In what may be a disturbing leading indicator for Asia, US bankruptcy and liquidation specialist Alvarez & Marsal is beefing up in the region. It has just announced it is acquiring an 80 strong team that formerly comprised RSM Nelson Wheeler Corporate Advisory Services. The US firm - which established itself in Asia two years ago - is absorbing a business that has 10 years experience in the region.
Three senior executives from the RSM Nelson Wheeler side will bring the benefit of their experience to the new combination. These include Cos Borrelli, Neill Poole and Kelvin Flynn, who will form the core leadership team of Alvarez & Marsal Asia, and take the title managing director.
"What we're creating here," says Flynn, "is a highly experienced team that can service international client needs across three continents. In a nutshell we are a firm that deals with situations where there is corporate financial distress or dispute. Our skillset therefore includes turnaround management and restructuring, crisis management, insolvency, NPL advisory and forensic accounting."
The recent Hong Kong case of Moulin - a spectacle manufacturer, which went on a bold acquisition drive before hitting a financial wall and the threat of bankruptcy - is a clear example that even in the so-called good times for Asia, there is still a strong need for firms such as Alvarez & Marsal.
"The region may be booming," says Flynn, "but you can always count on two things in Asia: poor management and fraud. Companies will over-expand, or fund themselves in an irrational way. And then there is China..."
Flynn says that more than 50% of the business is already generated from China and the growth opportunities there are enormous. These can stem from multinationals forming joint ventures, then later realizing they chose the wrong partner, or such like. Fraud is a key issue, and since Alvarez & Marsal has large and strong practices in the US and Europe, it has a natural chain of multinational clients facing just such problems.
Obviously, this is a business that tends to boom during years of recession and crisis, and current conditions are far more positive. In Asia, the peak year for the insolvency and crisis management was 1998.
"We see this being a soft-but-steady market for Asian insolvencies over the next couple of years," says Flynn. "But longer term the US consumer's spending will wane and as confidence falls that will be passed on to the manufacturing sector in Asia. For example, we are looking closely at the auto sector in China, particularly the suppliers, which could face pressures."
The new Alvarez team will have 70 people in Hong Kong. Its staff have worked on several high profile insolvencies including Akai, Jinro (HK), SK Global and the ongoing situation with the Zhuhai government window company, Zhu Kuan. It is largely a fee-based business, although firms like Alvarez occasionally take payment in the form of equity stakes where they also share the upside of turnaround they engineer.
Flynn, who formerly worked (along with several other senior staff members) at Australia's Ferrier Hodgson, says the boutique will be the largest of its kind, but will continue to compete with the big four accounting firms as well as the afore-mentioned Ferrier.