Case Study: Application Systems, Inc. (MAI Europe)

Secured lenders to MAI Systems Corporation, a well-known mid-range computer manufacturer, obtained ownership of the company’s seven European subsidiaries as a result of a consensual foreclosure. These profitable businesses sold computer hardware and a series of country-specific application software solutions. Hardware and software maintenance services were provided to a large installed base. Despite being profitable, the businesses had a large negative working capital position due to cash withdrawals by the parent company to fund its US losses and, in some cases, were subject to major potential tax liabilities. After assisting with activities leading up to the foreclosure, we were retained to assume management of the former European subsidiaries through a holding company operating from offices in Germany and devise an exit strategy for lenders.

The focus of our initial analysis was to review the viability of the business given the highly competitive market conditions, lack of state of the art software products and declining profitability. Difficulties expected in restructuring the European bank debt and reducing overhead under onerous legal restrictions on employee terminations were then evaluated.  Based on the potential for an “operational meltdown” with the loss of all enterprise value in the event of a bankruptcy filing of any of the individual European subsidiaries, the decision was made to fund each of the operations while a sale of the overall business was pursued.

Actions taken to stabilize operations and prepare the business for sale included:

  • Converting a warehouse operation in the Netherlands to a standalone profit center that acted as both a hardware sourcing arm for the business and as a provider of logistical services to third parties
  • Selling subsidiaries in England and Switzerland to provide working capital
  • Significantly reducing operating expenses
  • Selling or liquidating several unprofitable software verticals
  • Negotiating highly favorable settlements of Dutch and Belgian tax liabilities
  • Initiating aggressive development of new hospital market software
  • Establishing a strategic alliance with a major provider of software development tools

The business was sold in 21 months to a Netherlands-based company servicing similar markets.