Tom Desmond
Founder and Managing Principal, New England Consulting Partners
Age: 68
Industry experience: 38 years
When a bank borrower is in trouble, Tom Desmond gets a call. As the founder and managing principal at New England Consulting Partners, he’s spent much of his career helping middle-market companies rescue themselves and helping keep creditors whole. Desmond founded his Boston-based firm 23 years ago, after stints at BDO Seidman, KPMG and Fidelity Capital as an accountant, where he got to learn the ins-and-outs of advising companies as a “fly on the wall,” he said. He launched his consulting business shortly before the early 2000s recession, and over the last two decades has built it up into a firm with offices in Dallas, Denver, Detroit and Boca Raton, Florida, plus a new Europe-focused office in Poznań, Poland.
Q: In a nutshell, what does a turnaround specialist do?
A: Sometimes you go into a place that is really, to use a euphemism – the place is on fire. You know, people completely panicked. Nobody really knows what’s going on and what to do. And your first job is to calm everybody down. You want to get everybody focused and figure out what the problem is, to quantify the exposure. We put together a plan and submit it to the stakeholders.
When you have a company that’s in trouble, the stakeholders are typically the bank, obviously, the owners and the stockholders. But then there are also creditors – unsecured creditors – that people may not think of as stakeholders, but they have a significant amount of money tied up in the company’s fate. They want to get recovery, and it’s dubious whether or not they can really recover it.
Q: How would you describe the goal of a turnaround exercise?
A: The ambitious goal, the hopeful goal is to save the company, right? But when I walk in the door, my first objective is to get people’s money back – make sure nobody loses money, or at least stops losing money. And if there’s an amount of money that is out there, make an arrangement where they get paid back over time. Maybe, at some point, they’ll take a discount, but I never put the option of a discount in front of anyone, it’s not my place to do it.
Q: When a loan is in trouble, how do you come into the picture?
A: The bank has a list of professionals that they use for different situations – they have a list of approved attorneys, they have a list of approved appraisers, they have a list of turnaround consultants – and I’m on the list of several banks. If a company gets in trouble, they may default on their loan, they may trip a covenant, they may miss a reporting requirement. Or it might be a situation where they asked for their line of credit to be increased.
The bank will typically give the customer your name and names of other consultants, and you interview with them. Typically, it’s a matter of chemistry. The owner of the company has got to be comfortable with who they’re working with. I liken it to becoming their financial priest. You learn everything about them and their family. And there’s always a family involvement, either through shareholders or employees – you become a very close confidant just by the nature of the work.
Q: Have you ever run across companies that are too far gone to save? That must be an emotionally challenging aspect of the job.
A: It is. To be successful in this business, you have to make the decisions that have to be made, but you don’t necessarily have to like making them. Nobody likes to cut people, nobody looks forward to laying people off. Right? Quite the contrary: Typically, when you go into a troubled company, the people you’re laying off are good people. But you may have to lay off 20 people to save 60 jobs. If you don’t do it, the whole thing is going to come down.
You have to be prepared to make those types of decisions. Otherwise, you really shouldn’t be in this business. You have to be very objective about it, and you have to make these decisions quickly. You’re going to lose the credibility of the other stakeholders, like the unsecured creditors or the secured creditors, if you’re not running the restructuring-slash-turnaround properly. So, you have to get the company to cash break-even right away. No one wants to put money into a sinking ship.
Q: What kinds of risks have middle-market companies faced over the last four years?
A: The biggest challenge has been, what do you do about inflation? Because middle-market companies cannot react to inflation as quickly as the Fortune 500 – those companies are better capitalized, they have more access to the capital markets. If you’re a family business – let’s say your sales are $70 million – and you get a price increase on your direct material, you can’t flip a switch and say, “Okay, we’re increasing our prices by 12 percent tomorrow,” because, typically, your customer base can’t absorb it that quickly. They’re not going to pay it.
So, you had all of these things coming at the American economy at the same time, yet we’re still standing, and the forecasts are showing positive trends, which is really remarkable given what we’ve been through. But having said that, where I’m sitting here today talking to you from eastern Ohio, I’m in a hotel, and it’s almost empty. The economy here has taken a hit, but it’s starting to come back from what I can see. And hopefully that trend continues. What’s really surprised me, pleasantly, is how resilient the economy is. You really can’t stop people’s desire to generate business. The human animal is a business animal, and people want to go out and do business.
Q: What stresses are interest rates putting on middle-market companies right now?
A: Anytime the cost of an asset goes up it’s a problem. Money is an asset. So, if my energy is going up, and my cost of capital is going up, I’ve got a big problem, because energy and interest rates affect every line on the P&L, and every line on your cashflow model. So, what does that do? It creates a lot of work for people like me, because people are going to be tripping their loan covenants, they’re going to be going into default. They’re going to have to dig in, and they’re going to have to pay the default rate of interest. So, it’s a spiral effect. I’m not saying the Federal Reserve’s strategy is the correct strategy or the incorrect strategy. But when costs go up, there has to be an adjustment. Right? At the company level, whether it’s the cost of a pencil or the cost of your capital, all costs have to be funded.
Desmond’s Five Most Enjoyable Aspects of His Work
- Saving jobs and making creditors whole.
- Going to small towns and rural areas to turn a company around.
- Meeting and learning about the people in those small towns.
- Fixing a company so it is sustainable for the long term.
- Coaching management and staff.
