CAPITAL CLUB RADIO INTERVIEW
Capital Club Radio - Interview with Reid Simpson Corporate Turnaround Specialist
00:15 Opening: Broadcasting live from the Pro Business Channel Studios in Atlanta, Georgia, it's time for Capital Club Radio. Brought to you by Flock Specialty Finance. Please welcome your host, Chairman, and CEO, Michael Flock.
00:35 Michael Flock: Good afternoon. And we're delighted today to have a special guest here, Reid Simpson. Reid is a seasoned financial executive with a great track record of creating value for his shareholders. His experience includes over 26 years of CFO positions with large and small companies across varied business information software and services, technology, and financial services in both a public and private environment. Reid's CFO positions include those within the Dun & Bradstreet Corporation, CCC Information Services, eCollege, Gogo, Asset Acceptance Capital Corporation, Career Education Corporation, and ShopperTrak. Reid was instrumental in the turnaround of Asset Acceptance Capital Corporation and the successful $438 million-dollar sale to Encore Capital Group in 2013. Reid has also led successful equity events at eCollege in 2010 and most recently, in 2016 at ShopperTrak.
01:39 MF: Well, Reid, let's get started here. Most of our listeners are from the debt-buying and collections industry, and we're very interested in your experiences at Asset Acceptance. Before we get into that, though, when you're growing up, you don't dream about running a debt-buying company; you're dreaming about collections. How did you get into this industry and become so expert and passionate about it?
02:06 Reid Simpson: Well, first of all, I had no clue as a kid that I would be a CFO. My father was a physician - a doctor - and he certainly wanted me to follow in his footsteps. But there was way too much school involved in becoming a doctor. So, I eventually ended up in the finance area, studied Accounting at Michigan State University, and from there, wanted to embark on a career of success, hopefully, to follow in my dad's footsteps of being a very successful physician, albeit in a different discipline.
02:52 MF: Okay, so from Michigan then, how did you get started into business? What was your immediate aspiration? In fact, I think you told me that you drove to New York in a car without a job? Is that true?
03:06 RS: Yeah. So, when I graduated from Michigan State in '79, I had studied Accounting, got out of school, none of the big four accounting firms were interested in hiring me. I wanted to get out of the Michigan Midwest area, and I did in fact pack my Volkswagen Rabbit that I owned, and drove to Manhattan with my then personal belongings, found an apartment in Manhattan and looked for job. And eventually got a staff accounting job at Merrill Lynch down in Wall Street. Now that started my career. So, of the adage, "the road less traveled," I certainly took the road less traveled of trying to get my career kickstarted in Manhattan.
04:03 MF: Okay. Okay. And then I guess you said you spent a few years at Merrill and then somehow got into the credit information business with D&B, Dun & Bradstreet?
04:13 RS: Yeah, so, I worked for Merrill Lynch for a couple years and decided very quickly that I didn't want to do what I had gone to school for, which was accounting work
04:23 MF: Yeah. Right.
04:24 RS: And was looking for another vehicle to kickstart my career and I was lucky enough to get a job at Dun & Bradstreet Corporation as an internal auditor - which doesn't sound very glamorous, but it was a pretty cool job. I was able to travel the world for about five years, doing audits of their various businesses. So, I got to be exposed to all different types of businesses in different environments, different countries. As a young kid in your early 20's, it was pretty cool to be able to get that level of experience and travel the world.
05:04 MF: And I think you told me that you were in a group at Dun & Bradstreet who was led by a guy who was a very successful entrepreneur. I think it was Jack Murray. Wasn’t that right?
05:15 RS: Yeah, so eventually after I got done with my internal audits stint, one of my first divisional financial jobs was in Tampa, Florida, working for a business run by this guy, Jack Murray, a very successful entrepreneur who had grown his business very successfully, sold it to Dun & Bradstreet. He eventually became a Senior Executive there. And he was one of my first business mentors, very cool guy, very knowledgeable guy. Sort of good old boy from Virginia. And I learned a great deal from Jack.
06:00 MF: What was it about Jack that inspired you, that enabled him essentially to become a mentor and a leader for you? What qualities about him did you admire and try to, I guess, learn from?
06:14 RS: So, Jack had a great way of building confidence for individuals in his own special way. Sometimes that meant aggressively challenging people and then giving 'em a pat on the back, either in victory or defeat. He was always trying to teach you something new, not necessarily something to do with your discipline, but rather teaching you about leadership, how to manage people, how to feel good about yourself, how to treat people fairly while successfully running a business. He just had a knack of doing that.
07:01 MF: Building teams?
07:03 MF: Yeah
07:04 RS: Great guy.
07:05 MF: But what's interesting to me when you were telling me the story was that I guess the company was D&B plan services that was Jack's originally.
07:13 RS: That's correct.
07:13 MF: And then he sold it to D&B, and then I think he hit some hard times. Can you continue that?
07:19 RS: Yeah. So, he built the business from scratch, grew it to over $100 million in revenue, sold it to Dun & Bradstreet.
07:27 MF: And what was plan services? What was the business?
07:30 RS:So, plan services were a TPA or a third-party administrator for small-group health insurance plan. So they processed claims, did customer service, did marketing, sales, plan development for small-group health insurance plans, and made their money by collecting a fee from the insurance companies that they were providing the service for.
07:58 MF: Right. And so, then you said I think it hit a slump after D&B bought it.
08:04 RS: Yeah. So, it was a very successful business for a while, and then the product that they were offering had some difficulties and eventually Dun & Bradstreet decided that they were going to dispose off the business. And they did in fact sell it to a private equity firm who bought it for likely pennies on the dollar. And then eventually Jack bought that business back, rebranded it, reconfigured it, and eventually took it public. So he made money twice on the company, which showed some of his skillsets and ingenuity in terms of...
08:49 MF: And you weren't part of it then when he bought it back?
08:51 RS: No, no. I was long gone. By that time, I had left Dun & Bradstreet, but I followed the story of Jack and still keep in touch with him today.
09:05 MF: Because one thing we tried to do on Capital Club Radio is to identify the common denominators of success in people's lives and careers. And when you look at the Reid Simpson resume or bio, you've got a history of building, rebuilding, and turning around selling companies, and so, I try to connect the dots here. And so from... What were some of the lessons learned then, I guess, at your D&B experience? Or were there any that got you to Asset Acceptance? And there, you were clearly hired as a CFO to turn around the business and to improve the valuation of the company and potentially sell it - which you did. So is there a connection here?
09:50 RS: Yeah. I think there's a common thread. And part of this came about during my tenure at Dun & Bradstreet and then some of the companies I worked for afterwards. I learned fairly quickly in my career that if you could add value and help create value for a company, you yourself would be a valuable asset, and it could progress your career. So, while I was at Dun & Bradstreet, I was honing those skills in terms of how to help a business create value for shareholders' employees and customers. But it's not a one-ingredient recipe, you know? Each situation is unique. Part of the puzzle is figuring out where those triggers are and what you can do to add value. So in some cases, it could be that the cost structure of a business needs revamping. It could be that they need better reporting and insights into why their businesses functioning the way it is. It could be that the business needs an improved capital structure. But a CFO's job, frankly, is to help a company add value and be the individual to help orchestrate that. And part of it is understanding the value drivers of business. I know, at your business, you probably know what those are and what you need to work on to enhance value. That's the common thread that I've been able to do over my career, is come in, evaluate the situation at hand, and figure out the areas to focus on to help add value.
11:58 MF: So when you got to Asset Acceptance then, the first thing you did, I guess, was to identify the existing value drivers or the barriers to these value drivers?
12:08 RS: Exactly. Exactly.
12:09 MF: Can you summarize what you saw when you first arrived?
12:12 RS: So when I first arrived at Asset Acceptance, which was one of the three large publicly traded debt buyers in the market... And they were number three of the three - and for a reason. They had had a very successful run, but after a certain point in time, the growth started to dwindle a little bit...
12:41 MF: Why was that? The market? The pricing or...
12:44 RS: The market was starting to get more challenging for all the participants. Pricing was increasing, access to capital became more challenging, the regulatory environment became more challenging. And companies that didn't have a great capital structure didn't have a good cost structure - maybe were lacking compared to competition in terms of processes and the like - were going to be more challenged than their competitors. And that was the situation with Asset Acceptance. We had a capital structure that had become not as good as our competition. Our cost structure had become not competitive. We didn't have as much purchasing capacity and access to capital that our competition did. And so, it made sense that those were the areas that we needed to focus on to try and improve those areas to become more competitive and to add value. And so we mapped out a fairly specific plan and timeline to tackle each of those items. And given that we were public at the time, it was also very important for us to communicate to Wall Street, our shareholders, analysts, as to our intent because just making the plan isn't enough; you need to execute it and you also need to be able to communicate people your progress on the plan. And so, that's really what we did when I first got there.
14:35 MF: And so, how was the journey in this turnaround? Did everything go as planned? Or did you hit some speed bumps? Did you have to change strategies?
14:45 RS: Oh, yeah.
14:45 MF: Were you able to reduce the cost structure? Were you able to change your capital or not?
14:49 RS: Sure.
14:50 MF: Share with our listeners what areas...
14:52 RS: Sure. So as with any plan, it's never gonna materialize as you anticipate. So some of the areas that we targeted came about on time and on plan; some, not so much. The things that we had the most control over - which was our cost structure and being able to exit unprofitable asset classes or product lines - we did have a fair amount of control over our ability to execute on those. So those came about reasonably well.
15:31 MF: What were some of those asset classes that you exited?
15:36 RS: Well, we had gotten into some... I'm not gonna get into all the specifics, but things that were outside the internal core competencies of the management team and of the business. Hindsight's always 20/20 - they seemed like a good idea to get into at the time - but these were asset classes that weren't gonna provide a good return for shareholders. So we ended up closing down some of those business segments. We ended up selling to other parties that were better at managing those assets, and we're able to get some money for 'em along the way. On the capital structure side, that's a little more challenging. The company had done a dividend re-capitalization a few years before I got there so we were saddled with some debt that had benefited prior shareholders but was not helpful in moving the business forward. So, one of the things we were trying to do with that was to reduce the size of that debt through paying it down, restructuring it, and eventually trying to get rid of it.
16:55 MF: Right.
16:56 RS: That's a little more challenging because you're a bit more handcuffed by the markets and what you can do with that. We didn't wanna raise equity and dilute existing shareholders to deal with that debt, so we just tried to methodically work that down. And as we progressed on this path - this turnaround path - the Street and shareholders began to recognize us for it. And the valuation of the company began to increase, we got a better reputation, we were more competitive in the marketplace. And eventually, we were able to sell the business to one of our competitors, and it became a strategic transaction for them, and we were able to get a good value for shareholders through the sale of the business to Encore Capital.
18:02 MF: And so how did you and the board reach that decision to sell as opposed to continue the turnaround? 'Cause you said it was on a trajectory where you were increasing the value. So if I'm a shareholder, depending upon, I guess, the forecast of the CFO and the management team, I might wanna wait a little longer to see if I could get more value versus selling out at potentially a lower value than what I bought in at. So how did you deal with that as the CFO and...
18:30 RS: Well, the first contact was unsolicited, so...
18:36 RS: We were approached about selling, which is often what happens, particularly from a strategic buyer. And then as they say, the dance begins. You sort of assess what they're looking for, you assess how much value they see in your business, why they're interested in buying you. And then the role of the CFO and the board, etcetera, is to - as part of that dance - try and maximize the value that you're ultimately gonna get. But it involves a lot of decisions and analysis. To your point, there's always a difficult decision in, do you sell now or is your company likely to be worth more money by waiting a while? And that's why public companies have boards who set up committees to evaluate that, that's why investment bankers are...
19:42 MF: Employed and make good money in facilitating these transactions. They help you in that process. And we certainly tried to provide as much information to our board as did the bankers to determine whether the ultimate transaction price was a good one for shareholders. So, it's a fairly involved process, lots of yins and yangs, ups and downs, and discussion to get to that finalization.
20:19 MF: And what were the objectives of the board with this transaction? Was it simply price? Or was there another objective?
20:26 RS: Well, they're looking to do the best for shareholders that they think is possible. And so valuation to provide to shareholders at that point in time is certainly their objective. They also have to look at potential execution risk of continuing going forward, and would the plans that we had put in place be able to materialize over time and create additional value? Or is the price being offered at that point in time a fair one compared to the execution risk? So, at the end...
21:09 MF: Gotcha. That's the trade-off. Execution risk going forward versus current value.
21:14 RS: Yeah, and potential industry risks and issues that may lie ahead as well. At the time we were there, the regulatory environment was becoming increasingly onerous and costly, and all of those factors end up weighing in on the decision-making process.
21:42 MF: Well, yeah. Certainly the environment had changed radically from when Asset Acceptance had been founded versus...
21:47 RS: Oh, absolutely.
21:48 MF: It was a totally different industry...
21:49 RS: Totally different industry.
21:53 MF: Well, Reid, what were some of the lessons you learned then at Asset Acceptance? And were you able to apply some of these lessons from the turnaround and sale to other jobs that you've had since then?
22:05 RS: Sure. Absolutely. And I did work for a number of other companies afterwards, one of which - my last company - ShopperTrak, ended up in a liquidity event as well. Every time you go through a process like that, you are learning things. I don't care how many years you've been doing at each one as each one is unique. So you learn about how important due diligence is, not necessarily only from the buyer or purchaser side, but also from the seller side. So, when you're selling a business due diligence is just as important for you as it is for the buyer because done correctly, it can facilitate the process and actually increase value; done poorly, it can diminish value and make the process all the more challenging. So, I learned a fair amount about the whole diligence process in that from that Asset Acceptance experience. In terms of sort of the turnaround plan that we executed at Asset Acceptance, I used a lot of components of that plan at another company I worked at called "Career Education Corporation," which is one of the larger publicly-traded for-profit education institutions. That was very much of a turnaround situation, and...