Last week CTPartners Executive Search Inc. announced it was voluntarily filing for Chapter 11 bankruptcy protection, according to the New York Post.
Once the seventh-largest executive search firm in the U.S., CTPartners recently reported that it will suspend operations by June 30.
CTPartners heads into Chapter 11
CTPartners recently disclosed that its $61 million asset sale to rival firm DHR International will not be enough to prevent the company from seeking bankruptcy protection. In the announcement, the company stated that its cash resources are depleted to the point where it will run out of money by the end of the month, barring an 11th-hour quick sale. However, the sale of the company will be difficult as DHR has only agreed to buy certain assets from CTPartners, including 250 employees at 17 offices in Europe and Dubai.
The bankruptcy filing was significant because the company had begun expansion plans with takeover bids for overseas competitors in December. However, when sexual discrimination scandals emerged in May, the company’s stock price plummeted by 33 percent. Compounded by a drop in earnings forecasts, shareholders sued the company and its top executives, asserting claims that the company withheld information about the scandals to inflate stock prices.
With its stock price eventually dropping from $24 to somewhere between $7-$8 per share, one of the firm’s majority stakeholders, Maguire Asset Management, pressured the company to find a buyer. Tim McGuire, the managing partner, claimed in The Deal that the company knew something was wrong when DHR reduced its ownership stake in CTPartners to only four percent.
“The management and board made a lot of mistakes,” McGuire commented. “I was lucky enough to sell my position. [CTPartners] dropped the ball.”
Sexual discriminator allegations
Following more than a dozen sexual discrimination claims, the company was forced to negotiate an equity sale for more than $12 million. Shortly thereafter, CTPartners obtained $12.5 million in debt financing comprised of a second-lien note purchase agreement because it had violated its covenant, leaving the company no choice but to sell. Noted Scott Scanlon, CEO of Hunt Scanlon Media LLC, the company’s descent escalated as 65 recruiters worth more than $75 million in billings left the firm.
Due to the fact that CTPartners depends largely on human capital, the defection of consultants and recruiters forced the company into a quick decision on its future.
As CTPartners contemplates its future, its reputation and financial standing remain irreparably damaged. With the asset sale, DHR significantly expands its international presence with an additional $75 million in top line assets, and now intends to expand to 70 offices worldwide, boasting a workforce of more than 1,000 personnel.