A Friend's Job Situation - Part 1

A friend of mine (we'll call him MacG) works in a national computer certification training and education company (we'll call them Nerdco) which has just closed 11 locations, leaving his as one of the 15 remaining. MacG is concerned about his job. Here's my thinking on the subject.

Nerdco has already closed 11 facilities, so one would assume they closed the worst-performing ones, and/or the ones with the highest overhead costs. MacG should feel good that he is in one of the better-performing locations. Now the question is, compared to the 15 remaining, how does his location perform? Are they hitting their numbers for enrollment and certification?

It seems the company has several options at this point:

1. Ride it out with the existing locations
2. Downsize some more in order to survive
3. Close all remaining locations and call it a day
4. Merge with a competitor or a company looking to expand its value proposition
5. Take on debt to acquire a competitor or augmentative business
6. Get acquired

Let's take a look at these possibilities

1) Ride it Out
If I were an owner/board member of Nerdco, this might be where my thinking is at this point. Some of those 11 closed locations may have been ones that were opened in expansion markets, planned and built during better economic conditions, but now obviously underperforming in a harsher environment.

That would leave a core set of mid-to-high performing locations which could see the company through this tough period. The company is now lean and mean.

2) Downsize More
If Nerdco's remaining locations show two quarters of poor performance next year, I would assume MacG's location might be on the chopping block by mid-summer. If MacG's location can show good performance, then he should perhaps feel safer in a continued downsizing environment.

3) Close up Shop, Call it Quits
Not likely, IMHO. The owners would gain very little from this scenario, except for whatever they can get from selling remaining assets (computer and office hardware, courseware, real-estate property [not in this market], intellectual property). In short, I think closing completely would be in indication of a serious lack of imagination in the leadership of Nerdco.

4,5) Merge/Acquire a Competitor or a Company with Augmentative Services
I think the M&A activities are a strong possibility (4, 5, & 6). If I were an owner/board member, I've have this on the table as an option to investigate. Nerdco can survive by using this opportunity to join forces with a competitor in a similar situation. Or if capital can be raised/accessed, Nerdco can acquire a competitor to gain their client base and market share, while also adding new intellectual property and market advantages to the existing value proposition.

A bolt-on business line could be a possibility here too, if Nerdco decides that there is a market it would like to expand into, but has not had the resources to develop. Something like computer expert consulting and support services (Geek Patrol for corporations) in addition to education services. This would allow Nerdco to take on a service contract-based business line which helps project revenue better. Which leads us to the last option in my discussion...

6) Get Acquired
Or Nerdco could be acquired for the same reasons stated above. In my experience, it's better to be employed with the buying company than to be in the one that's bought.

As much as the buyer may want to keep everyone employed with the acquired company, there are bound to be overlaps at least in operational functions, if not in other business functions too.

I think if Nerco were acquired, it would be better for MacG if the buyer were doing it to add a new business line, rather than to augment a similar business. MacG is in a better position to keep his job or transition to a new one if his expertise is unique and desired at the new combined company.

Otherwise, a business that does the same stuff as Nerco would be more likely to value the gains in market share, clients, and intellectual property first, with employees as a secondary concern. Obviously, the new company may keep some of Nerco's employees around after the deal in order to continue servicing the new, larger client base. But this would be a more competitive environment for MacG and his job.

Conclusion
What have I missed? Let's help MacG to cope with this difficult market.

To recap, MacG's scenarios discussed are plotted below; best/worst, likely/not. The dot is where these possibilities fall on the x and y axes IMHO:

I think MacG should update his resume and try to ride it out where he is. But he should start the job search just-in-case while he's still in safe harbor. If he doesn't lose his job, hey that's great, at least he was prepared.

Analysis I've seen as an armchair observer seems to indicate a slow 2010 all year, but that things should still be better than 2009. The biggest fear (which we don't know yet until we've seen some solid growth for several quarters) is that this could become a double-dip recession, where we bounce up (like we might be doing now) and then bottom out again before fully regaining growth steam. In that case, we are witnessing the "dead cat bounce" right now. (Apparently Wall Street logic says that dead cats bounce when they hit the ground after being thrown out a window. Weirdos.)

The November gov't job report looked good compared with the way things have been through the year. The US manufacturing reports have been positive lately. Observations of our clients at my job indicate that budgets are going back up again next year. Hopefully that is an indication of the rest of the country and other industries, which would mean we've reached bottom and are on the upswing.