The Fletcher School

It is hard to imagine that the influence of the telecommunications industry – a behemoth in our technology-driven culture – is a relatively new phenomenon. As recently as 2000, people who worked in the telecommunications field were regarded as “boring, basic, commodity providers,” according to Jill Thoerle, a co-founding partner of REO Consulting Group. Thoerle, a member of this commodity community, is no stranger to the complexities of the telecommunications and media industry. She has built REO into a premier boutique investment advisory firm that focuses on technology and communications and provides turnaround and bankruptcy expertise, as well as staffing and operational advisory services, for large hedge funds and institutional investors. Thoerle shared her experiences and expertise with Fletcher students on Monday, October 18, 2004, as part of the International Business Program’s Global Speaker Series.

Like so much of the technology industry, telecommunications industry valuations crashed several years ago after the stock market bubble of the late 1990s burst. While many businesses today are reluctant to put their money into telecommunications investments, Thoerle tells her clients that there remains great potential. REO suggests that the market has over-corrected, creating new opportunities for investment. By helping investors evaluate which companies will succeed and which will fail, and by cutting through the hype to determine whether a company’s management can fulfill its business plan, REO provides its clients with expert investment advice to help navigate the changing tides of the telecom industry.
Thoerle and her company specialize in distressed investing, which includes debt origination and trading, asset acquisition via bankruptcy, and company acquisitions primarily via restructuring and management buyouts. Distressed investing is a relatively recent phenomenon, or at least recently accepted. Companies such as AT&T used to not buy other companies out of bankruptcy because it was “beneath them,” Thoerle said. “But now they’re all too happy to do it.” The world of distressed investing is generally limited to institutional investors, although individuals are also able to buy debt through brokers. But all actors in distressed investing must be aware of their “big boy status”; in other words, if a company seeks a loan, the lendor may be able to use that company’s information to buy its debt on the public market. This type of transaction is within guidelines for debt trading because investors are “big boys”, i.e., knowledgeable investors that are expected to fully appreciate the situation, Thoerle explained.

Thoerle takes many factors into consideration and assesses all risks before investing in a distressed company. Some of the criteria she looks for include whether the company has large enough revenues to offset the risk and the strength of the company’s cash flows. In addition, she examines the performance of the company’s management. Are they honest and competent? Did they drive the company into bankruptcy in the first place? Thoerle said that she “won’t touch” start-ups or companies in geographically emerging markets because the risk is too great. The companies she advises are looking for something with an infrastructure or assets because if the company defaults, “it’s all yours.”

Bankruptcy is a valuable investment vehicle, Thoerle said, for several reasons: a company’s financial information is readily available; its valuations are lower; the bankruptcy process is predictable, structured, and controlled; and there is an inherent opportunity for leveraged acquisition. But she made sure to distinguish between the two types of bankruptcy – Chapter 11 and Chapter 7. Chapter 11 is available to companies suffering severe financial difficulties but that can still be viable if debt payments can be reduced or postponed. Chapter 7, in contrast, is a complete liquidation in which the debtor’s nonexempt property is sold and the proceeds go to the creditors. Thoerle has participated in the auctions of companies that have filed for Chapter 7 bankruptcy. In fact, she bought a cappuccino machine from a bankrupt company that was so extravagant that it had the machines on every floor, in addition to corporate jets and hovercrafts to get around San Francisco.

Thoerle’s work at REO is the most recent in a long list of professional successes. Before co-founding REO, she served as President and CEO of OnTera Broadband, Inc. Prior to Ontera, she was the Vice President of Corporate Strategy and New Business Development with AT&T, where she helped start telecom companies in Canada and Latin America. She joined AT&T when it acquired TCG, Inc., where she was one of the senior executives responsible for growing the company from its initial public offering to a $13 billion market value at the time of its purchase in 1998. Before joining TCG, Thoerle developed a broad communications background as an executive with MCI Communications, Inc., a manager with Deloitte & Touche Management Consulting and a member of Technical Staff with AT&T Bell Laboratories.

Article by Evan Pressman, MALD '05