Sometimes an unconventional approach validates an uncommon way of thinking.
When an organization seeks interim management, it is typically distressed. A new CEO is named, and restructuring commences with the goal of continued operations or an exit. At CR3 Partners, this traditional type of engagement is quite common, but when client needs are atypical, CR3 adapts and delivers.
CR3 recently completed an engagement for a private asset-based lender focusing on middle-market emerging brands and technology. While the company was not distressed, Assets Under Management (“AUM”) had been declining, and the board of directors decided to engage CR3 for interim CEO management. Initially, CR3 stabilized operations while defining the company’s strategic direction alongside the Board.
While analyzing the engagement, CR3 recognized the company required skillsets that could best be delivered through Co-CEOs. Upon Board approval, Tom O’Donoghue and Jeff Hyland, both partners at CR3, were named as Co-CEOs.
Tom O’Donoghue has significant experience as a restructuring consultant, interim CEO, lender workout officer, and advisor to distressed equity groups. As Co-CEO, Mr. O’Donoghue focused primarily on the quality of collateral.
Jeff Hyland’s background includes most recently being the CEO and Director of a public company, multiple interim CEO roles, and a consultant to a wide range of clients on business strategy, revenue enhancement, expense reductions, operational improvements, refinancing, and restructuring. As Co-CEO, Mr. Hyland’s role was to stabilize operations, implement a communications strategy, and raise AUM.
Operationally, the Co-CEOs oversaw portfolio management, directed originations, and implemented a communications plan to ensure all stakeholders received regular and relevant communications throughout the engagement. The communications plan became the backbone of the engagement, ensuring all stakeholders had the opportunity to understand and react to rapidly changing dynamics.
Strategically, CR3 determined the most direct approach for increasing stakeholder value was to boost AUM. Performing as an efficient team, the company achieved a 45% increase in AUM, which positively contributed to the Board’s decision to sell the business. The Co-CEOs were tasked with preparing the company for sale, conducting negotiations with potential buyers, performing due diligence for the selected buyer, and closing the transaction. Post-closing, they designed and executed an entity dissolution plan.
The engagement post-mortem revealed two critical takeaways for both CR3 and its prospective clients.
First, there are times when the best outcome for a profitable, non-distressed company is to engage an interim CEO. All business organizations are fragile and unaccustomed to CEO turnover. Companies in this type of turmoil can benefit from individuals experienced in leading an organization through stress. In this situation, to carry out the charter of stabilizing operations, the Co-CEOs recognized and communicated trust in the company team’s to perform and the commitment to maintain and grow the resources needed to service existing and potential new borrowers. Mitigating the uncertainty created by the C-Level turnover and replacement by interim professionals was awarded by a committed staff generating improved performance. This positioned the client to maximize stakeholder value.
Second, the initial decision that the client’s needs were best served by Co-CEOs paved the way for the engagement’s overall success. While not a common practice, the decision led to a cascade of positive outcomes and a meaningful takeaway – that other organizations considering interim management may want to consider exploring the value that a Co-CEO arrangement can provide.
The openness of this profitable company’s Board to leverage interim management and CR3’s unconventional placement of Co-CEOs ultimately resulted in a highly successful sale that generated substantial distributions for shareholders from the transaction’s proceeds.
About CR3 Partners, LLC
CR3 Partners, LLC is a national turnaround and performance improvement firm that assists, guides, and collaborates with management teams and their constituents facing any sort of transition, stress, or distress. Jeff Hyland and Tom O’Donoghue are Partners in CR3’s Chicago office.