Antonio C. Alvarez 2d and Bryan P. Marsal know failure -- and they've come to love it.

As managing partners and founders of Alvarez & Marsal Inc., a New York crisis-management firm, they've found fulfillment in undoing the mistakes of America's corporate managers and their bankers.

The firm began modestly a decade ago, when Timex's bankers called in the two executives after an ill-conceived attempt by the watchmaker to diversify into computers and medical products.

Since then, the two have built a burgeoning business on the travails of companies from Integrated Resources to Resorts International.

In contrast to the ubiquitous debt-workout specialists, A&M, which has only a few competitors, concentrates on fixing the clients' operations, often falling in as chief executive until the turnaround or liquidation is complete.

Among the firm's better known current clients is Phar-Mor Inc., a chain of pharmacies that filed for bankruptcy with more than $1 billion of loans and liabilities.

Mr. Alvarez, who is acting as chief executive while living four days a week in a hotel room near the company's headquarters in Johnstown, Pa., has cut the network of stores in half, adjusted merchandise lines, and hired new management to replace a team that departed amid accusations of embezzlement and fraud against the former CEO.

Mr. Alvarez also introduced new point-of-sale terminals to make the retailer more efficient.

"All those things have led to the ability to create in excess of $100 million of earnings" before taxes and expenses, Mr. Alvarez said.

He estimates that Phar-Mor will be out of bankruptcy and back on its feet sometime next summer. Then it will be on to the next assignment.

Working for a national clientele of bankrupt or troubled companies keeps the two executives and a growing staff of partners on the road much of the time.

But Mr. Marsal said the "jazz" of a job with ever-changing duties makes the annoyances worthwhile.

"It's a fun job to be able to experience a new firm or new industry every six to eight months," said Mr. Marsal, a former vice president in the problem loan division of Citicorp.

Aside from being fun, the experiences of Mr. Alvarez and Mr. Marsal provide object lessons for bankers in what to watch out for in lending.

So what is it that A&M's clients have had in common?

"It's difficult to generalize," Mr. Alvarez said, "but one thing that easily comes to mind is just people going too fast."

He explained that problems often begin when a company tries to expand without having the systems and people in place to support it.

Then there are companies like Timex that try to offer products or services outside their main specialty, and other companies that acquire businesses they don't fully understand.

In the 1980s, he noted, the problem often was related to too much buyout debt. Companies also fail, Mr. Alvarez said, because of industrywide trouble.

"I'm not sure it's something managers can avoid, but in those kinds of industries that begin to have revenue problems, which is what leads to trouble, there is a lack of speed adjusting to circumstances," he said. Those companies that move decisively, he said, can usually weather the storm.

"Companies in the oil patch, health care, and to some extent in retailing -- those industries underwent very tough periods," Mr. Alvarez said.

The failures seemed to occur, he observed, at companies that didn't have the dominant market share. Mr. Alvarez and Mr. Marsal acknowledge that good times are hard times for a company that specializes in trouble.

In fact, the recent economic recovery marks the first time A&M has found a need to mount a marketing campaign to promote their services.

But the two also said they were confident that failure is a constant in business.

"Our experience has been over the years that there are periods when demand for our services are really heavy, and the economy is tough. Or we would have a period when LBO's had to be equitized," Mr. Alvarez said. "Even during the good times, even during the early Reagan years, there were industries that weren't faring as well."

So where do these two masters of disaster expect to find their next opportunity?

Mr. Alvarez and Mr. Marsal are keeping an eye on the gaming industry, now that casinos on riverboats and Indian reservations away from Atlantic City and Nevada are creating a new element of competition.

Luckily for banks, Mr. Marsal notes, most casinos are financed with bonds.

Alvarez & Marsal Inc.


New York


Antonio C. Alvarez 2d

Bryan P. Marsal


Crisis management


* Coleco Industries

* Electrolux Corp.

* Timex

* Resorts International

* Integrated Resources

* Phar-Mor Inc.

* Western Union Corp.

* Healthcorp Inc.

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