What's up? - Turnaround Management Association

Corporate Renewal 2006
“Today U.S. Airways is one of the
strongest in the industry. The success
of this merger falls on many
shoulders, especially the employees
who went through the tough times
with us and are now reaping the
benefits. Job well done. Bravo, Zulu!”
– Bruce Lakefield, former CEO of
U.S. Airways Group, Inc.
Merger sends airline stock soaring
TMA Trend Watch poll respondents named airlines as the industry most likely to
improve during 2007. And, with hedge funds emerging as a force in airline
industry consolidations, the capital needed to fuel economies of scale and
access to new markets is readily available to make this prediction a reality.
In fact, an airline merger took high honors with TMA’s 2006 Large Company
Transaction of the Year Award. The merger of U.S. Airways Group, Inc. and
America West Holdings Corporation integrated an airline in its second Chapter
11 with one facing serious challenges, both fighting for their lives in a
distressed industry.
The team executing the transaction cleared many hurdles: raising significant
new capital, getting Department of Justice clearance, and securing creditors and
shareholders’ signoff on the plan. The “new” U.S. Airways began trading on the
NYSE as LCC (low-cost carrier) with more than $4 billion of obligations
converted to equity and $1.7 billion of exit financing. The merger created the
fifth largest domestic airline, employing 37,000 and operating 3,757 flights a
day to 240 locations. LCC’s stock went up 45 percent in 2006, and since the
merger (September 2005), 179 percent.
Hedge funds are the largest shareholders
at each of the four largest U.S. airlines,
replacing mutual funds that have
traditionally backed this industry.
– Chicago Tribune
U.S. Airways Group, Inc.
Getting ready for the next big wave
The big questions for Turnaround Management Association members in
2006 were: When will the next wave of corporate renewal opportunities
arrive? What will it look like? Are we ready? • Private equity accounted for 35%
of the value of U.S. mergers &
The global restructuring industry faces a
rapidly changing landscape. An explosion
in alternative lending vehicles has changed
how professionals interact with their
clients and each other. The unprecedented
liquidity in the marketplace and new
players flush with cash allow distressed
companies – from the Fortune 500 to
middle and small-market level – to stave
off operational or in-court restructurings.
Mergers among lenders and turnaround
and consulting firms narrow the field.
One would think that this shift in the
environment would have a substantial
negative impact on TMA members. In
fact, nearly half the respondents to the
September 2006 TMA Trend Watch poll of
practitioners, consultants and financial
advisers reported an increase in
engagements and revenues in the past
12 months.
It’s only natural that turnaround pros –
known for their swift actions – would
quickly adjust to the marketplace. This poll
showed nearly half had changed or
expanded their lines of business in the
past year and 35 percent named hedge
funds or private equity firms as sources of
business, compared to 13 percent last year.
With 90 percent of the respondents to a
June 2006 poll anticipating significant debt
defaults by the end of 2007, the
September Trend Watch poll pointed to
an industry retooling:
• 37 percent added employees in 2006,
compared to 32 percent last year.
• 17 percent had been acquired or were in
negotiations to be acquired, with 24
percent saying they had acquired or were
looking to acquire another business. The
most frequently mentioned entity in both
cases was another turnaround firm.
• 35 percent plan to have more
professionals in their firms attain a
certification, with 72 percent identifying
the Certified Turnaround Professional
(CTP) as the preferred one.
Just as its members are adapting, the
leaders of TMA, as the premier
professional community dedicated to
corporate renewal and turnaround
management, have met the challenge.
Several strategic initiatives in the planning
and implementation phase over the past
two years culminated in 2006.
The 2006 Annual Report highlights TMA’s
significant advances toward its vision of
being “recognized by the global
community as the preeminent organization
in which turnaround and corporate
renewal professionals from all disciplines
choose to associate, market their services
and develop their professional skills.”
“The shift in the Chapter 11 process means there will be
less time to fix a business inside a court proceeding. The
skills to do operational turnarounds on companies in early
decline stages will be very important in this next cycle.”
– Holly Felder Etlin, CTP, 2006 TMA Chairman
“This increase in activity is reflective of two trends in our
industry. First, private equity firms and hedge funds are
controlling an increasing number of middle market
companies. Second, they are recognizing the benefits
associated with retaining experienced TMA professionals
to support them in due diligence, operational
improvements and strategic planning.”
– Colin Cross, 2006 TMA President
Corporate Renewal 2006
2006 Milestones
in the News
acquisitions through mid-
December 2006, compared to
23% in 2005.
– PricewaterhouseCoopers
• Valuation of hedge and private
equity funds’ acquisitions in 2006:
31,825 deals totaling $4 trillion,
besting the dot-com boom in
2000 ($3.3 trillion). – Dealogic
• Private equity firms spent $725.3
billion in 2006 to take companies
private. – Dealogic
• Companies acquired in LBOs in
the 4th quarter of 2006 had a
ratio of debt to cash flow of 5.7
on the average, up from 5.3 in
2005, with some pushing the
ratio to 7 or 8.
– S&P’s Leveraged Commentary
& Data Group
• Ford staves off bankruptcy with
$18 billion in new debt, secured
for the first time by its corporate
assets. – Chicago Tribune
• The Dow Jones Industrial Average
ended the year at 12,463, up
16%, the best performance since
1993. – Wall Street Journal
• Oil prices hit a high of $78 a
barrel in July 2006.
• Top five bankruptcies in 2006
totaled $13 billion in assets,
compared to $101.3 billion in
2005. – ABI
• Business bankruptcy filings for the
three-month period ending Sept.
30, 2006, totaled 5,284, down
44.24% from the same quarter in
2005. – ABI
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