Global Computer Enterprises

CASE STUDY

GCE was a cloud-based Software as a Service (“SaaS”) provider offering financial and accounting applications. The Company’s two main clients were the U.S. Department of Labor (and associated agencies) (“DOL”) and the U.S. Equal Employment Opportunity Commission (“EEOC”). The Company was located in Reston, Virginia.

SOURCES OF DISTRESS

In 2013, GCE’s facilities were raided by the FBI preceding both civil and criminal DOJ investigations into GCE’s alleged illegal use of foreign nationals under contracts requiring American personnel. The DOJ investigation, among many other factors, made it nearly impossible for the Company to attract new Federal customers.

During this period, the Company suffered from significant impediments to profitability and liquidity resulting from:
- The burden of a costly long-term lease with 50% excess capacity
- Extraordinary on-going legal expenses
- Over-extended payables due to virtually its entire supply base
- An unprofitable EEOC contract
- Poor morale and near-daily defections of key junior and senior employees

A new Federal insourcing mandate resulted in industry challenges and uncertainty facing commercial shared service providers such as GCE. Due to this executive mandate, both of the Company’s existing customers had informed it that its contracts would not be renewed beyond the existing option periods terminating in the next 12-18 months.

As a result of these factors:
- Adjusted revenue had fallen by close to 50% from a previous high in 2011.
- The Company was suffering increasing losses, accelerating employee and supplier attrition, mounting lawsuits, judgments, and legal bills, and was in default under its lease – facing eviction from the landlord.

BACKGROUND

RETENTION & INTERVENTIONS

Prior to 2013, GCE was a highly successful contractor in its niche, as one of the leading providers of accounting software services to the Department of Labor and the EEOC; the DOL used GCE's financial management services to standardize and process more than $170 Billion worth of transactions a year for its 14 agencies, eight finance centers, and more than 1,900 users nationwide.

Asgaard Capital was engaged by the Company in March 2014 to help run a pre-petition sale process focused on potential buyers, including DOL and the U.S. General Services Administration (“GSA”).

CONTRIBUTIONS

Worked with the COO to calm the waters with employees and vendors, and devised a KEIP that could be, and ultimately was, approved by the court to keep a number of employees in place.

Assisted in identifying and recruiting a team of highly competent and cost-effective professionals for the firm.

Held meetings with representatives of multiple agencies on the status of the business and how to transition operations through an implementable acquisition strategy.

Held negotiations with multiple government agencies, each with asynchronous goals: the Department of Justice was seeking to shut the business down completely, while the DOL believed loss of the company’s assets would be catastrophic to its operations.

Worked with company counsel on litigation strategies for the 5-7 major lawsuits that had been brought against the company, the loss of any of which would have led to an immediate shut-down and liquidation.

Facilitated fulfillment of excessive information requests by the government to achieve the approvals necessary for a federal agency to acquire a private business.

Played a critical role in receiving not one but several JOFACs, enabling a closing quick enough to deliver the company as an operating entity before it was shut down.

RESULTS

The Government, through two contracts with the GSA and DOL, ultimately agreed to purchase substantially all of the company’s intellectual property for an aggregate cash consideration of $23.5 Million, and transition the company’s work force to a new vendor (Booz Allen Hamilton) to support the Government going forward.

The 363 transaction was approved by the Court as a private sale (i.e., without a secondary auction requirement) within 15 days of filing.

KEY ACHIEVEMENTS

Superior legal knowledge and experience working with bankruptcy courts allowed the approval of a hybrid 363 sale with attendant JOFACS necessary to close the transaction in keeping with both the requirements of the Bankruptcy Code and the Federal Acquisition Regulations (FAR).

The speed of closing allowed substantially all of the company’s software and data and employees to be delivered in operating condition, averting a major logistical crisis within the Department of Labor.

Asgaard’s professionals were able to orchestrate one of the only acquisitions of a private business by a federal agency in history.

Produced results for the company’s existing owners that far exceeded initial expectations, given the numerous vectors of distress attacking the company.