Case Study: MAI Systems Corporation

MAI Systems Corporation manufactured and sold a wide array of mid-range computer systems, developed, sold and supported application software for selected industries and provided hardware maintenance services to businesses throughout North America and Europe.  In response to a long period of declining operating results and liquidity challenges, the company engaged in operational restructuring activities, but was still unable to satisfy certain of its financial obligations.  The company then decided to sell its large, profitable German operation.  The company entered into a definitive sale agreement and announced the transaction publicly.  However, just prior to closing, the buyer attempted to renegotiate the terms and the transaction collapsed.  This failed transaction destabilized relationships with vendors and customers in all geographic service areas, created defaults on various financial instruments and put the company in a perilous liquidity crisis.  The senior secured lenders retained us to quickly develop a solution to maximize recovery on their outstanding debt before the business collapsed.

Our initial evaluation revealed that the US operation was hemorrhaging cash, the drain of working capital by the US operation out of the still profitable European operations was crippling them and a US bankruptcy filing was unavoidable and imminent.  After on-site due diligence on the weakened, but still profitable European businesses and given the damaged state of US business and complex capital structure, it was concluded that participating in a US bankruptcy process would not maximize recoveries for our clients.  Our recommended solution was to negotiate a consensual foreclosure on the European subsidiaries and the parent company’s intellectual property rights, stabilize the businesses and ultimately dispose of them in an orderly process.

The consensual foreclosure was completed as planned in full satisfaction of the parent company obligations to the senior secured lenders.  As further consideration for the release by the lenders, a put option was granted by MAI’s equity sponsor to a newly formed holding company that was exercisable upon the final disposal of the foreclosed assets.  We were retained as management of the holding company and operated the business out of offices in Germany.  The European operations were disposed of in multiple transactions over a 21-month period.  The put was exercised, and, although the sponsor attempted to renounce its obligation, we were able to successfully pursue collection.