Recon, rebuild, recover: Alvarez & Marsal's three-step solution for troubled UAE firms

If it all pans out as some financial experts have predicted, there could be a lot more demand for Stephen Millington’s services over the next couple of years.

Mr Millington is managing director for the Middle East at Alvarez & Marsal, one of the world’s leading specialists in restructuring and corporate forensics. With UAE borrowers under pressure to meet big debt repayments between now and 2018, and debtors facing economic pressures in their businesses, there could be a spate of crises and insolvencies in which his services would be urgently required.

“The emphasis now is performance improvement, enhancing operating performance, especially in what we call ‘high urgency’ situations,” he says. Behind the management speak, however, the message is clear: he will help turn around companies that look as though they are headed towards the rocks, and set them on a recovery course; if it proves impossible to effect a rescue, he will help recover the bodies.

He’s well trained in the forensic side of the business. For six years he worked for Kroll, the legendary corporate sleuths, in their offices in London, Bahrain and finally the UAE.

Julius Kroll virtually invented the business investigations business in America in the 1980s, and retains iconic status in an industry that has grown rapidly since then. To be “Krolled” in the business world has its own special meaning, like being hoovered or googled.

The arts of business intelligence have moved on, however, and no longer involves shady gumshoe work or (controversially) rummaging through suspects’ rubbish bins.

Mr Millington certainly does not seem the type to be lurking beneath a gaslight on some tailing assignment.

“I believe in the ‘Colombo’ approach,” he says, referring to the fictional American TV detective who cracked his cases by a mixture of persistence and guile that lulled suspects into a false sense of security.

“The management and employees of a company will generally respond positively if you ask them to help identify and fix a problem, rather than coming in heavy handed and waving around legal threats,” he says, playing the ‘soft cop” to perfection.

However, there does come a time when a harder approach is needed, especially in the UAE where unscrupulous businessmen often resort to leaving the country, and their obligations, behind them.

“We do resort to the law — which in this case means the police — quite frequently, because that’s often the most effective way to do it, to find information and identify the problem. We get lawyers involved very early on because we have to make sure everything is being done legally. We have relationships with all the law firms in the region, and do not rely on a favoured partner.

“It’s always good to keep the legal option up your sleeve. In the Arabian Gulf, with its high levels of expatriate workers, there is the problem of ’skips’. People can be out of the UAE very quickly if things turn bad, so it’s often good to get the travel bans in place,” he says.

As with most corporate intelligence executives, he is reluctant to identify individual cases, but one which did emerge into the public domain involved the Kabul Bank. The Afghan financial institution was at the centre of a $65m fraud, in which cash — most of it foreign aid designed to help rebuild the war-shattered country — was drained from the bank by corrupt executives.

Some of that money ended up in foreign exchange businesses and other assets in the UAE, and Mr Millington was part of the team that helped track it down in a process that also led to criminal convictions of senior executives. “We worked closely with the UAE authorities on this and eventually got a decent amount of assets handed back to Afghanistan. The Afghans got 35 per cent recovery, which was good. Lehman creditors only got about 20 per cent,” he says.

While corporate investigations may be the exciting side of Alvarez & Marcel’s business, increasingly it is the smaller in revenue terms.

The firm was founded in New York 33 years ago — just about the time Kroll was in its pomp — by two eponymous executives who saw a niche in the financial services market for advice to companies “facing operational and financial hurdles,” as its website gently explains.

In effect that meant restructuring companies that found themselves in trouble, often through fraudulent activity by employees. It as a rich vein that A&M mined skilfully. By the time of the global financial crisis in 2008, it had established itself as the go-to firm for restructuring advice, and earned itself the challenge of getting to grips with Lehman Brothers, the bank at the centre of the crisis. It was “the hottest business on Wall Street”, according to Fortune magazine, rivalling competitors FTI Consulting and Alix Partners for the go-to slot among the restructurers.

That side of the business has grown as the fallout from 2008-9 has continued around the world, including the UAE, where the Dubai World default almost sparked a meltdown in the financial system.

A&M did not work on the Dubai World restructuring, partly because it had its hands full with Lehman. But since then it has grown the business in the region by focusing on situations where companies feel a crisis could be looming. Increasingly, that means performance and operational improvement, rather than just financial restructuring.

“Performance improvement and operational restructuring is different from the examples of financial restructuring we’ve seen here. The situation is often that local companies identify a difficulty in meeting debt obligations and call us in,” Mr Millington says.

“If a business is in difficulties, the management will often know 70 per cent of the problem, but will not know how to fix it,” he adds.

His clients are in the turnover range between $100m to $1 billion, which he calls the “sweet spot” for business. The big government-related enterprises, such as Dubai World, are outside that range, and are already well looked after by the banking restructurers and the big management consultants, which A&M also regards as competitors. It has recently hired two senior executives from consulting rivals to beef up its capability in that part of the market.

There is plenty of business in that medium sector, however. “The sectors we tend to get involved in are commodities and trading, construction and real estate, wholesale foods, retail and distribution. There’s also been some activity in the oil and gas sectors lately,” he says.

There are some pretty pessimistic forecasts for those sectors in the coming years. The UAE Banks Federation recently identified them as the business segments most prone to potential debt default.

“Often the problem lies in working out if it’s a case of mismanagement or fraud. It’s a three-stage process: to work out what’s happened; to put in place systems to ensure there is no repetition; and to go for recovery,” says Mr Millington.

“The CEO and CFO don’t have the time or the resources to run the business as well as fixing the problem, so that’s where we come in,” he says.

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