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The changing supply and demands on the Chief Restucturing Officer - Who will pick up the slack in 2010?
 There
are CROs and then there are CROs. The debate is out as to exactly how
many top notch CROs are really out there and what will happen in 2010
when all those CROs are tied up. After musing this question, James Wheeler, managing partner - PILOTpartners thought a chat with Ian Gray,
one of the busiest and best known CRO’s, could lend us a few pointers
as to how he and his peers will have to adapt to meet today’s economic
and resource challenges.
In 2009 Ian Gray hit the headlines with not one, but two ground
breaking retail turnarounds– Stylo plc and Robert Dyas – both requiring
entirely different treatments to ensure survival.
Earlier successes of his have included Golden Wonder, Texon
International, PNC Telecom, GEI International and large NHS Trusts
(different class of stakeholders, but just as complex to turn around).
His is often the first name in the frame when I am asked to
shortlist...I usually have to reply: ‘unfortunately for now he is tied
up elsewhere.’
Ian won’t be the only CRO with an active schedule in 2010 as it is
highly anticipated that the year will be an active year for CROs
overall. In a recent conversation with Ian, I asked: ‘what happens when
all the top CRO’s are tied up next year? Who will be left to take up
the reins?’
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This is what he had to say:
“Much will depend on how banks respond to the increased number of good quality businesses, which become stressed. I believe there are less than 20 independent CRO’s with substantial experience in the country,” he says.
“Excluding the senior advisers working for boutiques and advisory firms, that doesn’t leave stakeholders with much choice. In 2010, this means that CRO’s will need to spread themselves much more thinly across the market , taking on more than one appointment concurrently.
“The CRO role will therefore need to change sharply with less heavy lifting and taking a less time intensive, more strategic overview of the turnaround solution with a higher level of supervision and mentoring of the actions of the board and second tier management together with the maintenance of close relationships with external stakeholders.
“As a result the banks will demand that the CRO carries more authority and has an even higher level of expertise. The best restructuring boutiques provide a high level, but expensive resource for larger turnarounds where there tend to be multi-bank and complex shareholder groups. They will take a chunky payment up front as well as weekly fees at premium rates and probably a success fee.
“However, they cannot behave independently; nor on grounds of cost are they the appropriate solution for mid-sized and SME turnarounds – say £30m-£300m turnover.
“This is the preserve of the independent CRO where as often as not the individual will be asked to take on a board position. He/she will probably not take a fee up front when cash flow is under stress and will usually accept a reasonable day rate and a well deserved success fee and then, as often as not, be asked to stay on as chairman or NED afterwards.
“The banks are demanding,” he admits, “but conservative stakeholders have high expectations of their chosen CRO’s. Unsurprisingly they prefer to appoint people they trust and have worked with before, failing which they use experienced individuals who are introduced by the Turnaround Panels of the top four restructuring firms [PwC, Deloitte, Grant Thornton, KPMG].
“Then they may use the Institute for Turnaround, some of whose members cover the ground very well. It is otherwise very difficult to break into this circle. And that is just in regards to the UK. When it comes to the Continent, it is obviously made more complicated by the different legal and insolvency frameworks prevailing in each jurisdiction.
“But there are a number of senior UK-based independent CRO’s with excellent international track records who understand the bi-cultural issues involved in achieving successful consensual restructuring outcomes, however, always with a team of local lawyers very closely involved.”
The next big question
While 2010 will be an active year for CROs it will also be one that shapes the CRO’s role within private equity backed companies for years to come.
This is why I had to ask Ian about his thoughts on the issues of CRO quality in an unregulated environment and where will the next generation of CRO’s / Turnaround Directors come from?
“If I am bold enough to upset a few embedded opinions on this subject,” says Ian,“ I will put pen to paper in a future PILOT’s Log...”
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