In a recent virtual interview, Mark Fetcenko, managing director at Stage Restructuring, talked about his background in the industry, how he got started with Stage, and what makes Stage unique in the restructuring space. He also shared his approach to navigating tough conversations and emotions so everyone can do their best work.

Interviewer: So Mark, tell us a little about yourself and how you got started at Stage.

Sure thing. Dan Frydenlund [Founder of Stage] and I go way back. We’ve been working together on and off for the last 30 + years on different telecom projects and venture capital startups. Dan and I were actually instrumental in what became Nextel. We have a history together in the domestic markets as well as internationally.

I spent about 20 years in telecom and probably 15 years in the technical area of hospitality, setting up systems at hotels. I spent quite a bit of time working in global hospitality markets with worldwide companies such as Marriott and Hilton. Overall we serviced over 2 million hotel rooms with video and WIFI services.

After about 15 years in that arena, I came back into private equity and joined Stage in 2020. Since then, I’ve been working with Dan on different portfolio companies as well as in turnaround situations. We’re ramping up this restructuring service here at Stage, and I’m excited to see where it goes. We just came off a major turnaround for Bank of Montreal / Comerica, which was a big success in that the project ended up being a wind down, and we were able to recover 100% of the outstanding A/R which equate to ~$10MM.

“What makes Stage different and the reason banks come to us is we’re not sitting around waiting for management to carry out the changes. We’re the doers of that implementation.”

Interviewer: Can you briefly summarize what Stage Restructuring is for people who may not be familiar with that side of the business?

Certainly. Stage Fund and Stage Restructuring are two distinct but related sides of Stage’s businesses. Stage Fund operates as a private equity firm, executing mergers and acquisitions. Stage Restructuring is a service that typically a bank will hire us to perform for distressed assets in their portfolio.

Restructuring means getting in and taking an objective look at the business, making sure they have the right people in the right seats and that their cash burn is not extensive or excessive. We basically are there to help them get out of their own way so that this convergence can happen sooner rather than later.

Interviewer: Can you walk us through how a restructuring project typically comes across your desk and what that process looks like? 

Generally, we’re introduced to a distressed asset by the bank debt / special assets group. Our job then becomes to work with the equity sponsor to get things moving in the right direction. We have to be diplomatic and find a way to exercise control in the current environment and with the existing parties involved.

For one particular restructuring opportunity involving a senior living facility, there was an equity sponsor that actually put $800 million into the company but would not put any more money into it and just wanted out. They wanted to hand the keys to somebody else and flush the money they’ve invested.

“The fact that we have access to our own fund is a big benefit of hiring Stage Restructuring as opposed to the other firms out there. It allows us to do a lot more and consider a wider range of deals and options going forward.”

The banks were in for about $120 million so a way forward had to be devised. The banks have essentially non-performing loans. They usually bring us in because they can’t tell the company what to do outright. They can make suggestions, but there are laws around lender liability that limit their input.

So our mission in situations like this is to recover the bank debt. We’re paid a consulting fee for doing this every month. Generally we have three or four people inside these companies. Then if we succeed in getting them all their money back, not only will we have helped the company survive and the banks recover their investment, we’ll get something on top of that for doing the work. It’s a very interesting dynamic and a fun puzzle to try and solve from our end.

Interviewer: How do you usually go about sourcing new clients, and what are some reasons a client may come to Stage for help as opposed to another firm?

Well, we stay in touch with the distressed asset people in the banks. While another group may have made the initial investment, once they fall into a troubled asset, they will end up in the laps of the distressed group within that organization.

At that point, they say, “Okay, what are we going to do with this thing? Can we restructure it? Can we get somebody in there? Who do we get in there?” They have a team of people or different companies that are on their shelf that they choose from. Earning your place on that shelf is quite an endeavor. It takes a long time. You might have a consortium of ten banks, and you have to sell yourself and convince everyone that you’re the right group to go in there and try to recover their debt.

“Our goal from the beginning is to earn the trust of everyone involved so we can do the heavy lifting without having to ask for permission at every turn.”

The benefit of choosing Stage is that we’re much more than just your typical restructuring firm that writes a report and says, “You need to do these five things to get this company’s nose pointed in the right direction.” The company may just decide not to act on that advice, then they’re just back to where they started from.

A lot of companies will spend that time fighting internally with management and with equity. This could go on for months and months and months. Sometimes, there’s some needful stuff going on in the background. But most of the time they haven’t done anything. And they’re all just sitting around collecting a paycheck. And the assets just deteriorate.

What makes Stage different and the reason banks come to us is we’re not sitting around waiting for management to carry out the changes. We’re the doers of that implementation. We say, “Here are the five things that need to happen. Let us go in and do this work. And then you’ll be assured of an outcome.”

Interviewer: Talk a little more about Stage’s approach to restructuring and what makes it unique.

One of the big things that differentiates Stage is that a lot of other restructuring companies come in and write a report and deliver up a 50-slide PowerPoint deck that says, “Here’s what you guys need to do.” We actually step in and execute on that plan. We’ll go in and peek underneath each rock, look at the entire management team and assess, “Do you have the right people in the right seats?”

Recently, we were hired to help a company restructure, and we noticed right away that they had a really oversized C-suite and management staff. We realized that 30 people were doing a job that could be done by 3, so we cut seats until there were about three or four of us at the end of the day in those positions running a business and turning it around.

Sometimes, the entire management team is starting to drink out of the same Kool Aid jar. They’re starting to believe their own stuff. You’ll never get out of your own way if you don’t have some objectivity. So, that’s what we lend to it. And we don’t just tell them how to do it. We do the heavy lifting, too. I’ve had to chase people down in cases where management is not making themselves available to the team. We actually take those steps. We run that business like it’s our own.

“We look under every rock. We see where the burn is. And then we go through headcount. What kind of expenses do they have? What kind of software are they using? We then put together a 100-day plan for how we’re going to get them out of debt.”

Interviewer: What are some of the benefits of having access to Stage Fund?

By having access to the fund side of Stage, we have the ability to actually buy a company and be an equity participant in that company. We may say, “Look, the equity guys don’t want this company. But for $10,000, let’s buy it, and we’ll run it with a bank-friendly approach.” This way, we have control, and we’re going to work on behalf of the banks, and they know the work will get done.

The fact that we have access to our own fund is a big benefit of hiring Stage Restructuring as opposed to the other firms out there. It allows us to do a lot more and consider a wider range of deals and options going forward.

Interviewer: What are some of the challenges you face early on, and what’s your approach to addressing them?

One challenge is that tension is typically high among management. Maybe they’ve been trying to do a transaction for two years and have deal fatigue because they’ve watched eight companies come to the table wanting to buy them, and then they find everybody’s just going to wait around and let the asset deteriorate and see if they can pick up pennies on the dollar.

Another challenge is the number of people involved. You get too many people trying to make decisions and too many cooks in the kitchen. It makes it tough. We find that things go smoother and faster when we can execute without having to run things up the ladder. Our goal from the beginning is to earn the trust of everyone involved so we can do the heavy lifting without having to ask for permission at every turn.

“Personally, it’s hard work, very gut wrenching sometimes when people are losing their jobs. But to get to see the fast improvement and to help the company survive is deeply rewarding for me.”

Interviewer: From your perspective, why do equity investors walk away and take the loss? $800 million is a lot of money to just leave on the table.

Well, they may be out of money in that particular fund they raised. They’re thinking, “We cannot contribute any more equity. We should flush this one.” Maybe they had another home run in that fund and consider it a win-lose. It’s cheaper for them to walk away from this amount of money and write off the loss as opposed to investing more money into it.

Usually their investment committees are like, “Look, you guys have thrown all this money in there, and we should have stopped you a quarter million ago. Now it’s time to cut back.” It’s always a dance with the equity guys because some want out, but they don’t want to let go. They’re still hoping for an upside.

And then there’s some who just say, “Yeah, take it from me. I just don’t want any more bills to come across my desk.” Those are the bigger players that can afford this kind of write down because they’ve had a home run over here.

Interviewer: What part of the process are you typically more involved in and what aspect do you find most rewarding?

Our team will often take an operational lead, either CEO, CFO, COO, or all 3. We will look at the financials. We look under every rock. We see where the burn is. And then we go through headcount. What kind of expenses do they have? What kind of software are they using? We then put together a 100-day plan for how we’re going to get them out of debt.

And we execute quickly. The first couple of weeks, we have to make some tough calls. But everything we do is focused on getting the company in good shape within the first 30 days. You’re going to see a definite difference in the financial sheets. I enjoy seeing an immediate effect. Personally, it’s hard work, very gut wrenching sometimes when people are losing their jobs. But to get to see the fast improvement and to help the company survive is deeply rewarding for me.

“You partner up with the right people. You find out who they are right away. And most of the time, you’ll get good buy-in. But you have to be totally transparent. I tell them, ‘This is the number. I don’t know how we will get there. But we’ll get there together.’”

Interviewer: Obviously in many cases you’re having to make cutbacks. How do you navigate human emotions and tough conversations in these situations?

We have to be mindful and sensitive to the feelings and the emotions that are going on because we know they’re thinking, “Who are these guys? They come in, and they’re swinging big guns and things are happening.” We have to be mindful that that’s a painful situation for these people. Their lives are changing, but at the end of the day we’re trying to find the go-forward team and make a business out of this thing.

Once you have a go-forward team, you either give them an equity position or there’s some kind of retention bonus plan put in place, something for them to aim for. We want to make sure they know we value what they do. We’re saying, “We need you, and you need to be part of this team, and here are some incentives.” And sometimes we can’t afford that right away. 

Some of these companies are used to getting bonuses on a quarterly basis in the venture space, so we try to meet them halfway by saying, “We’re going to put together a bonus pool for the end of next year.” And if they meet certain objectives, they know that’s waiting for them.

Interviewer: Talk a little more about the importance of transparency and how you personally make that a priority.

When we first come into a company, we’re going to tell them, “Everything’s on the line. Every single thing is on the table. There are no holy grails.” And I always tell them, “Let’s get through this. Let’s dig deep. Let’s do it once.” Because if you have to lay people off more than once, you start to lose good people because things start to feel precarious.

“It’s always easier for an objective third-party to come in and find where the ugly stuff is. And it’s better to do that before things get really ugly.”

Instead of beating around the bush, we just tell them, “Here’s the number we have to get to: $250,000 a month out of this business.” I tell them, “So how do we do it guys?” And we let them be part of it. Because without them I would be breaking a lot of windows that don’t need to be broken and things would be a lot more difficult than they need to be. You have to tell them, “Look, you guys are going to tell me what’s what. I’m going to put it together, and I’ll execute on what your plan is.”

You partner up with the right people. You find out who they are right away. And most of the time, you’ll get good buy-in. But you have to be totally transparent. We tell them, “This is the number. I don’t know how we will get there. But we’ll get there together.”

Interviewer: What have you found is the biggest surprise at this point to the leaders and employees you’re working with?

What’s one of the more surprising things is that more often than not they have no clue what’s going on or that the company’s in that bad of shape. All of a sudden, their C-suite is out so they know something big is happening. And they realize the management hasn’t been transparent with them for a long time.

They’re shocked that all these things are happening. Usually I tell people, “If we’re sitting across the table from you, your company’s not on budget.” The reality of the situation hits them that essentially the business has failed to this point, and that we’re there to see if we can bring it out of the ashes and give it a new name.

We have lots of all-hands meetings. We let people say what they say. They’ll ask some interesting questions that put you on the spot. They’ll make you squirm. But my objective is to tell the truth. Always. It’s easier to manage that in the long run. 

Interviewer: What do you want people who are considering bringing in a restructuring partner to know?

If your company was worth $200 million and somebody wants to offer you $15 million for the thing, don’t sell. You should take it off the market, restructure it for a better trade. 

Also, it’ll save you a lot of stress and headache if you restructure before your debt holders start screaming and they start calling forbearance agreements in place and what not. It’s always easier for an objective third-party to come in and find where the ugly stuff is. And it’s better to do that before things get really ugly.

I’d also like to encourage them not to let fear keep them from reaching out for help. On our end, we can start with a softer approach. We can take a look at their financials and give them suggestions like, “Hey, these five things come up for us. Right now, what do you have to say about them?”

Interviewer: Awesome and thank you for your time. Is there a parting thought you’d like to leave people with?

Just that we’re open for business. We have a large bench of resources to deploy. We take on multiple companies at the same time, and we can move in quickly and we can make a difference quickly.