Armand Carrano, senior managing director of The Finley Group, gets tickets to all four rounds of the prestigious Master’s golf tournament each year. It’s a continuing note of thanks from the electrical company making and installing commercial HVAC units that he helped turn around financially.
The Finley Group fixes companies in operational and financial distress. Formed in Charlotte in 1985 by former banker Bob Dunn, president, and ex-textile chief executive Tim Finley, now retired, The Finley Group was among the country’s first firms focused solely on steering companies through severe financial crises.
A major bank that took control of the failing electrical company had asked The Finley Group to straighten it out. Carrano came on board as chief restructuring officer, a fairly new designation the industry has adopted and uses.
“In nine months we had the company turned around,” Carrano says. “We took it from a $5 million loss to a $10 million profit in 23 months. Today, the company’s net worth is 10 times what it was five years ago.” Carrano cites it as a prime example of how the process can work when management and restructuring initiatives are totally in sync.
For the last four years, the company’s CEO has sent the tickets to Carrano. “It’s his way to say thank you,” he smiles.
Carrano says he also finds rewards in a successful project.
“The greatest satisfaction for me is when you shake hands with a client, walk out the door and wish them good luck,” says Carrano, who joined The Finley Group in 1990. “That’s after you’ve helped save the company.”
Turning It Around
Turnaround specialists developed in New York, Chicago and Los Angeles as big banks dealt with failing firms. But turnaround was still a boutique industry when Finley and Dunn got together in 1985. Dunn was a senior workout executive with NCNB, the Charlotte predecessor of Bank of America. He’d always worked with struggling companies.
Finley had been chief financial officer of Cannon Mills and had helped billionaire David Murdock sell the Kannapolis company. It eventually became Pillowtex, the giant textile entity whose disastrous failure preceded Murdock’s development of the N.C. Research Campus on its former footprint.
For Finley, extracting Murdock from a financial bind was an exciting challenge and intensely rewarding. So, when an accountant who was a mutual friend introduced Dunn to Finley, the two decided to do it full-time and The Finley Group ensued.
Among the first associates to join the fledgling company was Carrano, who had moved to Charlotte with a steel company from Connecticut that was entering into commercial real estate in the southeast.
Always in operations, Carrano hadn’t ever really thought about consulting with troubled firms. “I just went a different way after I met Tim,” Carrano recalls. “I got here and really liked what we were doing.”
Together, the members of the firm have developed its specialty: Helping troubled companies restructure themselves, both operationally and financially.
Carrano broadly characterizes the circumstances in which the firm assists: “Either you’ve got operational problems that have drained all of the company’s resources and capital and you’re now in financial difficulties, or, you were poorly capitalized to start with, never had the right capital structure, and that negatively impacted the operational side of the organization.”
The Finley leaders find they are most comfortable working with medium-sized firms, those with annual revenues from $50 million to $500 million. Initially, they had intended to only concentrate on the Southeast, but soon they were servicing clients across the nation. Interestingly, influenced by the growth of the Southeast, better technology and higher air fares, their business has turned back to a more regional emphasis.
Purposely, the firm has grown slowly. “Because this is brain surgery,” Dunn says simply. “You’ve got to be very careful and your people have to be very skilled to make these troubled companies successful.”
Now The Finley Group has six associates in its SouthPark office and another seven in Atlanta.
Finley retired in 1997, after pulling Jos. A. Bank Clothiers out of a tailspin.
“We did some very tough things,” Dunn says of the Jos. A. Bank engagement. “We dropped the women’s wear. But men’s business casual filled the gap. The company stabilized. Now it’s strong. It went public at $10 a share and I think it’s recently been trading at $36.”
A mistake they see too often in medium-sized firms is forsaking organic growth to bulk up rapidly through acquisition. A company will typically pay too much for an acquisition and not be sufficiently prepared to take it over, not being able to assimilate it and reap the benefits of the combined larger organization.
The point at which The Finley Group gets involved with a company is usually when its lender grows weary of funneling good money after bad or when the company’s attorney convinces management it needs outside professional help.
In roughly half its cases, The Finley Group dedicates one or two of its associates to the troubled company as an officer—a chief executive, a chief financial officer or a chief restructuring officer. In the others, Finley people offer only advice to the management team.
Overcoming Management’s Denial
Once The Finley Group is engaged, there’s no set formula. However, the first order of business is to overcome management’s denial.
“The client will say, ‘If we can just get another $1 million of credit, we’ll be fine,’” Carrano says. “What they aren’t facing is the fact that that will just prolong the agony. There’s something basic gone bad that needs to be fixed.”
Perhaps surprisingly, expense reductions aren’t a Finley emphasis. “Any idiot can do that,” Dunn says. “We have to work on the top line.”
Taking a firm through Chapter 11 bankruptcy is a last resort, Dunn and Carrano emphasize. That is the outcome in about one-quarter of their cases. When they do, the goal is to get it in and out as quickly as possible.
“The longer you languish in bankruptcy,” Dunn says, “the less likely you’ll be successful.”
Some corporate life-saving measures can be wrenching.
“Sometimes, you have to downsize,” Dunn says. “Letting some employees go to save the jobs of others is always tough. You’re dealing with people and people’s families. You may have to close a whole plant. You don’t like to do that. But may you have to, to save the company. Otherwise, you’re going to cost all the rest of the employees their jobs.”
Occasionally, there’s an impasse between The Finley Group and management. When that occurs, Carrano says, “We’ll let the constituents that are involved be aware that someone has to mediate. It may be a lender, an accounting firm, an attorney, but there has to be intervention to allow this thing to move along. Or we’ll just tell them there’s no more we can do.”
Currently, both Dunn and Carrano are involved with several companies. Dunn is chief executive of Southern Management Corporation, a subsidiary of The Thaxton Group, based in Lancaster, S.C. It makes small consumer loans in six states. Carrano is chief executive of PeopLoungers Inc., a Mississippi manufacturer of recliners, love seats and sofas.
In five years, Dunn has taken the Thaxton entity through bankruptcy and sold off parts. He’s paid senior secured lenders in full and is making distributions to unsecured creditors. Now worth about $100 million, the company is on the market. Once it’s sold, Dunn predicts creditors will get more than 100 cents on the dollar.
Carrano led PeopLoungers through bankruptcy, downsized it and formed a new management team. Revenue is down from $75 million to today’s $30 million and employment has shrunk from 400 to 120, but it is surviving.
A Measure of Success
How do Dunn and Carrano measure success? “Hopefully, the company stays in business and the jobs are saved,” Carrano says. “Other times,” adds Dunn, “the measure is how much we return to creditors.”
Though they have been known to liquidate a company, they don’t like to, Dunn adds.
The Finley Group occasionally turns down an opportunity, and Dunn admits that it has “fired” clients. “If the client is taking advantage of our credibility, contrary to the advice we’re giving them,” Dunn says, “then we’re going to fire them.”
Bill Porter, chair of the litigation department at Parker Poe Adams & Bernstein LLP in Charlotte, has worked with The Finley Group for years. He says he appreciates the “complete integrity” of the firm.
“Bob and Armand and their colleagues establish lines of communication with all the constituencies and they’re honest,” Porter says. “They say here’s what the situation is, here’s what we’re going to attempt to do, here’s what you can expect and, if things change, we’re going to tell you.”
Early on, The Finley Group was instrumental in building credibility in its industry. It founded the Turnaround Management Association (TMA) in 1988, based it in the Kenan Institute in Chapel Hill. Subsequently, the association moved to Chicago. Today it includes more than 8,000 members.
Through the TMA, The Finley Group helped formulate a process for obtaining a designation as a certified turnaround practitioner (CTP). Carrano, who is certified, says the exam covers a body of knowledge in law, finance, accounting and management. There are about 350 certified turnaround practitioners in the United States.
Throughout the economic boom of the last five years, The Finley Group’s business has stayed strong. Dunn pins the reason on a constant of capitalism.
“There’s always going to be challenges to management,” he says, “No matter what the economic conditions are, there are going to be companies in trouble.”
“Believe it or not,” Carrano chimes in, “our job is more difficult in times of economic distress. It’s easier for us to do a turnaround in good economic times because often we’ve got to restructure the capital side. When times get tough and credit is constrained, it’s more difficult for us to do it. And it’s more expensive.”
Carrano believes Dunn, with his banking background, is atypical of the kind of person who performs well as a turnaround specialist. Former bankers have trouble functioning without backing from a financial institution. Bankers don’t like to grovel for relief, he says, and a turnaround executive sometimes must do that.
In new associates, Dunn and Carrano look to hire someone with a master’s in business administration, in their mid-30s, who’s been in his or her industry for at least 10 years. They look for people with financial acumen, but they also bring in folks with operating experience. One associate is trained as an engineer.
“Temperament is the key,” Carrano says. “A new hire has to be a Type A personality, but they have to be able to stifle that A personality when they’re dealing with clients.
“And you need good judgment,” he continues. “I don’t know that we ever teach judgment. We teach common sense.”
Dunn and Carrano anticipate that The Finley Group will grow in the next five years, to maybe twice its size. “Then Bob and I will retire,” Carrano laughs.
“We’ve got more people with experience now,” Dunn says. That allows The Finley Group to bring in more fresh faces to learn from veterans.
“It takes five to seven years to train somebody to develop a skill set and be representative of the way we like to see our engagements,” Dunn says. “There’s no substitute for experience.”