed two forms of out of bankruptcy court liquidation mechanisms in: How To Exit An Insolvent Investment: Efficient Alternatives To Bankruptcy.

This month, I have a special treat. I had the pleasure of conducting an interview with Rick Bookstaber about some causes of the collapse. In April 2007, Rick authored and published, A Demon of Our Own Design: Markets, Hedge Funds, and the Perils of Financial Innovation. Rick's book proved to be prescient about the systemic risks created by capital markets innovation. Rick is heralded as one of the few who saw how derivatives could cause contagion.

Rick is a certified quant and accomplished risk manager having worked at Bridgewater Associates, run the Quantitative Equity Fund at FrontPoint Partners, and lead risk management at Moore Capital Management. He also worked at Ziff Brothers Investments, and was a Managing Director and member of the Risk Management Committee at Salomon. Prior to this, he designed derivative and structured instruments during their infancy while at Morgan Stanley, and concluded his tenure there as their first market risk manager.

Rick was also just named to Conde Nast Portfolio's 25 Innovators in Technology. Check out Rick's blog at rick.bookstaber.com.

Okay, lets get to the interview.

Adam: Rick, thank you for your time. You are an expert on risk in the derivatives and securitizations markets. Products like credit default swaps played a key role in the crisis. How can we improve things to avoid this in the future?

Rick: One thing that has become evident, and Jamie Dimon also mentioned this in his testimony, is that even if the banks lend wholeheartedly, they still just represent maybe 30 percent of all the lending that occurs because the shadow banking market [hedge funds, broker-dealers, private equity funds, structured investment vehicles and conduits, and money market funds] is so dominant. Regardless of how the government goes about improving the situation for the banks, which may involve doing something along the lines of what they did with AIG by not buying 100 percent of the bank but increasing ownership of it, they must restart the securitization market, because it's just totally dead right now.

Although securitization contributed to the collapse, the products are useful and necessary for markets to function in today's world. People are talking about creating a clearing corporation to get broader support through standardized contracts, and better transparency on counterparty risk. You would naturally end up with an improved, simplified, and standardized set of swaps and securities.

Going forward, in the ideal world, we would still have banks, and we would still have this shadow market, but it would be much simpler than it is now. It will have better counterparty characteristics because of the clearing corporation, and it would be more liquid and transparent because of the exchange trading.

These things are pretty critical. The markets are too complex, and because they're complex, they're opaque. You also end up with strange relationships that aren't candid. Since there is no transparency you get this web of counterparty risk. It's hard to know who owes what to whom and where critical nodes exist. If we fail, how does it ripple through? This was one of the reasons we couldn't let AIG fail. Once the covenants were triggered, nobody knew where it would lead. Again, clearing corporations and especially an exchange with more standardized products could fix that. Hopefully, that's one of the things that change in the next few years.

We will still have loan securitizations, which isn't ideal because the people who are making the loans don't have to stand by them when they get passed out to other people. At least you have more transparency. It's easier to monitor what's out there when it's done in a standardized way.

Adam: Wall Street certainly had the upper hand since the invention of derivatives. How do we get existing contracts that aren't standardized moving again?

Rick: First of all, many of your readers would know because they are professionals, the size of the base of these existing contracts isn't as big as it looks because contracts cancel each other out and the net is much smaller.

Somebody will have one contract, and rather than getting rid of it they will just put in an opposing contract which edits out the first. Those still exist, and they will be sitting around on the books for quite some time. At some point we'll say, "This is such a mess" and are going to try to novate or do something to get rid of these contracts. Until then, it will just be deadwood inventory sitting there. It will slowly get worked out. I don't envision somebody going through and saying we are going to take all of the existing credit default swaps and structured products and redesign them, break them apart, or do something else with them.

Adam: Do you think the government is in a position to force more standardization and transparency in derivatives markets or do you think the industry will come together and do it?

Rick: No, the industry won't do it because they make money from non-standardized contracts. One of the problems is nobody in the industry has incentives, because the more complex and one-off the contracts are, the bigger the spread or profit. If you want to get rid of a non-standardized contract, the bigger the spread on the other side.

When I was at Morgan Stanley back in 1986, I came up with a design, now anybody could have done it, but I came up with a design for swaps where I said, "Look at all these different swaps that are out there. If you just have the following two or three swap-like instruments, you can combine them in different linear combinations to reproduce almost all of the complex swaps that people are doing." This was in the '80s and, of course, it wasn't as complex as it is now. Coming from an academic background, I was sort of naive and I was surprised that people weren't just saying, "Wow. This is great. This makes it more efficient." I now know nobody wanted to even consider it because it would have ruined their business even though it would have improved the market.

So the governments have to try to force this down the throats of the banks and turn this market into a commodity market like a futures market. I think that will happen and I hope that will happen.

Adam: Seems to me the government needs guys like you to explain the follow-on risks of securities innovation in order to design better regulations. I am sure you have a thing or two to contribute to help solve the problem. What else is on your mind these days?

Rick: I have been thinking a lot about the problems with mark to market accounting. It is a central issue with the banks that there are basically two sorts of marks. There is a mark to value and there is a mark to liquidity. What I mean by that is a lot of assets are priced based on the demand for liquidity. Basically there are people who, because of deleveraging, are being forced to liquidate, and there are not a lot of buyers. So liquidity is driving the price, and the price that you observe in the market doesn't have to do with value, it has to do with liquidity at a fire-sale price. The person who is selling it knows that this is an insane price to be selling at, but they have to do it because they have to deleverage. If you are conducting an investment strategy like private equity or lending to private equity backed companies, and you knew right at the outset that what you are buying is illiquid and it has a very long holding period, then the notion of marking to market where that mark is liquidity driven really doesn't make sense. What you have to do is say, "I am not going to mark based on where the market is right now. I am going to, in a sense, mark it based on some model value." But whether you can get away with that or not is another question and practices vary greatly.

Adam: That's clearly happening across all asset classes.

Rick: Yes. One of the central problems for the banks is FASB 159, which requires a marking to market. This makes no sense from a risk point of view in times of crisis, in times where liquidity is driving prices. If I have $30 billion of loan inventory, why would I mark it based on where somebody traded $100 million of the same loans? It just makes no sense, because I couldn't sell my $30 billion at that price. I had no intention of selling my inventory at that price, and it is not a reflection of where I can sell my inventory. The person who sold the $100 million was probably forced to do it in order to deleverage, and, as a result, at a fire-sale price. So the notion of marking to market in this sort of environment doesn't make sense on either side.

Adam: You have written about some of the capital markets disasters that we have experienced like Long-Term Capital Management. Is there something we can learn from how those problems were unwound?

Rick: In my book, I talk about complexity and tight coupling as being the characteristics of the market that lead us to lurch from one crisis to another. Tight coupling is an engineering term that essentially means when a process gets started, it moves from one stage to the other without the opportunity to intervene. You can't pull an emergency stop switch and convene a committee. A space shuttle launch is a tightly coupled process. When you have leverage, you end up with a tightly coupled process, because the market has a shock and it drops. Somebody who is highly leveraged has a margin call of one form or another and has to liquidate. That liquidation drops the market more. The next day, they get another call from a bank, and it cycles on and on. That was the case, for example, with Long-Term Capital Management. With the crash in '87, the tight coupling came from the computer programs because portfolio insurance looked at the market, the market dropped, and the computer program said, "Because it dropped you have to hedge more." This bad hedging dropped the market even more, and then you have to hedge more, and so you have this cycle again.

In both cases, the government came in and broke the tight coupling. In the first case, '87, through the use of trading circuit breakers, and in the case of LTCM, by getting a consortium of banks together and telling them to stop this business here -- you can't keep the cycle going. The same sort of thing could be to blame in the current crisis. One way to have avoided it would be to tell the banks, "Okay, we are going to stop this cycle of you marking to the market which forces sales, in turn drops the price, then on the new mark, forces more sales and drops the price again."

Unfortunately, It seems to have already cycled, and now we have gone too far along that line. Meaning, I don't think people now could say, "Okay, let's ignore the fact that because of liquidity issues, we have pushed all these prices down." The way the governments dealt with some of the other crises could have been used here, but now I think they are a little past that stage. Further, this crisis is unusual compared to the others in that it pierced the blood/brain barrier between the Wall Street world and the real economy. With LTCM and the crash in '87, that didn't happen. So in that sense, this is a different situation.

Adam: Do you think it was avoidable at one point?

Rick: Yes, as far as the banks are concerned. It gets back to not having them mark to market. They still would have taken losses based on defaults because that is the real event, but I don't think you would have seen them in such dire straits if you hadn't forced mark to market on them.

It still would have been a problem. You can't avoid the fact that people had over leveraged. It is not like there wasn't an inherent issue there. However, it is a bit like if you wanted to design a scenario for a disaster or were writing a novel and you wanted to have a nefarious bad guy who was trying to structure things to make it as bad as possible. You would have him say, "Hey, I have looked at what happened with LTCM and I saw how this crisis occurs. There was a shock and people, because of leverage, were forced to liquidate and that drops the price and so on. Let's try to make something happen so that banks are in that situation. How can we do that? Oh, let's force them to mark this inventory to market."

It is not the whole problem, and you can pick a lot of different places where you might have helped things, but that is one in my mind that is pretty obvious.

Adam: You point out some playbooks we could have followed to forestall the severity of this crisis. Very interesting. Thanks for your time.

Rick: My pleasure. Speak to you soon.

Capitalizing The Distressed Business: Your industry is fundamentally changing and there's no bank liquidity

Adam_Meislik — 2009-01-28T20:19:10-08:00

Last month we discussed two forms of out of bankruptcy court liquidation mechanisms: in How To Exit An Insolvent Investment: Efficient Alternatives To Bankruptcy.

This month we are going to provide an overview of how to recapitalize the distressed small to middle market business.

Backdrop

Although this may seem elementary to some, please bear with us as we discuss the state of the capital nation:

What's happening to the overall cost and availability of capital? Why can't I get a loan? Or if I can, why is it so expensive?

You keep reading that the Fed has been lowering interest rates. Although risk-free interest rates are at all-time lows, the total cost of capital is determined by the appropriate duration and the risk premium. Having mispriced risk for so long, the market has swung completely in the other direction. The market will return to a new norm, but not for the foreseeable future. Although some of us only read about this and how it affects inter-bank lending and real estate, the reality is it affects all of us. The values of most of your assets, including your business, are inversely correlated to the price of risk. In other words, as the price of risk increases the value of your asset decreases. Of course, those investors who went long volatility and the price of risk made the real money, but for most of us with no real way to do that, we fell victim to the bear. So, what does this mean to the value of your business? Simply stated, don't mark it to market until the environment settles. Think of capital in terms of its buying power, not the absolute amount. Although you sold your business for less, the cost of that ranch in Colorado is also less (deflation also has its problems). This holds true as many asset values are positively correlated.

The other element that has an overwhelming influence on the cost of capital is the availability of capital. In the credit markets, this translates to the scenario we are experiencing now. Banks of all sizes are beneficiaries of TARP funds intended to create a multiplier effect created by follow-on lending to other banks and then to businesses. The normal chain of risk increases throughout the links, and, incidentally, so does borrowing cost. In the current climate, the chain has many kinks. Fear is merited by the inability to value risk held by banks, and, in turn, the money doesn't flow through the system as prescribed. This is a whole other matter, and I hope the governments of the world figure this out before our next communication (remember the RTC). Further evidence of this is the unsystematic closure of credit markets and attempts to prime each pump by inflating markets now and worrying about asset prices later (eerily familiar). A higher U.S. savings rate in the short-term will help build confidence, and then we'll have to get back to spending again to jumpstart the economy.

As an aside, our government should pay close attention to the multiplier effect of the components of their recovery plan, making sure there is enough in there to appease the common man, induce investment, and create social returns.

Okay, so back from Capitol Hill and Wall Street.

So what does this mean for the value of my equity?

Investors are never happy with just unlevered equity returns. Even though the casual investor didn't overtly think about it, the use of leverage somewhere in the capital structure of an entity increased equity returns, and the further use of leverage really goosed it. This is the model that the private equity industry adhered to. The risk premium of debt capital was low, the relative relationship of risk was skewed (including loose covenants), and defaults were low. This situation, combined with the ability to further lever capital, in some instances using the goodwill of the financial sponsor, resulted in astronomical total returns, and very quick returns of capital and subsequent reduction of equity capital at risk. The relationship of mispriced risk to the value of equity can be stated another way: lenders were taking equity risk (without the ability to price it) and receiving low returns because there was too much competition to capitalize entities. (Sounds like the residential real estate market again.) Now that earnings are suffering and risk is re-priced, asset values are lower.

So, how does the re-pricing of risk and lack of liquidity in the capital markets relate to my distressed business?

In the past, there was even efficiency in the market for distressed capital. Debtors in possession (DIP) loans were available, and more investors were willing to take hybrid equity risk on businesses in rocky territory. Only a few large deals have been done, highlighted by the recent investments by Buffet and Prince Al-Waleed, and, most recently, by Carlos Slim into the NYTs. To date, investments made into the financial industry haven't worked out well for either the world's smartest investors or governments. Carlos Slim is investing in an industry in decline, and the economy has just pushed down on the accelerator. What we are not seeing is distressed players moving back into the market as they traditionally do, which means capital is hard to come by for all but the slam dunks (and only at a steep cost). Not even Detroit, which must have a future in the transportation business, could get capital from non-government sources.

Okay, now I get it, so what does my distressed business do?

You have to change the opportunity, equation, and results for potential lenders and investors.

First, create a new operating plan that is in line with the current environment. Second, get lenders, trade partners, and key customers on board. Third, recognize the situation early and do not waste time on making small refinements. Instead, focus on feasible large changes, and then refine these changes over time in order to get the most out of them.

New Horizons

No one has the incentive to change their relationship with your business unless you have a new and improved operational plan. Don't expect to trade on your goodwill alone. You must have a revitalization, recovery, or orderly wind-down plan that ties into the new capital structure.

A new operating plan must not center on some cost-cutting measures to see you through difficult times. Your new plan has to recognize and capitalize on the seismic shifts in your industry. However, this economic shock is coupled with dramatic technological opportunities in all industries. Recognize that the most valuable assets you have as a business are your customers and trading partners, and see how invention and innovation can be used to improve your business. Simple things like moving bits instead of people and adapting communication habits popularized by your children (i.e., enterprising social networks) to drive down costs can significantly lower your cost of customer acquisition and service. Find new applications for existing products. For instance, if you are a bolt manufacturer, study your large customer base and exploit the growing niches such as wind turbine manufacturing. Investors and partners will be more apt to capitalize you if they think their risk is quantifiable and they are emboldened by your business plan.

Onionomics can help you put a plan in place that not only identifies operational and financial cost savings, but also reorients your company for growth.

Now on to capitalizing the newly polished company:

Financial Institutions: The institutions doing the least amount of business during the credit bubble where the ones pricing risk accurately. Case in point, the Mezzanine (Mezz) funds were more accurate in their risk pricing, and suffered in market share as a result. During the credit bubble, issuers could go to the bank for senior debt, and to the equity markets to end up with a lower cost of capital than they could get with hybrid investors. Today, Mezz lenders are back in business, and have capital sitting outside the banking system. Look for more funds to get into this segment.

Another alternative is asset-backed lenders (ABLs). ABLs were also priced out during the credit bubble due to vendor financing, bank capital liquidity, and covenant leniency. This category of lending broadly includes receivables factoring and equipment leasing. Onionomics can work with you to figure out where you have unencumbered asset value, and help you navigate the new landscape of capital sources.

Trade Credit: Go to your trade credit for better terms in either the actual cost of financing transactions or the price you pay for inventory. The two are obviously related. The goal here is to optimize the cash cycle and lean on your trade partner's access and cost of capital. You may be important enough to a particular trade partner that they will want to keep you afloat and participate in the upside.

Arm Twisting: Using the specter of default and the inability for your counterparties to recover value in this environment. You are in a good position to negotiate new terms on property leases, equipment leases, and other business arrangements. Seeking some relief this way is an easy and obvious first step to take.

Government Agencies: We are about to embark on the largest recovery package in history, and, hopefully, with the intended results, there will be something for everyone. There may be a way for your company to participate in the recovery package either through getting in front of the capital flows in your existing industry, entering a new industry, or finding a social return for your products.

Why Companies in Crisis Should Work With Onionomics

Onionomics is a finance and strategic services firm that provides innovative solutions for companies in crisis. Led by Adam Meislik, an industry veteran with over 15 years of experience, Onionomics organizes a team of specialists in corporate revitalization, rapid financial restructuring, and distressed M&A. The firm harnesses these resources to deliver crucial management and leadership expertise for companies in distress.

How To Exit An Insolvent Investment: Efficient Alternatives To Bankruptcy

Adam_Meislik — 2009-01-24T12:01:05-08:00

With the current bleak economic climate and no relief on the foreseeable horizon, financial sponsors must begin examining strategies to handle near insolvent portfolio companies. Especially as bankruptcy filings increase and courts become even more overburdened, viable options will present enormous value in terms of time saved, money recuperated, and headaches avoided.

Assignment for the Benefit of Creditors

The Assignment for the Benefit of Creditors ("ABC") process can be a straightforward and effective alternative to bankruptcy. With an ABC, an Assignee (a third party in trust) assumes custody and control of the company's property, and then manages the liquidation process within a strictly predefined timetable and in accordance with state law. Although an orderly out-of-court liquidation typically provides significant benefits for all involved parties, cooperation from creditors is not necessarily required.

Although an ABC does not afford all of the protections and claim priorities of a traditional bankruptcy, it also does not entail the administrative burdens inherent to bankruptcy court proceedings. As a result, the ABC process minimizes the time required to liquidate assets and recuperate cash, contains insolvency costs, and improves returns for creditors. Other benefits of an ABC include:

More Control

Company appoints Assignee (court does not).
Wind-down can be less distracting and stressful for management and personnel.
Retained capacity to continue limited operations.
Efficient negotiations and resolutions for contractual obligations.
Flexibility and oversight in how the entire process is administered.

Realized Recovery

Liquidation and asset sales executed quickly and efficiently.
Higher value extraction due to avoidance of "fire sale."

Better Branding

Process stays mostly out of the public domain.
Exit can be positioned as a successful transaction rather than a documented bankruptcy.

Controlled Liquidation

A Controlled Liquidation is executed similarly to an ABC but is not a formal legal process and hence does not provide as robust protection from creditors. It does, however, provide an efficient, constructive solution and bankruptcy alternative in situations where balance sheets are not convoluted by intricate debt structures, assets exceed liabilities, operations are not overly complex, and in states that do not recognize ABCs.

While both Controlled Liquidations and ABCs allow companies to wind-down gracefully and maximize value, Controlled Liquidations may provide additional flexibility:

Avoidance of delays and other hindrances caused by courts and legal roadblocks.
Maintenance of organizational dignity.
Controlled, planned, and orderly liquidation process.
Clear communication paths between liquidation manager, management, creditors, and investors.