The Saga Of Sirva

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The subprime mortgage crisis and US housing slump are torpedoing financial services companies, as we all know, but these issues are also taking down related businesses, especially if they’re already vulnerable.

“I also want to be perfectly clear that we have no plans to file for bankruptcy,” the chief executive of Sirva, the parent company of Allied Van Lines, told investors in November. Today Sirva filed for Chapter 11 bankruptcy protection.This reversal, in less than three months, shows how quickly the housing market has deteriorated, putting a damper on corporate-relocation services. But the fall of Sirva is also the story of how a private equity firm transformed a company, built it up, pocketed the returns, and then largely sold out before that company went off the tracks.

Clayton, Dubilier & Rice formed what would become Sirva by merging North American Van Lines with Allied Van Lines in 1999…While other relocation companies outsourced the various services any corporate client needs for moving its employees, Sirva wanted to have them all in-house, offering a one-stop shop for government agencies and large companies like Chevron, Dell, and KPMG. (Blogger Note: We shall see as a client, this is probably why they were not ever auditing them at some point.)

Sirva raised $389 million in an initial public offering in November 2003. ..By the middle of 2004, Sirva was prepared to tap the public markets again, and Clayton Dubilier was ready to pocket its hard-earned profits from the venture. A secondary offering in June of that year, priced at $22, let the private equity firm unload a big portion of its stake in the company.The firm collected about $430 million from its initial equity investment of $179 million. But Clayton Dubilier still held on to nearly a third of Sirva’s outstanding shares, and Rogers and other principals from the firm remained on its board.It turns out that Clayton Dubilier got out at precisely the perfect moment. By the end of 2004, Sirva had begun finding accounting irregularities in its books. An earnings shortfall led to a delay in filing its annual report, which led to more shortfalls, restatements, and delays in its quarterly results.

Sirva’s auditor for its 2006 financial statements was Ernst and Young. Although they agreed with management’s assessment that there was a significant weakness in the internal controls regarding pension accounting, (the only weakness mentioned,) and gave then an adverse opinion from a SOx 404 perspective, Ernst and Young gave them a non-qualified, clean opinion on their financial statements as of December 31, 2006.

This clean opinion was given even after some high level changes in the finance and accounting function.

SIRVA Announces Departure of Chief Financial Officer
CHICAGO, June 8, SIRVA, Inc. a global relocation services provider, today announced that J. Michael Kirksey, Senior Vice President and Chief Financial Officer, has left the Company, effective June 7, 2007, to pursue other interests. Until his successor is found, the Company’s treasury, internal audit and IT functions will report to Robert W. Tieken, SIRVA’s interim Chief Executive Officer. Furthermore, James J. Bresingham, SIRVA’s current Executive Vice President – Chief Accounting Officer, has been appointed acting CFO. Mr. Bresingham joined the Company in July 2004 and was appointed Executive Vice President – Chief Accounting Officer in January 2006.

Mr. Kirksey had been appointed in December of 2005. In addition to some other CFO type positions, he was an alumnus of Arthur Andersen.

Mr. Bresingham is a PwC alumnus.

Financial statements for 2007 have not yet been filed.

PricewaterhouseCoopers was Sirva’s auditor for fiscal years 2005 and 2004. PwC was replaced by EY maybe because, given the accounting risks, they decided they would rather provide advisory services?

Ernst and Young was appointed auditors to succeed PwC in October 2006, before the 2005 financial statements were filed. During the past few years, almost every staffing firm and finance body shop in the Chicago metropolitan area has tried to help Sirva get their books in order and their Sarbanes-Oxley work done, to no avail. When I left PwC in October 2006, they were also looking for an Internal Audit Director. How long had they been without that function?

Sirva was cheap and not very strategic, I’ve heard, when trying to solve their accounting and internal control problems. This seems to be a common syndrome amongst companies going in and out of private equity and public ownership. Sometimes they go public again so the investors can cash out, even though they’re really not ready for prime time. Looks to me like PwC and EY gave this company, with its revolving door senior management and various private equity owners, too much of a pass for too long.

There are bios for thirty-six professionals listed on the Clayton Dubilier Rice Inc. website. Those listed include Mr. Rice himself and Jack Welch, a new fairly new addition. Of those thirty-six professionals, there is only one woman. She is the one who, I guess, has overall financial accounting responsibility for the firm, although you would assume with all the Harvard MBAs and such listed in the pedigrees of the other professionals, there are enough folks with financial expertise around to guide the accounting and finance activities of their investment companies.
Ms. Gore, a certified public accountant, has been with CD&R for 13 years and is responsible for the day-to-day administration of financial management operations, including accounting and budgeting functions. She was previously with Richard A. Eisner & Company, where she served as an audit manager. Ms. Gore has a business degree in accounting from Iona College.

No offense to Ms. Gore, but her bio hardly matches the lofty CVs of her “colleagues”. The lack of world-class credentials in Clayton Dubilier’s own financial accounting shop makes me doubt that they place any more emphasis and spend any more good money on this function in their investment companies. These investments include other troubled companies like US Foodservice and Culligan.

1 reply
  1. Christian Stalley
    Christian Stalley says:

    A very interesting piece. Thank you very much for using my image of the decrepit house and including a link to my page. Very much appreciated.

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