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Action Matters

SIRVA, Inc.: From the Brink to Back on the Move

The company, in the wake of a turnaround executed by Alvarez & Marsal, defied expectations and market pressures by significantly improving operations, generating major upside value and turning a catastrophic real estate product into a sound, profitable offering in the face of one of the worst real estate markets in history.

SIRVA, Inc. became a global leader in the corporate relocation business, providing services to companies and individuals around the world. It was also a major international force in the traditional household moving industry, operating in more than 40 countries under its various brands and through a network of more than 600 agents. Yet the company was sitting on a time bomb.

As the U.S. housing market imploded and the effects of the subprime mortgage crisis swept through the economy, SIRVA was selling a corporate relocation product that threatened its survival. For a fixed fee, the company would manage the sale process of an employee's home, advance money to enable the purchase of a new property and guarantee that if the old home didn't sell within a certain period, SIRVA would purchase the home and market it until sold.

A Bleak Forecast

By 2007, SIRVA's business began to decline precipitously. Initially, SIRVA perceived its problems to be related to forecasting and retained Alvarez & Marsal to review the business plan development process and evaluate the forecast for the balance of 2007.

It quickly became apparent that more turmoil was ahead. While SIRVA was experiencing declines due to a weakening economy, the company's relocation operation was in severe crisis with new projections indicating its already declining EBITDA would sink by another $14.1 million from earlier estimates.

The most acute problems were attributable to SIRVA's fixed fee relocation product, which required the company to purchase homes that didn't sell within certain timeframes—increasing inventory carrying costs and compressing margins.

A&M projected SIRVA would default on covenants and run out of cash by Q1 2008. The only choices were: sell the company or file for bankruptcy. Market conditions made a successful sale process improbable, but a Chapter 11 filing would almost certainly result in liquidation. Chapter 11 also risked destroying the personal credit ratings of thousands of corporate transferees, whose mortgages were being serviced by SIRVA.

Only one alternative remained and it was an ambitious task: develop a new business plan to fix the underlying business issues, convince lenders there was value to be gained by saving the company, negotiate a pre-packaged bankruptcy with the buy-in of stakeholders and keep the business intact.

Mapping a New Course

A&M began developing a new business plan to create the foundation for the pre-packaged filing. While the plan addressed SIRVA's entire business, including moving and corporate operations, A&M focused primarily on the relocation operations and fixed fee product. Presented to the company's lenders in December 2007, the plan convinced stakeholders SIRVA should be saved.

A Turnaround Takes Shape

With the pre-packaged filing strategy in motion, A&M was officially hired as the restructuring team. Managing director Ray Dombrowski was named chief restructuring officer, joining managing director Jeff Stegenga who had been serving as a key adviser, as well as senior directors Jonathan Hickman and Nate Arnett who had led the earlier initiatives and later assumed interim management roles of Relocation COO and Corporate CFO, respectively.

On February 5, 2008 SIRVA filed for bankruptcy, with a group of private equity, hedge funds and large financial institutions supporting a plan that would give them 49% recovery plus equity ownership upon emergence. The pre-packaged filing allowed the company to maintain normal business operations, avoided putting customers at risk, provided the capital, time and framework necessary to restructure the business as well as produced a 100% recovery for all unsecured creditors with ongoing business relationships.

The immediate priority was reducing SIRVA's inventory of more than 800 homes—without conducting fire sales. The A&M team segregated inventory by days on market and geography and methodically attacked the list, market by market, broker by broker, starting with homes on the market the longest. Dombrowski dispatched teams to the worst areas to determine why homes were not selling and to work aggressively with the agents to prevent further value deterioration. He organized seminars for brokers to educate them on how much it cost to carry a house, interviewed agents to ensure they had local market knowledge, implemented employee incentive programs tied to performance targets and launched new marketing efforts.

The A&M team also implemented new measures to reduce inventory and improve its quality. They also focused on other areas of operational performance improvement, cost reduction and liquidity improvement. Throughout the process, the team worked not only to retain current corporate customers, but also win new business. The personal touch paid off: SIRVA retained nearly all of its flagship customers.

A New Company Emerges

On May 12, 2008, less than 100 days after the bankruptcy filing, SIRVA emerged from bankruptcy. The company's balance sheet was in order and, as a privately-held company, it had a much lower cost structure. Secured debt of $507 million was reduced by approximately $200 million. Annual debt service costs were reduced by $40 million. And even with the capital markets in turmoil, the company was able to secure a new $130 million revolving facility.

Through the process, A&M produced a net reduction of inventory of more than 700 homes in a nine-month period—at prices that were significantly better than the accrued losses on the balance sheet of the company, creating more than $40 million of liquidity in only about 90 days. Not one home that came into inventory prior to 2008 remained unsold. The team also produced $15 million in savings through new inventory control measures, added $10-$15 million in liquidity from lease rejections, avoidance of duplicative IT costs and government incentives, and created another $10-$15 million in run-rate savings from headcount reductions and other process improvements.

When veteran business executive Wes Lucas was hired as CEO in July of 2008, he said he saw "a company with great strengths and outstanding potential to create value for our customers and our agents." Also reflecting the success of A&M's results, Debbie Balli, president of SIRVA's Global Relocation Services, said: "The A&M team served as more than run-of-the-mill analysts and consultants. They became part of the fabric of the organization with an ownership mindset and a passion for winning and long term success. Once I came to understand the unique qualities of the team, I viewed their engagement as critical. And now, the SIRVA leadership team continues to implement and institutionalize knowledge and process improvement initiatives gained from the A&M relationship."