Jarvis plc was the kind of high growth story that readily attracts capital. From humble beginnings as a construction company with turnover of some £10 million, Jarvis rapidly expanded its reach into railroad refurbishment and maintenance, highway maintenance and product manufacturing and a significant ownership in three of London’s subway lines. When public/ private partnership arrived in the UK construction world, Jarvis saw this area as a natural growth opportunity. Thus by 2002, the company had grown its annual turnover to £1.1 billion while its stock price had risen to 575 pence per share.

However by spring 2004, Jarvis had become a different story. A major accident on a rail line maintained by Jarvis brought the quality of the company’s work into public question. Significant losses began to develop in the construction division, a brand new road materials manufacturing facility was struggling to use its capacity, and lease costs at a new headquarters were almost double current market rent. Along the way the CEO, CFO and several other key leaders were replaced. By the time that Steve Norris, the former UK Minister of Transport in London, was elected Chairman of the Board, the company was fully extended and in default on its borrowings, an average of sixty days past due in paying its suppliers, and had little cash in the bank. Annual operating losses were £189 million, and the share price had fallen to 79 pence.

Norris recognized that a dramatic change was required to ensure the company’s survival. In June 2004, after interviewing several possible firms for assistance, he selected Eric Simonsen of AlixPartners, the well-known international restructuring firm, as the company’s CRO. While most corporate leaders develop their skills in a growth environment, what Jarvis needed was a leader who knew how to manage in a time of deep crisis. Simonsen had just finished a year as the CRO of Cable & Wireless Plc’s U.S. operations where he led a turnaround into a successful sale of that operation. He and his firm, AlixPartners, had the skills and experience that Norris was seeking.

Three tasks needed to be accomplished immediately:

• Work with the company’s investment bankers to identify the core operations around which the new company would focus, developing plans to dispose or close the rest;
• Ensure the timeliness and reliability of the company’s cash flow forecasting and management; and
• Open up communications with the company’s stakeholders – its customers, lenders, trade creditors and employees – to give them confidence as to the company’s future direction.

Progress continued on these three tasks. Additionally, over the next 90 days the company used the incremental loan proceeds to complete nine major under-funded construction contracts. During the same period, £24 million of recurring operating costs were eliminated, the asset disposal process was begun, and the rail refurbishment and UK roads maintenance and manufacturing businesses were thoroughly analyzed to confirm their future viability as the company’s core operations. Thus by October – only four months after the commencement of the AlixPartners engagement – significant forward progress had been made and stakeholders had a vision of the company’s new future and a road map for getting there.

For the next several months, the focus was on three new critical endeavors:

• Securing bridge financing to the pending sale for £146 million of its London subway ownership;
• Eliminating an additional £30 million of recurring operating costs to fit the company’s future expense structure to its forecasted core revenues, and;
• Raising from the individual construction contract stakeholders £120 million of new funding to fill the forecasted shortfall in the remaining 14 major construction contracts. Without this funding, these projects would likely face delay of years until completion.

The combination of hands-on operating experience and financial restructuring know-how brought by Simonsen and the AlixPartners team allowed the company to achieve these objectives by January 2005, only seven months after he arrived.

The Jarvis story is not yet finished. Work remains to complete the wind-down of the non-core operations and to continue to build the future for the core businesses. Additionally, a debt-for-equity swap is likely for later in 2005. However, late in 2004 the Board hired a new CEO to take the redesigned company forward. By March 2005 the CEO had brought in a new CFO and two months later hired a leader to complete the non-core wind-down. Thus by the end of May 2005, less than one year from being hired, the CRO’s tasks had been completed or transferred to the new management team that would lead the restructured company.

From the view of the stakeholders – the customers, suppliers, employees, lenders and equity holders – what value did the CRO bring? In a relatively short period of time, AlixPartners had stabilized operations for continuing customers, suppliers and employees by restructuring the company’s balance sheet and cost structure, ensuring a stronger economic platform from which to deliver future goods and services. Non-core operations were wound-down in an economically responsible manner for customers, suppliers and employees or sold to competitors that viewed the business as core to their business.

Lenders and equity holders face economic outlooks for their investments that are more optimistic than a traditional insolvency liquidation would have provided. Perhaps most importantly, this was achieved in an environment of open communication, where these constituents could follow and critique the progress of the components most important to each of them.