CTPartners Scores Lifeline but Deal Talks with DHR Idle

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May 13, 2015 – April 13, 2015 — Despite gaining enough financial means and time necessary to pursue a deal with DHR International Inc., CTPartners Executive Search Inc. (CTP) instead finds that talks with its rival in the two executive search space haven’t gone very far and that the loss of many of its highest-paying customers is starting to take a toll. New York City-based CTPartners said Thursday that it has secured $12.5 million in debt financing comprised of a second-lien note purchase agreement with a publicly traded insurance company and affiliate. The notes are issuable in two tranches. The first tranche is $6.25 million and is expected to close by April 10, while the second is also for $6.25 million but is set to close 90 days after the first funding.

The notes, which carry an approximately 9% interest rate and 2020 maturity date, will be used for general corporate purposes and working capital needs, according to the April 9 announcement.

DHR International, despite the minimal conversations that have taken place with CTPartners since it launched its initial Feb. 6 offer, remains committed to getting a deal done, according to a source familiar with the situation.

At the same time, the source acknowledged the continued instability at CTPartners, describing the financing as a “pretty desperate move” to address its liquidity needs.

“This is simply a short-term financing mechanism which buys them time to work through their buyout option with DHR International,” added Scott Scanlon, founding chairman and CEO of Hunt Scanlon Media LLC, a Greenwich, Conn.- based research firm focused on the talent management industry.

The $7 per share offer from Chicago-based DHR International a couple months ago valued its rival at about $61 million.

After that offer was rejected by the now former CEO of CTPartners, Brian Sullivan, the company unveiled that it had tapped Robert W. Baird & Co. to explore DHR International’s offer, in addition to all of its strategic options.

Then, on March 20, more pressure was put on CTPartners when activist shareholder Maguire Asset Management sent a letter to its board, requesting that directors commence a full sale process.

Laguna Beach, Calif.-based Maguire, which holds an undisclosed stake in CTPartners, believes the company could fetch anywhere between $12 and $16 a share in a sale, or between about $104 million and $139 million based upon its 8.7 million shares outstanding.

But as many of the company’s top billers and influential leaders continue to defect to CTPartners’ competitors, the company’s valuation may very likely take a hit.

That’s not to say it hasn’t already. Shares of CTPartners are down about 73% this year so far, falling to $4.05 as of Wednesday’s close from $15.19 at the end of 2014. The stock finished at $4.29, down 1.8%, on Thursday.

“It’s taken CTPartners a full decade to get this base of really fine recruiters,” said Mr. Scanlon, who anticipates another six to 10 departures within the next week or so. “To see it become decapitated is striking.”

Mr. Sullivan on March 12 announced his resignation as chief executive after a New York Post story included him in a group of top brass that the paper said engaged in inappropriate behavior, including sex-bias and sexual impropriety. Other higher-ups began to flock soon after.

Among the most recent to leave CTPartners is Glenn M. Buggy, who has joined fellow executive search firm, Caldwell Partners International Inc. (CWL), as a senior partner, according to an April 7 announcement.

On April 2, Barry Bregman became the fourth vice chairman to depart from CTPartners, following in the footsteps of Ron Porter and Joe McCabe, both of whom have joined the ranks of Korn/Ferry International, and Ernie Brittingham, who’s moved on to Russell Reynolds Associates.

Nonetheless, DHR International will likely find CTPartners an attractive opportunity, especially at an even lower price should the company lose some $50 million or $60 million in billings as a result of its major recruiters leaving, Mr. Scanlon indicated.

“It’s still a good proposition,” he said. “They’re left with a search firm that’s still $90 million in global revenues.”

While DHR International CEO Geoff Hoffman couldn’t be reached on Thursday, the executive previously told The Deal that few acquisition possibilities in the industry exist, making CTPartners a rare opportunity.

DHR International reaffirmed its commitment to a transaction on March 13, disclosing plans to elect a slate of six members to CTPartners’ board. At the time, DHR International held about 7.4% of CTPartners’s outstanding stock.

CTPartners also noted in Thursday’s announcement that it had amended its existing credit facility with JPMorgan Chase Bank NA.

The company is scheduled to report its financial results for the year ended Dec. 31 on or prior to April 15.

DHR International is working with Mesirow Financial Inc.’s Jeffrey Golman as financial adviser alongside Thomson Coburn LLP’s Thomas A. Litz and Andrew Klinghammer as counsel.

CTPartners CFO William J. Keneally didn’t return a call or email on Thursday.

The Deal Pipeline, by Sarah Pringle

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