Serving as a conference panelist at the 2007 Global Alumni Conference in Florence, Alvarez recently shared his corporate advisory and crisis management insight with Stern alumni. The following are excerpts from his remarks.
1. How did you get started in turnaround management?
In 1983, when a company got in trouble, it would hire an accounting firm to advise creditors and then bring in new managers from the industry, like Lee Iacocca with Chrysler. I had been an accountant and had some experience with operations, and it was apparent to me and my partner that there was something unique about the DNA of managers needed to fix companies, and that those skills could translate to different industries. The management skills needed to manage for growth are different from the skills needed to manage a turnaround.
2. What are the managerial skills needed for a turnaround?
It’s important to be able to manage with scarce resources and unhappy constituencies while making changes rapidly. Our firm was based on a belief that we could institutionalize the business by hiring people who are very comfortable with having to act fast.
3. Why does speed matter so much in your business?
In a turnaround situation, you need to make the decisions in a month that most growth companies make in a year. You don’t have time or liquidity. You need people who, while the fur is flying, can calmly assess the situation, buy time, fix the underlying problems, and once you have done that, restructure the balance sheet.
4. So you don’t necessarily start restructures with the finances?
Our belief is that you restructure the balance sheet last! You do it after you figure out just how healthy the patient can be. Good turnaround managers don’t just right-size the cost structure. They have to be aware that they can’t starve the brands.
5. How has your business evolved?
We’re a catalyst for results and action. Now we’re being asked to come in and work not just with companies that are sick, but with companies that are underperforming. We’re working with permanent management to help them act a little faster.
6. What do you make of all this liquidity?
The appetite for debt being issued is beyond anything I’ve seen. I think it will actually lead to fewer Chapter 11 filings, since most of those buying debt want to avoid protracted bankruptcies. We’re seeing more and more time being bought by more and more money.
7. When did you expand into Europe?
We started in Europe in 2001, and at the time, Europe was exactly where the US was in 1983. There was really no turnaround management firm. Today, we’ve got 100 people in Europe.
8. What’s next?
We are bringing our business to Brazil and the rest of Latin America, and we’ve just opened up offices in Shanghai. As they invest in these areas, American bankers and private equity firms are telling their partners that this is something that has worked in the US.