The Mirus Special Situations Group
Daticon, Inc.
Daticon, a provided of electronic data discovery services to the legal community, was acquired in a leveraged buy-out in 2003. At the time of the buy-out, the company had total debt of just over $21 million, with a senior debt multiple of approximately 3x. The seller of the business at the time of the buy-out owned the real estate in which Daticon resided, and secured a 20-year above-market lease with the company as a condition of the closing.
By 2005, the Company’s revenues had fallen significantly, but fixed costs – including rent and debt service – now exceeded the operating cash flows of the business. The company was insolvent, and immediately retained a crisis manager to mediate a forbearance agreement with the lender, negotiate with the landlord, and seek a solution to the company’s liquidity crisis.
The Mirus Special Situations Group was retained in early November 2005, having given the company and its creditors a preliminary valuation (the “target value”) based on their stated desire to complete a foreclosure sale or other out-of-court transaction by year-end. By early December, Mirus had already received multiple bids for the company’s assets that were well in excess of the target value, and within striking distance of satisfying all of the company’s secured debt.
The successful marketing of the assets had created a new challenge. All of the prospective buyers wanted to continue the operations in the existing facility in order to retain the company’s highly trained employees. Therefore, it became necessary to negotiate with the landlord. The landlord however was also overleveraged, and would face foreclosure by the mortgage company if Daticon were to pay “market” rent or receive any meaningful concessions on the lease. As a consequence, Daticon was forced to file for bankruptcy in order to get relief from the existing contract with the landlord.
Mirus worked with the prospective bidders to negotiate a stalking horse bid and worked with Daticon’s creditors to establish the other terms of a largely (though not entirely) pre-packaged bankruptcy. The debtor filed a petition for bankruptcy protection and relief under Chapter 11 in January, and an auction was completed in February at a price equal to more than 4X the target value.
- Bill Zambarano, President of Daticon
- Michael Epstein, Turnaround Consultant/Crisis Manager (CRG Partners)
- Doug Skalka, Debtor’s Counsel (Neubert Pepe & Monteith)
- Eric Henzy, Counsel to the Official Committee of Unsecured Creditors (Reid & Riege)
- Walter Schuppe, Work-Out Officer for CapitalSource
- Jeff Jonas, Counsel to CapitalSource (Brown Rudnick)