Turnarounds

Over the past 38 years, Mel Pirchesky has had a wide variety of leadership experiences in troubled companies. His expertise in management, team-building and identifying the key issues to address has resulted in a number of positive turnaround experiences, including generating a million dollars of positive swings in annualized net income in two cases.

The following examples illustrate how Mel has worked with companies that were destined to close or operate with barely marginal success. Within a relatively short period of time, these companies are now thriving with personnel who were developed to sustain that success.

The Spring Team (www.SpringTeam.com)

The Spring Team manufactures specialty springs used in flashlights, ATM machines, and a number of other small applications. Eagle Ventures and its partners purchased the Spring Team in August 1990 when the Company was profitable, with $2 million of revenue and 25 employees. It operated out of a former gas station, having been started about 15 years earlier.

Two weeks after the Spring Team was acquired, Saddam Hussein invaded Kuwait, consumer confidence fell, and within one month of our purchase, the recession of 1990-1991 began. Sales at the Spring Team quickly fell by 22%, distinct from rising as forecasted in the projection that was one of the factors used to justify the acquisition. The Company generated significant losses with the precipitous drop in revenue. In eight months, the Company lost $300,000. We were in violation of bank covenants and at risk of the bank calling our loan.

Mel Pirchesky, Eagle’s President, quickly scrambled, took over day-to-day operating responsibility and within one year after the acquisition, the Company turned around and became profitable. We held the Spring Team as an investment for seven years. In 1997, Eagle and its partners sold the Company to management, and tripled its investment. Subsequently, the Spring Team built an adjacent 15,000 square foot facility and is prosperous today, with (profitable) revenue greater tham $5 million.

The largest independent shareholder/partner in the Company said the turnaround “… would make a good Harvard case study.”

Allegheny Container (www.AlleghenyContainer.com)

Allegheny Container is a corrugated box company. Eagle and its partners acquired the Company in 1992 from the entrepreneur who founded it fifteen years earlier. At the time of the acquisition, the Company was profitable, had $4M in revenue and 45 employees.

With the acquisition, we hired a new CEO to run the business. Subsequently, we realized we had made a mistake in hiring him. Among other issues, we discovered that the new manager had misrepresented himself in his interview with the Board of Directors. We then terminated him. During his less than one-year tenure, the Company incurred unexpected losses that accumulated to $600,000, a considerable amount of the $2M in equity that had been invested in the Company.

Working closely on a daily basis with a new manager, we achieved Company breakeven without an infusion of additional capital, relying primarily on considerable cooperation from our suppliers.

Allegheny Container was eventually sold in 2005 when the Company had $7M of profitable revenue and 65 employees. The ownership group more than doubled its investment.

Dawar Technologies (www.Dawar.com)

Dawar is a 120-year old company. It was acquired in 1997 from an individual who had owned it for nearly 40 years. The Company manufactured electronic touchpads, having $2.5M of profitable revenue and 30 employees at the time of the acquisition.

Subsequent to the acquisition, the Company moved from the top three floors of an 80-year old building to a single-floor facility, and simultaneously implemented a complete replacement of its ERP (enterprise resource planning) computer system. At the same time, due to inattention around the time of the closing of the acquisition, the Company lost half of its business from its largest customer.

Net losses ensued, cresting at $50,000 per month. Mel then took over direct day-to-day management of the enterprise. After six months of an aggressive sales campaign and a series of cost cuts, we restored the Company to positive cash flow, a swing of about $1M in annualized earnings from Dawar’s low point. Subsequently, a permanent manager was hired.

Today, the company is generating profitable annual revenue at a rate greater than $10 million, with a diversified product line that includes touchscreens, electronic touchpads and smartcards, with growing profits and a team that exceeds 50 members.

C&K Manufacturing and Sales, L.L.C. (www.CKMfg.com)

C&K has been in business for forty years. It manufactures cutting boards for commercial food operations, and imports vinyl, latex and special-purpose gloves and floor mats for customers in this niche.

When the current owners purchased their stock in C&K in 2003, it had $13M in revenue and 21 employees.

Six months after the acquisition of the Company, the owners found themselves incurring losses of $70,000, $80,000 and even $100,000 per month. They subsequently hired Eagle Ventures and Mel to turn the Company around.

At the time the turnaround project commenced, Eagle’s due diligence identified several major factors contributing to the losses. Overall gross margin had dropped to 5%, with the largest customer, accounting for 15% of the business, having a 2% gross margin. Fifty-five percent of the Company’s revenue was generated from customers having zero or negative gross margins. Inventory was in short supply, resulting in constant out-of-stock occurrences. Employee moral was low, and the employees were blaming each other for a number of internal issues.

Eagle led management in raising prices on an account-by-account basis and implemented a new compensation program, wherein salespeople’s bonuses were based upon incremental contribution margin dollars rather than the previous approach based on gross revenue.

Under Eagle’s leadership, using a number of new strategies, the Company had its first profitable quarter in the second quarter of 2005, nine months after taking over control of the situation.

The swing in annualized cash flow during this time frame was $1M of net income.

Subsequently, C&K was sold by the owners, experiencing a ‘soft landing' in their ownership handoff.