When the Going Gets Tough, Turnaround Specialist Jay Alix Gets Busy
AlixPartners is a specialist's specialist. Back in the 1980s, the Southfield (Mich.) firm pioneered consulting to companies in or near bankruptcy, a niche it still dominates. These days, that obscure specialty has become one of the hottest areas in consulting, and Alix, with a client roster that includes WorldCom, Kmart, and an Enron partnership, is riding high.
While most management consultants focus on long-term strategy, AlixPartners' mission is more immediate. It jumps into crisis-ridden companies and looks for ways to maximize value for investors and creditors. Often, that means shedding assets or restructuring operations. But sometimes, it means preparing the company for sale. Alix led successful restructurings at National Car Rental System, Oxford Health Plans (OHP ), and Zenith Electronics. It's now working for an Enron Corp. partnership to try to recoup money lost by investors. At Kmart Corp. and WorldCom Inc., Alix principals have temporarily signed on as executives to help move the companies out of bankruptcy. "They are one of the premier go-to firms for people who have money at risk," says William C. Repko, a managing director at J.P. Morgan.
Distressed companies aren't Alix' only market. Healthy companies sometimes use Alix' interim managers for a performance boost, too. Ultimately, nearly two-thirds of clients will seek a merger or sell off a noncore asset. As Alix' reputation has soared, so have its fortunes. The privately held company doesn't disclose financial results but says revenues have increased an average of 37% a year since it was founded in 1981. In the past year, it has doubled its staff of professionals to 200. "The Alix group really cultivated the market and made it a big business," says bankruptcy attorney Harvey R. Miller, managing director at financial adviser Greenhill & Co.
But growth has also led to new challenges. Alix' clients are larger, more complex, and often much sicker than in the early days. Many are targets of federal investigations, which suck up precious time and management resources. And Alix faces more competition now--not just from big consulting outfits but also from boutique advisory firms such as Alvarez & Marsal and Kroll Zolfo Cooper.
AlixPartners wasn't always the firm to call for tough assignments. Founded by Detroit-area CPA Jay Alix, AlixPartners wasn't thrust into the limelight until 1984, when the founder's dogged pursuit of assets at failed carmaker DeLorean Motor Co. turned up an additional $10 million for creditors. Today, Alix, 47, leaves the turnaround work to his staff of consultants, accountants, and management experts. A widower with two young daughters, Alix is still vice-chairman and owner and sets strategy. But now he's also investing in distressed companies through Questor Partners Fund, a leveraged buyout firm he formed with partners including Daniel W. Lufkin and Herbert A. Allen.
His formula for turning around troubled companies involves a lot more than just dishing out advice. AlixPartners' senior executives parachute into troubled companies--often as CEO or CFO--and attack the problems themselves. Using a sort of corporate triage, they form teams with the company's own employees to diagnose weaknesses and prescribe a strategy to preserve cash and restructure the business. The goal can be to avoid a bankruptcy filing, emerge from bankruptcy, or simply to sell the company or its noncore assets off for creditors.
At Kmart and WorldCom, Alix' impact is still a work in progress. WorldCom is by far the biggest challenge. Alix principals have taken over key positions there and are scrambling to devise a plan to salvage the business. Kmart had already decided to close 283 underperforming stores by the time it installed two Alix principals as top executives, including CFO Albert Koch. Since then, Alix has directed other cost-cutting moves, including the elimination of 680 headquarters jobs at a savings of $130 million a year.
Alix' advice doesn't come cheap. The firm is typically paid an average of $300 to $350 an hour--with the services of senior principals commanding more than $600 per hour for the firm. There's an additional fee, tied to the achievement of certain goals, such as how quickly the company emerges from bankruptcy proceedings. Cash-strapped clients may grouse, but many see little choice but to pay. "When you have a leak in your home and the plumber comes, you don't ask how much it costs," says Greenhill's Miller. With pipes bursting all over Corporate America, AlixPartners is in the midst of a gusher.
By Joann Muller in Southfield, Mich.