The hottest business on Wall Street
Restructurers Alvarez & Marsal are already profiting from corporate America's credit-market misery.
(Fortune Magazine) -- When lenders stop asking for golf dates and start throwing F-bombs, it's usually time to find a restructuring firm. Among the small number of bankers and CPAs who specialize in this practice, New York's Alvarez & Marsal is often the first phone call for these sweating execs - and it's already profiting from corporate America's credit-market misery.
Alvarez & Marsal do the mopping up when a company has run out of options and can't meet its loan obligations. With some clients, A&M dispatches teams to work much like consultants - looking over the books and talking ideas - but about a hundred times faster. In thornier cases the firm does the dirty work itself, usually with Tony Alvarez, Bryan Marsal, or another partner stepping in as CRO - chief restructuring officer - and doing triage like ordering layoffs, selling off assets, and making overhead cuts. During the post-Enron default bonanza, the firm took on that role at Arthur Andersen and HealthSouth, where Marsal cut 250 jobs and sold off assets like poorly performing hospitals and gas-guzzling jets.
Those days are coming back. "The market has been awash with liquidity," says co-founder Marsal, 56. During the recent stretch of easy borrowing, he says, "there were no problems that a $300 million line of credit couldn't fix, so a lot of companies didn't have to confront them. That has changed." He expects more companies to engage A&M's services as harried lenders shut off the spigot.
All told, the firm's restructuring revenues were up 36% last year, with much of the increase driven by private equity firms that have quietly hired A&M to work on investments heading south. (One competitor, AlixPartners, recently sold a majority stake to private equity shop Hellman & Friedman.) Other clients include MediCor, the largest supplier of breast implants, and Interstate Bakeries, home of the Twinkie. "I can't tell you how many bank credit analysts last year told me my business would be good in 2008," says Marsal, who learned his trade when he was forced to collect on a bad loan he made at Citibank in the '70s. He formed the firm with former Coopers & Lybrand workout specialist Alvarez in 1983.
A&M is mum on exact revenue, but Marsal says its 1,200-odd employees average about $400,000 in revenue, or $480 million. Fees are often incentive based, since many cash-strapped clients can't pay upfront.
So how did the firm stay sharp during the credit boom? A&M took on public clients like New York City's schools, which hired it to cut costs (A&M got into PR trouble when the firm's reshuffling of bus routes saved $12 million but left a few kids stranded). Now it's back to its core business, and beyond: A&M plans on opening a commercial real estate distress practice, after having started a homebuilders' one in December. That group already has eight clients.