NetVersant files for Chapter 11 bankruptcy protection

Integrator succumbs to unprofitable jobs, unsustainable growth
Thursday, January 1, 2009

WILMINGTON, Del.--Citing “several large unprofitable projects,” losses on debt obligations, and the resulting impact on its ability to generate revenue and cash flow, NetVersant Solutions on Nov. 19 filed a voluntary petition for relief under Chapter 11 of the Bankruptcy Code. According to the filing with the United States Bankruptcy Court for the District of Delaware, the company hopes to expedite a sale to Zohar Entities, or the highest bidder, “of substantially all their assets,” determining that “was the only alternative that would permit the business to continue as a going concern.” Zohar has agreed to provide financing for the Chapter 11 case.

One hundred and forty-nine companies are listed as creditors of NetVersant, including sub-contractors like ADT, Evergreen Fire and Security, Security 101, and Superior Alarm; and vendors such as Anixter, Lenel, and Linear. Notably, Anixter put out a release to its investors that “[I]n those filings, NetVersant showed Anixter and its subsidiaries to be unsecured creditors in the amount of $28.6 million.”

John Nemerofsky, a former executive at rival integrator SST and now head of consultancy and executive search firm TSS International, noted that NetVersant was praised not all that long ago for its centralized purchasing strategy, buying almost everything from Anixter. “It was supposed to be cost-effective,” he said, “saving on shipping, logistics, etc., because Anixter is so great at the just-in-time inventory. On paper, it was a great move, but that’s how the bill got so high.”

According to the filing, there are some 1,100 jobs at stake, approximately 690 of which are field technicians. While NetVersant generated revenues of $240 million in 2007, and $161 million in the first nine months of 2008, revenues have been falling steadily this year. Billings to customers fell from $20,494,000 in March to $18,225,000 in June to $15,910,000 in September. Coupled with $20.4 million in operating expenses incurred on jobs in Southern California and Phoenix, and generally poor operating results in Baltimore/Washington, D.C., and New York, and $29.8 million in interest payments, this led to a “severe liquidity crisis” for the company.

Calls to three lawyers representing NetVersant, and NetVersant management, were not returned.

NetVersant initially received protection against their creditors taking action against their customers, or customers’ properties, through Dec. 10. This, according to the filing, was to allow for a sale to go through and for the company to preserve its going-concern value. The sale had not occurred as of press time.

One of the objections to the filing was filed by Johnson Controls, which did not agree with NetVersant’s assessment of its debt to JCI. It is JCI’s contention that NetVersant still owes the company $2.9 million related to subcontracting work on the LA County/USC Medical Center, begun in 2005. In an initial filing, NetVersant claimed to owe JCI $599,796. That was amended later to say NetVersant owes JCI nothing.

Are NetVersant’s struggles a bellwether? Nemerofsky does not see NetVersant’s struggles as part of a trend for the industry. He noted that many of the integrators he’s working with are projecting growth for 2009. In his opinion, NetVersant was “just growing so quickly that they took on a number of projects at the same time that weren’t profitable ... They just got caught in a windmill, going around and around chasing their tail trying to finish unprofitable projects.”

If there’s any lesson for the industry, he said, it’s that “integrators need to really watch their businesses right now and put metrics in place to understand their costs.”