Chapter 11: Pulling back from the brink


Gary Greenfield, CEO of Peregrine Systems, took the asset management software vendor into Chapter 11 in September 2002 after a huge restatement of past revenues.  



Gary Greenfield, Peregrine Systems


Infoconomist: What went wrong at Peregrine?

Gary Greenfield: I wasn’t there when it all began so it is hard to bear witness [Greenfield joined as CEO in June 2002], but there was a lot of pressure during the Internet boom to grow companies and different people responded to that pressure in different ways. Unfortunately, a few people, not just at Peregrine, tried to achieve growth at all costs. In the case of Peregerine, this had two major impacts. One was growth that was not real. The second was the expense associated with that growth. The two things collided with each other. And that was the mushroom cloud that was set off in May [2002].

IC: Do you accept that Peregrine also got itself in a muddle because acquisitions were ill-conceived?

GG: Well, that is a sign of the growth-at-all-costs model. A lack of focus was part of the issue with Peregrine, which resulted in something of a strategic muddle. One of the things that I have heard from customers is that they felt that everything [all the new products] had been bolted on to Service Center and Asset Center [Peregrine’s core products]. Customers felt things had got lost amid the series of acquisitions. Two of the strengths I now bring to the business are focus and discipline.

IC: Will divestitures be enough on its own to get you out of Chapter 11?

GG: Yes we anticipate it will. We have been in active negotiations with our creditors, and we will accelerate that process now that we are in Chapter 11. We anticipate that the proceeds from the sale of Remedy will pay off our line of credit, or whatever portion of the line of credit that we have used, and leave us with some working capital in the bank. We expect to break even in 2003.

IC: What is the step-by-step strategy for recovery?

GG: There are three key steps in this process. First of all, we need to take control of our destiny. We were dealt a difficult hand, but the initial step is to get as close as possible to business as normal. Step two is to negotiate with our creditors so that we have a plan that not only gets money in our hands, but that puts in place a proper business model. And finally, step three is to get the right cost discipline and product focus in place.

IC: What kind of a company will Peregrine be after Chapter 11?

GG: We will be a smaller company, but we will probably still be a top-50 software company. I’m hesitant to give numbers. It’s not that I’m being evasive, but since we are in the process of restating it is a very sensitive period for us right now. I will say that Remedy is a little more than half of our business, so we will probably be about 40% of the size we are now.

IC: How do you motivate people to stay loyal?

GG: Well, I’ve got to tell you that one of the pleasant surprises – and I have had some unpleasant ones, as you can imagine – is the dedication and devotion of the entire employee base. We did cut the company in half. But in San Diego, where our headquarters is based, the local TV station could not find any people who were leaving the company who were willing to say negative things about it.

IC: Why would you take on a role like this?

GG: You mean, am I crazy? (laughs)

IC: Well, where do you get your payoff?

GG: One of the things I’ve been able to confirm since joining Peregrine is that it has a product that really works. Great products make great software companies. This sort of challenge is more apparent than others, perhaps. But if I can help be part of a vibrant future for Peregrine, then the payoff will be powerful.


Michael Greenough, CEO of SSA Global Technologies, helped the ERP software company come out of Chapter 11 in 2000.  



Michael Greenough, SSA Global Technologies


Infoconomist: How did SSA Global Technologies land itself in Chapter 11?

Michael Greenough: Gross mismanagement. The company had four CEOs in five years. You get a mismatch of strategies. Everything breaks down and you end up spending money in areas that you can’t afford to, and losing money in areas that you shouldn’t be in. You are trying to drive sales to generate revenues to pay for failed R&D projects. The whole thing just implodes.

IC: Do you believe the bankruptcy process was mishandled before you joined [Greenough took over as CEO in 2001]?

MG: Yes. You’ve got people making decisions, such as lawyers and bankruptcy accountants, who don’t have an intimate knowledge of the business. In certain instances they throw the baby out with the bathwater. For example, the decision was made not to bankrupt the EMEA organisation or the Asia Pacific organisation. I wasn’t involved in those decisions but subsequently had to come up with a lot of money to repay the working capital deficit that existed in those companies as a result of the Chapter 11 in the US.

IC: What did you do to rescue the company?

MG: I had to work very quickly. The company was bleeding cash and had just missed its sales forecast by $6 million. The key thing was to preserve cash. I made sure everybody was aware of collections and billings and I got a good handle on what it would take to reach break-even. That operation took about 30 days and involved a small team of close confidants of mine, who were consultants brought in with very specific assignments. I sent one to Asia Pacific, one to EMEA, one to Latin America. I did North America, which is the largest, and then we did a bottoms-up budget.

IC: Did you struggle to retain key staff and customers?

MG: I met individually with all the top people and, in fact, retained most of them. I did have to cut the salaries of executives by about 25%, but I made them understand that this was short-term pain for long-term gain. The senior management were very knowledgeable – they just were not being led at the highest levels. If your commander is sending mixed signals to the field generals you are going to get a very disorganised front. We decided on a clear mission, clear measurement criteria and a clear initial objective in terms of cash flows, revenues and expense levels. The staff had worked very hard but their efforts had been misdirected. I think now they have a clear sense of pride. We have a turnover rate of only 2%, which is phenomenal for a software company.

IC: Do you consider all of this behind you?

MG: Absolutely. Since we became profitable in July 2001, I’ve been working on the product strategy, executing on the acquisition strategy and consolidating our market share worldwide. I believe that we will be number two to SAP in most of our major markets, and probably the number-one in our particular vertical markets. And that’s where we want to be. We have doubled revenues in the last 12 months, up to $250 million. Our profitability is over $50 million on a run-rate basis. And we have $20 million in the bank.

IC: Are you going to stay on as CEO?

MG: That’s a good question. When I first came I signed a two-year contract to extricate the company from its problems and put it back on a solid footing. But I’ve fallen in love with them, and they’ve sort of fallen in love with me. What we will probably do in the next 18 months is appoint a CEO and I will become chairman.

IC: Finally, what would you say to a CEO facing Chapter 11 today?

MG: Be honest about your profit model. In other words, do not delude yourself. Do not think you can sell your way out of the problem, or develop your way out of the problem. Solve it now. The world exists today, and you must be profitable in your model today.

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Ben Rossi

Ben was Vitesse Media's editorial director, leading content creation and editorial strategy across all Vitesse products, including its market-leading B2B and consumer magazines, websites, research and...

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