From Stress to Success the Livingstone Way
For every company, an optimal capital structure should deliver the right balance between stability and flexibility, but both of these characteristics have been tested to breaking point over the past 18 months.
Livingstone’s Restructuring practice has been helping stakeholders in a number of ‘special situations’ to capture value from companies whose capital structures have proved unsustainable. Ultimately, under new ownership, with radically revised balance sheets, or with a new financial partner, these companies have emerged with improved stability and flexibility and, more importantly, as green shoots begin to emerge,a renewed focus on growth.
With its flexible Chapter 11 bankruptcy protection regime, the US offers useful insights into capturing value in special situations, and two recent transactions by Livingstone’s Chicago team help illustrate this: the first focusing on preserving value, and the second on providing a more stable foundation for future growth.
Advantage: Livingstone
In the first, Livingstone advised the Official Committee of Unsecured Creditors of Advantage Rent A Car on its sale to Hertz.
Advantage is the largest independent rental car agent in the US , with a leading and rapidly-growing internet presence. Suffering from reduced demand in its core US market, it had entered Chapter 11 at the end of 2008, with a ‘stalking horse’ acquirer opportunistically offering a relatively derisory sum to the unsecured creditors.
Building on its experience in and understanding of the rental car sector, particularly following its completion of the buy-out of Travel Jigsaw in the UK in 2008, Livingstone ran a compressed and highly-targeted marketing process, focused on US domestic and international strategic buyers and financial buyers with an interest in distressed investments.
As a result of this successful process, the unsecured creditors will recover more than double the amount available under the original opportunistic bid.
The lead counsel to the Committee of Unsecured Creditors, Harley Goldstein, Senior Partner at K&L Gates LLP emphasised that “the Livingstone team added immediate value to the section 363 sales process and drove a competitive environment that resulted in a significantly better outcome for the creditors.”
No Wasted Energy
World Waste Technologies, Inc., provides a good example of a restructuring intended to provide a more stable platform for ongoing growth, as Livingstone facilitated its merger with Vertex Energy Inc.
World Waste Technologies focused on developing and operating technology to convert municipal solid waste into paper products and other recyclable commodities, including biofuels and other forms of renewable energy.
Vertex is a leading logistical manager, aggregator, processor and recycler of used motor oil and other off-spec hydrocarbon products throughout the United States.
Livingstone played an important role assessing and communicating to all stakeholders the intrinsic value of the proposed merger with Vertex, particularly relative to other strategic options open to the management team which might have been less attractive. Livingstone’s rigorous analysis focused rigorously on recent market activity involving aggregators and recyclers of used motor oil and other quantitative valuation analyses.
The result of this analysis was successful completion of the transaction, with the existing shareholders of World Waste securing approximately 59% of the capital stock of the merged entity.
Whether capturing value or stabilising foundations, ‘special situations’ of this sort call for a different and flexible skill-set. Livingstone’s Restructuring team has advised on four such situations so far in 2009.
In addition to its existing ten strong Industry Adviser team, Livingstone works closely with a team of Operational Partners/Turnaround Advisers, drawn from a broad spectrum of sectors, who have an established track record of maximising value for stakeholders either through direct hands-on management roles or as non executives/advisers.
As Simon Cope-Thompson, Partner in Livingstone London commented, “the recent talk of ‘green shoots of recovery’ highlights the need for companies to position themselves for growth, not just for survival. This next phase of economic recovery will place additional (and different) stress on company balance sheets as they look to fund working capital requirements, rather than spend all their time looking over their shoulders trying to avoid breaching tight covenants. Undoubtedly this will create new opportunities for the firm as stakeholders look to ensure that they are in the best position to take advantage of the upturn, by ensuring they have the right capital and management teams available to them.
By teaming up with a group of leading executives who are used to working with companies and their funding partners in the mid-market space, Livingstone is able to add operational expertise to its core financing and M&A skill-sets, enabling the firm to offer clients a broader range of services and added value insight when reviewing the options for securing and maximising value. We believe this will be vital in the coming 24 months as we help companies, even those under some stress, increase their flexibility and focus on growing again, while creating value for key stakeholder constituencies.”
For further information on Livingstone’s Restructuring practice contact:
Simon Cope-Thompson
Tel: +44 (0)20 7484 4706
Email: sct@livingstonepartners.co.uk
Stephen Miles
Tel: +1 312 670 5901
Email: miles@livingstonepartners.com