By Mike Taylor
Colorado Biz Magazine features General Capital Partners
General Capital Partners specializes in advising financially distressed businesses, a niche that might be exploding except that the avenues for relief have imploded.
“We typically get hired to either get companies refinanced, get them new equity investment, or we sell them to preserve value in a 90- to 100-day time frame,” said Greg Barrow, managing director of the Denver-based investment banking firm.
As Barrow discussed the economy and the state of small business last month, his firm was entertaining bids on a Ramada Inn in Zanesville, Ohio, and a Holiday Inn down the road in Dayton. The hotels were in a court-ordered bankruptcy auction, and General Capital Partners was retained as the financial advisor for both.
Earlier this year, General Capital Partners found a Russian venture-capital firm to buy Adam Aircraft for $10 million after the Centennial airplane manufacturer couldn’t raise the equity needed to continue and was forced into Chapter 7 liquidation.
On the day that President Bush announced that $250 billion would be earmarked to buy stock in nine large national banks, Barrow seemed mildly encouraged but said the real indication of whether the economy is mending will come when smaller banks are loaning money freely again.
“The government is onboard to take care of bigger banks one way or the other,” Barrow said. “I want to see how smaller, regional banks shake out, liquidity-wise. Because they don’t have enough assets on their balance sheet to where they can make loans, and that’s why they’re frozen. I’m curious to see what happens to those banks that loan to most businesses, and then we’ll see what has to happen to unfreeze things.”
Barrow, 43, says that after he started General Capital Partners in 2002, bankruptcy filings decreased every year for the next five years. They’ve increased every quarter for the last year and a half, and through August were on pace to increase 28 percent over 2007.
“We have seen a lot more filings, but the quality of the filings has been sketchy or touch-and-go because of the economy,” he says. “If there’s no ability to re-organize, there’s no ability for us to do what we do.
“It’s just been very difficult for companies to either re-organize because they need new debt or they need an investor to come in who’s holding back right now, or they just need somebody to buy them. And the buyers are holding back because, again, they can’t get debt and they can’t necessarily justify paying a price today when it may be cheaper tomorrow.”
General Capital Partners typically has a client load of 12 to 15, and for the reasons Barrow described, that number hasn’t changed much in recent months despite the obvious increase in distressed businesses.
Barrow, a former small-business owner himself, moved to Colorado in 1990 and a year later co-founded Peak Resources, an IBM distributor that’s still run by his partner, Vince DeRose. Barrow estimates the Front Range has roughly 2,200 companies with annual revenues between $2 million and $20 million, and it’s typically the small and regional banks that fund those small- and middle-market businesses.
In past years, much of General Capital Partners’ work was in real estate. Now with that sector “under water,” as he puts it, the firm is focusing on “operating companies” that have ongoing value and whose product demand will endure. As an example, he cites two medical diagnostic imaging centers that he found buyers for within 30 days and a coal mine in Kentucky that he sold within 45 days.
“I think the other word that’s important is ‘discretionary.’ If their product is tied to your and my discretionary dollars, they’ve got a real problem right now,” said Barrow, whose firm doesn’t handle any restaurants for that reason. “You saw Bennigan’s file Chapter 7 a few months ago. The restaurant just liquidated.”
He also cited Linens ‘N Things, which filed for bankruptcy protection in May and announced last month it would begin liquidation sales at stores.
“People just aren’t going to go buy a new set of sheets if they don’t have to,” he said.