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is a case in point. RCapital got involved pursue his threefold strategy of rectifying the potential markets, leading him away from
with the business last year after its VC “challenged” balance sheet, reducing costs the idea of selling generic software to
backer decided not to invest further. by refocusing on STV’s core business, and mobile operators towards producing a
There was an added irony because the investing in new areas he believes have “ruggedised cell phone” aimed at blue-
backer had already replaced the old growth potential. collar workers. It’s a fascinating story with
management team and agreed in principle Though the company’s share price is its own ups and downs: Plaschke secured
to a fresh injection of funds. still in the doldrums, Woodward has another $10 million from his investors but
“The company’s only choice was to go transformed losses of £23 million in 2007 battled long and hard to find a distribution
to the bank for the money and, of course, to pre-tax profits of £14 million, reduced channel for the phones – eventually
if the VCs won’t do it, the bank won’t do net debt from £47 million to £36 million, striking lucky in Sweden.
it,” says Constable. “The business had and returned £30 million to shareholders But the essential point is that Plaschke had
already put in place the operational (after a rights issue raising £92 million in completely changed tack.
changes it needed to return to profitability December 2007). “The board found a presentation I’d given
– it was just a case of to them before, and
[repairing] the balance
“Entrepreneurs defy logic. At times like these
there was one slide that
sheet.” RCapital bought
the company for £2.5
you’ve got to trust your gut conviction and follow it”
listed ‘12 reasons we’ll
never become a cell
million and made the phone company’,”
changes needed to get it back on track. The most difficult aspect of the process, Plaschke relates. “Well, I still believe in six
he says, was “delivering the message of huge of the 12 but I’ve disproved the other six. It
DEEPER CUTS cost reductions and at the same time was a choice between shutting the company
For investors like Constable, it’s essential to investment in future growth opportunities”. down and firing all the employees or selling
distinguish between good businesses that are Some 120 staff were made redundant, while more phones.”
simply running out of cash, such as The Art a “new team” was brought in to grow STV’s The decision to sell more phones resulted
Group, and those with more fundamental online presence. in sales of $31 million last year (which
issues. When Rob Woodward took over Plaschke expects to increase to more than
Scotland’s ITV franchise STV in 2007, he STRATEGIC THINKING $40 million this year). With just three
knew it was in serious financial difficulties: Woodward’s point is instructive. Few salespeople, Sonim distributes its phones in
its market cap had shrunk from £2.1 billion turnarounds can be achieved without an 42 countries and is now at break-even.
in 2001 to less than £200 million that year, injection of cash, and cutting costs is
partly the result of an unsuccessful another common theme. But simply paring OUT WITH THE OLD
expansion strategy. Now he admits that he a business down and pumping it with money Sometimes, turnarounds are more about a
underestimated the scale of the problem. could be flogging a dead horse unless there fresh approach than a complete change of
“We informed the City upfront of the is a fresh approach to go with it. direction. Richard Brighton, MD of
reality of the situation and it was far worse For Plaschke, whose role at Sonim electronics manufacturer Exception EMS,
than anyone had expected,” says the CEO. changed from CFO to CEO after the was hired to turn around a company that
“All the good news had been drained from company went into crisis mode, the first was “going through a degree of stagnation,
the company: the plans were far too priority was survival. By cutting the always making around £17 million, always
optimistic. So the starting point was very company’s head count from 180 to 15, its chasing sales to make up for the customers it
different to what we had anticipated, monthly burn rate was reduced from $1.8 had lost, always at a break-even level” .
though the endgame remained the same.” million to $500,000. But Sonim still had no When Brighton first walked into the
When Woodward took over, STV’s board way of making money. company, he saw a sea of green printed
resigned en masse, leaving him free to Plaschke began in-depth research into circuit boards covering every available
Mergers & Acquisitions 25
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