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Gavin/Solmonese - Forging a Nexus Between Principles and Profits

Date: Jun 06, 2017 @ 07:00 AM

In a briefing with The Wall Street Journal shortly after the 2008 election, Rahm Emanuel -- President-Elect Barack Obama’s pick for Chief of Staff -- remarked: “You never want a serious crisis to go to waste...what I mean by that is it's an opportunity to do things you think you could not do before.”

In many ways, those same words could be the motto of the corporate consulting and turnaround firm Gavin/Solmonese -- which has built a successful business out of forging opportunity from crisis, and prosperity from distress.

In April the company celebrated its fifth anniversary. In recognition of this milestone, ABL Advisor sat down with founders Ted Gavin and Joe Solmonese to reflect on the company’s trajectory, and gauge their thoughts on the future.

A dual-branded restructuring and public affairs firm, Gavin/Solmonese specializes in taking businesses in crisis and putting them on stronger footing through debt restructuring and corporate turnaround management. But fixing a crisis is only half of the equation. The opportunity, the company’s founding partners explain, derives from guiding both distressed and healthy firms through the process of becoming better corporate citizens.

Photo of Ted Gavin - Managing Director & Founding Partner - Gavin/Solmonese

The payoff, they say, is a stronger brand and increased consumer loyalty -- both of which ultimately drive up revenues.

“There is a potential for corporations that are getting back on healthy footing to incorporate social responsibility into their turnaround plans,” said Solmonese. “Corporations strive to be better public citizens, not only because it’s the right thing to do, but because it impacts the bottom line.”

To get a sense of how Gavin/Solmonese’s founding partners arrived at this conclusion, it helps to understand the context that compelled two like-minded individuals with a shared vision for the role of business in promoting social change to turn a chance meeting into the genesis of a unique restructuring, turnaround and public affairs company.

In 2008 -- when Rahm Emanuel opined on the nature of opportunity for The Wall Street Journal -- the global financial crisis was in full swing. The venerable banking giant Lehman Brothers had recently been forced into Chapter 11, and upwards of $3.5 trillion of corporate debt was in danger of default, according to one estimate from the time. 

It was a busy season for bankruptcy and turnaround professionals like Gavin -- who was head of bankruptcy and fiduciary services at the turnaround firm NHB Advisors when he and his wife Amy attended a fundraiser in Minneapolis for the Human Rights Campaign (HRC), the nation’s largest gay, lesbian, bisexual, and transgender advocacy organization.

A longtime advocate for progressive causes, Solmonese had been named president of HRC in 2005, after spending more than a decade with the political action committee EMILY’s List.

Photo of Joe Solmonese - Managing Director & Founding Partner - Gavin/Solmonese

The future business partners’ first meeting in 2008 coincided with transformative change in Washington. The election of Barack Obama to his first term as President that year signaled the emergence of a new American agenda -- which championed the message that social justice and economic prosperity could not only coexist, but could actually complement each other. 

Over the next few years, Gavin and Solmonese would groom their budding friendship into the blueprint for a new model of corporate consulting -- one that would combine traditional restructuring and turnaround services with a public affairs division to help organizations navigate and capitalize in an evolving social and political environment.

In early 2012, with President Obama’s reelection campaign in full swing, Gavin and Solmonese put their plan into effect, acquiring NHB Advisors and integrating the firm and some of its key personnel into the newly rebranded Gavin/Solmonese.

Gavin says that the rebranding was well received by the marketplace right from the start.

“The marketplace didn’t have a need for a lot of education on how we were changing because many people stayed the same on the distressed side [of the business],” he said. “So people looked at us and they knew what we did, and we just added this other set of services. There was probably some curiosity regarding how our clients would use these new services.”

The company quickly set about demonstrating the value of investing in what market analysts refer to as “Environmental, Social and Governance” (ESG) strategies.

In November 2012 it released its inaugural “Social Issues Engagement Index” -- which polled more than 2,000 Americans on their attitudes towards businesses and social justice. Among other things the survey found that 80 percent of Americans believe that companies should behave in a socially responsible manner.

According to Solmonese, the results served as “tangible proof that Americans are interested in engaging with businesses that behave ethically and contribute economically in order to improve the quality of their workforce, their communities and society at large.”

Gavin acknowledged that he initially considered that the restructuring and public affairs divisions of the company might operate as de facto separate entities, and perhaps provide a counter-cyclical buffer to offset market slowdowns on one side or the other.

“There was the recognition that there would be restructuring cases that have no public affairs need, and vice versa, but we were pleasantly surprised at the extent of the synergies between the two,” he said. “In that sense I think it unfolded a little differently than I envisioned. To the degree that we blended these services and skills sets, the people who knew [NHB Advisors] and had worked with the firm started thinking about how our new services applied to them.”

Since its launch the company’s expanding team of professionals has provided liquidation services, restructuring support, turnaround management, and critical valuations testimony for cases involving distressed companies in the telecommunications, manufacturing, and technology sectors, among others. In the process it has saved both creditors and debtors millions of dollars in capital in a time of stagnant economic growth.

This included the successful representation of the unsecured creditors of Prince Sports -- which filed for bankruptcy in 2012. As liquidation trustee, Gavin/Solmonese helped negotiate a favorable settlement for its clients, which was the subject of media headlines.

Over the past five years, the U.S. has experienced a slow but steady recovery from the lows of the Great Recession. Like much of the restructuring profession, Gavin/Solmonese has not been immune from challenging economic factors -- including an historic decline in bankruptcy filings. But Gavin -- who was recently named President-Elect of the American Bankruptcy Institute -- says diversification has enabled the company to offset declines in one business area with gains in others. 

“With respect to restructuring, I think the biggest surprise was the slowdown in the bankruptcy market – both the length and the severity,” he said. “It’s been sobering to see how slow the industry got, and equally surprising that as everything was slowing down we actually expanded in a couple key areas.”

In particular the company has experienced an increase in its valuation and expert witness business, and debtor-side services, including restructuring oversight. Since 2014, no fewer than half a dozen experienced professionals have joined Gavin/Solmonese -- including Anne Eberhardt, an expert in valuation and litigation consulting formerly of Grant Thornton; and mediation specialist Frank Monaco, who was appointed this year to lead a new joint venture between Gavin/Solmonese and Equity Partners HG.

“I think we’re going to see it pick up on the restructuring side,” said Gavin, who expects distress to continue to impact the energy and retail sectors. “And depending upon what happens in Congress with the Affordable Care Act, we can expect to see activity in health care.”

“In terms of a sweet spot, though, I’m enthusiastic about our valuation practice. We might need to add some resources there, but we want to be very measured in how we approach that.”

For his part, Solmonese says he is hoping to invest in expanding the company’s public-opinion research capabilities.

“There is a real deep desire to get a better look at what people are thinking and I think that is being driven by what happened in the past election year when there was so much data and so much information, but so much of it was wrong,” he said.

Asked to comment on the challenge of running a corporate consulting firm focused on social responsibility in such a divisive political environment, Solmonese says he is optimistic that American businesses will continue to recognize that equality and justice aren’t just worthy principles, but drivers of profit as well.

“By any objective measure one would say corporate America is poised to benefit under a Trump Administration," he said, "but in terms of corporate responsibility I think many businesses will see an opportunity to shine against the backdrop of this administration. They see an opportunity to really shine a light on some of these things and get out front on issues that consumers care about. I think it will represent an interesting dynamic.”

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