“There are no rules – just rough guidelines”
- Robert Kubbernus, President, Balaton Group

Robert Kubbernus could scarcely believe the crisis unravelling in British Columbia. Radium Hot Springs Lodge at Kootenay National Park appeared to be in danger of sliding down the side of the Rocky Mountains. This once glorious mountain retreat located directly at the Park gates of Radium was now on the verge of ruin.

It was the Christmas season in 1994. The main water supply pipe running above the mountainside hotel had broken, flooding the entire building and down the slope directly above the Trans Canada highway. Parks Canada feared that the 30-year-old treasured hotel would be washed off the mountainside onto the Trans Canada and into the Sulphur Hot Springs. The environmental impact would be substantial, not to mention that the park gates saw over 9 million travellers each year with many stopping to enjoy a soak in the hot sulphur pools, owned by Parks Canada, that were located directly beneath the lodge.
Kubbernus with his expertise as a corporate turnaround expert was brought in on behalf of both the hotel operator and the lender RoyNat to help the troubled company get back on its feet when the flood hit. Kubbernus quickly realized the situation demanded more than financial know-how.

Disaster Control

“It was a matter of immediate disaster control at one of the worst times of the year, Christmas – I needed to get the right people in place immediately.”
He called in a business colleague who owned a large engineering and construction firm in Alberta. The colleague stabilized the hotel structure and took control of the site while the restructure plan was finalized. This 66-room hotel and lodging site was crawling with insurance companies, Parks Canada officers, bankers, and of course, lawyers. Yet the core problem was a business fiasco.
“The site was being leased from Parks Canada and it was a landmark hotel steeped in history, great for romantic getaways, and only a two-hour drive from Calgary and its natural attributes were being squandered,” Kubbernus recalls.
“Like most hotels, it supported several departments –maintenance, cleaning services, cuisine, tours, heli-skiing and so on – to keep it running smoothly. The current operator did not have enough working capital to support an operation of this type, let alone the new challenge of up-front capital to pay for repairs. Knowing that an insurance claim in the millions of dollars would take years to process, the current operator stood no chance to recover. Prior to the flood the operator was failing and kept cutting back, hoping the cash flow would pay for up-keep and maintenance that really couldn’t wait. The building was in complete disrepair. It’s a business, not just a piece of real estate, although the owners weren’t treating it that way.”
The hotel owners were also several months (more than $400,000) in arrears on their mortgage payments, which made it painfully clear that a negotiated receivership of sorts would be required. Kubbernus dismissed the operators, shut down all operations and set to work on the new business plan, financial turnaround and reconstruction program.
The principals of the engineering and construction firm retained to stabilize the building were also real estate developers with a portfolio of apartment buildings, motels and commercial properties. So, Kubbernus began negotiations between RoyNat, the displaced operator, the engineering and construction firm, the insurance company, Parks Canada and the potential acquirer. “Keeping conflicts of interest in check was one of the tough challenges” Kubbernus recalls.

From Potential Loss to $8 million Value

With the restructure, reconstruction, insurance settlements and receivership now well in the past, this old Rocky Mountains getaway has come from what was a $4 million potential loss to a current value of over $8 million today. A financial crisis was resolved; an ecological disaster averted.
The old operator was removed without financial ruin, RoyNat mitigated its mortgage and received 100 cents on the dollar, the hotel has been restored to its glory days and the new owner has received a very nice return for taking the risk at the beginning.
This rocky experience in the Rocky Mountains was one of the more dramatic moments in a career spent turning around seriously troubled companies, which involved a multitude of stake holders and competing interests. “Complexity and trouble is my employer,” says Kubbernus.
Indeed, the expertise Kubbernus acquired over the years has made him the go-to guy for fixing the seemingly unfixable; for making right those firms that have gone tragically wrong. He’s now CEO of Toronto-based Balaton Group Inc., which specializes in turning troubled companies around via careful restructuring and revitalization of the corporation. Kubbernus is often able to not only get the troubled company back on track, but frequently achieves impressive returns for the investors and restores stock values for public companies.
How Kubbernus became a leading expert on corporate turnarounds is a story that begins in his youth.

Father’s Entrepreneurial Spirit Inspirational

Born in Edmonton but raised in Calgary, Kubbernus recalls an upper middle class, “self-directed” childhood in which his parents, Vern and Vera Kubbernus, expressed their confidence in him and “never held me back or tried to reign me in to spare me from a failure. I was always free to try new things and see how I did with them. Nor was there ever any pressure to work in the family business. I made my own life decisions and was free to try and succeed at anything I put my mind to.”
He was also influenced by the entrepreneurial spirit of his father, a partner with JK Campbell and Associates, a construction company specializing in heating, ventilation and air conditioning systems for major corporations – such as oil companies – and large institutional customers.
At age 16 Robert Kubbernus left Alberta and moved to British Columbia where he completed high school. He was eager to make his own way in the working world and to meet up with his girlfriend who became his first wife two years later (they have since divorced; their son, Christopher, is now a Balaton Group executive).
Kubbernus returned to Alberta at age 18 and worked for the JK Campbell company until he was 22, completing three years of a four-year journeyman sheet metal apprenticeship program during this time through Southern Alberta Institute of Technology but gravitated to the business, management and design side of the program.
“I worked during the day for the 800 person firm JK Campbell and started my own firm at night doing residential jobs,” he recalls, noting this did not present a conflict of interest as JK Campbell was exclusively involved in large commercial projects. The company largely ignored smaller jobs, opening a market niche for Kubbernus. “I seem to have an appetite for doing things no one else wants to do. I’ve always found there are better opportunities that are more challenging and ultimately more rewarding when you go where no one has gone before.”
In 1982, at age 21, Kubbernus put his growing business savvy to good use and founded his own company, Canyon HVAC – “I just liked the name” – and choose the image of a lone wolf on the horizon for the company logo, a nod to the remote regions work he was doing in the North West Territories. At the same time, he also bought/sold real estate and acting on his passion for motorcycles, he founded a Suzuki dealership that he later sold.

Concentrated on Niche Market

As a member of the Canadian Construction Association he was free to bid on various government projects and found there was less competition, fewer rival bidders and more likelihood of success when he went after remote area construction projects in the North West Territories such as RCMP stations or medical centres and schools. “I taught myself the bidding process and I continually tried to improve my bids for the greatest success” he recalls. “And I soon started winning my fair share of business at fair prices by taking on the toughest projects.”
With the added prospect of reward came larger potential risks. “Mistakes can be costly. Northern shipping channels were only open for about 60 days each summer and any missed equipment or materials could mean financial ruin later. The last thing you wanted to do was rent a Hercules and build a runway in the middle of the frozen nowhere just to bring in the one piece of equipment needed to finish the job and get paid – while all the time paying rates of over $400 per night, per person in camp fees plus wages for crews waiting patiently for missing materials.”
Then, in 1986, he sold his operation to a Winnipeg company, Landmark Mechanical, and stayed on another six months as a transition consultant.
At that point, Kubbernus decided to serve his other passion – for all things financial – and he took a year-long break to return to school, taking financial planning and business administration courses at Mt. Royal College and other post secondary schools.
Upon graduating, Kubbernus went to work for a financial services firm named Money Dynamics. “I mainly focused on business owners, executive asset management and strategic planning. By working closely with the owners and entrepreneurs I was inevitably dragged into the issues of their corporation and the financial health of their organizations. I soon learned that taking financial care of the executive always ended in taking care of the business.”
In helping firms get on track financially, Kubbernus soon became known to the banking community. After he assisted a few small companies the banks began calling him on referrals to have him sort out bad loans and fix firms in trouble.
Money Dynamics was sold to PlanVest Financial (and was later sold to C.M. Oliver) and Kubbernus began working with the larger merged company, accepting numerous referrals and quickly establishing himself as the “resident turnaround guy.”
In 1991 he founded Bankton Financial Corporation. Bankton’s focus was to finance an increasing number of turnaround opportunities presenting themselves to Kubbernus as well as workouts, special situations and restructuring cases.
By this point in life the young entrepreneur had amassed a great deal of business savvy and expertise; discerning over the years what worked and what didn’t in the world of business. “From travel agency chains to national 400 store clothing chains, we learned from our success, but we realized we learn even more from our failures and I knew that I could apply my knowledge to help others avoid making the same mistakes.”

Founded Balaton Group

In 2000, Kubbernus moved to Toronto to get closer to a couple of large investments he made during the technology boom, including Jawz Technologies Inc. and Futurelink, both of which hit magnificent highs and equally magnificent lows with the tech melt-down of 2001. Later in 2004 he co-founded Balaton Group, also based in Toronto. In 2006, Kubbernus bought out his partners to head Balaton and build its market presence as a leading provider of turnarounds and restructuring measures to assist companies in trouble. Living in Toronto with his wife Becky and now three sons Mason, Jackson and Christopher, Kubbernus finds home tends to be as interesting and vibrant as work.
Today, with several dozen successful turnarounds under his belt, Kubbernus acknowledges his expertise at turnarounds evolved over time. “I can’t say I’m a gifted individual. The small and mid-size turn-around business is not something that can be taught as much as it is about experience. Other then some typical financial modelling courses I had to learn how to dissect financial statements to find the real problems. But many years later and countless projects behind me I now can get to the issues instantly and instinctually. I can smell it – I don’t know where that comes from, except 20 years of experience and hundreds of crime scenes.”
“Essentially,” he adds, “we’re corporate architects. Balaton Group, through tried and tested business practices, extensive worldwide networks and unsurpassed knowledge of business development, re-architect undervalued public entities to be prosperous industry leaders. Re-engineering a business involves identifying problem areas and capitalizing on existing strengths. To do this, a broad and comprehensive view must be applied. Often business professionals are mandated to evaluate and remedy underperforming companies. Far too often these undertakings are attempted with too narrow a view to be of any real value. At Balaton Group, we look at every single aspect of our business opportunities. No detail is too small, and no avenue of business operation goes unnoticed. We are determined to achieve our mission of creating long term value for our clients, investors, markets, and for ourselves.”

Many Reasons for Undervalued Firms

Kubbernus notes companies can lose value via a number of factors, including real or perceive management failings, lack of focus or communication breakdowns.
“The companies we take on are undervalued for any number of reasons. We often take an ownership position in a company we’re turning around, and once the firm is acquired, we remedy appropriate corporate market and capital issues; we reposition the business fundamentals, and then bring the company back into an industry-leadership position. We provide our portfolio companies with our significant depth and breadth of expertise on acquisitions, integration, strategy, negotiations, financing and public markets with a strong track record of completion. At Balaton Group, the “value shift” of a company begins with control, clarity and vision.”
Kubbernus finds the process fascinating as he steps into varied companies, studies them and develops plans to turn around their failing fortunes.
“Every day is different – and there are so many companies out there that need help sorting out one problem or another. It’s an interesting process in every case.”

Non-obvious Cash Flow Problems

Kubbernus notes that in some cases, companies incur cash flow problems due to the desire of the managers to live a wealthy, successful life before the company is in a position to pay for it.
Such was the case with a homes and gardens magazine in Calgary. “It was a non-obvious problem,” Kubbernus recalls, “because when I got there to conduct an analysis and sort out cash flow problems on behalf of its major investor, it was not apparent where these problems were coming from – the magazine was filled with large full colour display ads for expensive cars and stereos and other luxury items. The magazine was top quality and the company was running lean.”
Kubbernus was brought in to analyze the perplexing situation of a seemingly successful magazine being $1.5 million in the red with serious cash flow problems.
“The company didn’t have a chief financial officer so I became the interim CFO and went to work on the business plan and undertook a full analysis,” Kubbernus recalls. “At first blush there did not appear to be any overspending on personnel. Freelancers did the writing and photography so those costs were fairly low. They were in inexpensive office space and the printers only wanted 50 per cent payments up front. The advertisers normally don’t pay until they see the magazines finished tear sheets, but there were plenty of ads for Mercedes Benz and other luxury items so the advertising revenue should have been substantial.”
As Kubbernus delved more deeply, it became apparent that there was relatively little advertising revenue. “It turns out that the partners were accepting ‘contra’ – swapping ad space for stereos and leased luxury cars – instead of charging money for a lot of the advertisements. “I needed to get invited to the executives’ homes for dinner to get a full perspective on the situation. Just to make sure the benefits were not simply taken from salaries I had to cross reference all benefits against payroll. It turns out no deductions were made.” The company was quickly restructured, luxury cars were returned and advertisers were told they had to pay for their ads as alternatives to cash would no longer be accepted.

Cable Channels to Social Networking

In some cases, the company name is kept confidential at the corporation’s request. Such was the case with an online social networking company in 2002. This company was to become the first and only dating service to be messenger-centric. The Company's primary business was changed from Digital Cable programming to proprietary online/web and instant messaging technology hosting numerous social network opportunities.
Prior to enlisting the services of Kubbernus, the company was completely out of working capital; the stock price was approximately 4 cents making any fund raising activities doubtful; the firm had fallen out of favour with its shareholders; the original business plan had failed due to changes in the cable TV market and the technology sector was still suffering from the 2001 hangover of all hangovers. The company was in complete paralysis.
Kubbernus performed an initial review of the company and its circumstances at no cost. This review gave him enough information to determine what course to take.
The review included a complete analysis of the troubled firm’s shareholder sentiment and capital structure, business plan, historic activities, management capabilities, contracts and board member capabilities. Lastly, an analysis of the company's technology was conducted as this was the foundation for the firm’s future success.
Kubbernus found the company's business plan did not portray the expansive growth opportunities that the firms technology could achieve; very little of the company's research or knowledge base was visible.
The entire plan was re-cut using in-depth research on the global potential of the market and technology. After Kubbernus’ team gathered all of the necessary raw materials, they re-wrote the plan.
Kubbernus advised that the look and feel of the firm, including its brand and image, had to radically change.
The institutional investor community cringed at any notion that the firm could be involved in pornography, which was embedded in the original business model, and this would ultimately prevent any direct or in-the-market investments in the company by institutions. “Institutions do not invest in Church’s or X-Rated businesses. Both are equally problematic. The risk of being on the front page supporting either at the time of trouble is not worth any profit opportunities.” Kubbernus laments. One of Toronto’s best creative companies was hired to perform the corporate makeover.

Private Placements Utilized

With the new business plan and makeover in place it was now time to start working with potential investors for a series of private placements to facilitate the firm’s business plan. To help ensure investors would receive the highest quality dissemination of information Kubbernus retained an investor relations firm to help put the company back on the radar screen, simultaneously raising capital and using his own internal communication group to give the story some visibility.
Work then began with previous investors, potential new investors and Kubbernus’ investor network.
Each round of finance was significantly over-subscribed, which only helped stimulate each subsequent round.
Over a series of graduated rounds of finance, the firm had enough working capital to re-launch plus catch the attention of potential key executives to fill top roles in the company.
With a new business plan, a new brand emerging, working capital in the bank and investor relations working in lock-step, Kubbernus was now ready to make sweeping management and board changes.
It is often very difficult for management changes to occur without the assistance of an impartial or outside group such as that which Kubbernus provides. “There is nothing sacrosanct when we step in. Everything is up for change.”
But Kubbernus is guided by one basic principal: Meet and Exceed Shareholder Expectations. Although the stock price had been mired at 4 cents and a market capitalization of less than $1 million, the company was now trading at 60 to 70 cents and a market capitalization of approximately $24.5 million. Kubbernus received significant interest from a few parties who wanted to take control of the venture and continue with the growth of the company. They also committed to provide the next round of needed funding. Kubbernus turned over the reins after restoring the company to solid footing. From an original investment of only $750,000 handsome returns were made by the turn-around investment group.

Investors Rewarded Handsomely

Even more impressive investment returns were achieved in another turnaround, this one involving an oil and gas company (name withheld by request).
In the spring of 2003, Kubbernus stepped in to repair the public company which had lost confidence and its shares were trading at 7 cents.
The assets in the company were non-operating and the company was run by an absentee president put in place by the single debt holder over the company. The assets ranged from gold prospects to oil concessions in a foreign country.
Kubbernus brought in key investors from Switzerland and obtained control of the firm by paying out the debenture holder in full, recapitalizing the balance sheet and acquiring additional producing assets.
The early stage investors were rewarded handsomely: The Swiss initial investment of approximately $3.25 million doubled within 3 months and investors in the open markets saw the price run from 25 cents to over $1.30 within a 9 month period – and with solid volume.
Kubbernus achieved similar success with a German bio medical discovery company which commercializes patented and clinically tested natural products that relieve chronic pain.
The company was unable to commercialize its non-doping and highly developed pain relief products so Kubbernus was approached for assistance with business strategy, structure and finance.
Kubbernus, while working from Frankfurt, Germany, organized the corporate structure, arranged financing and concluded a trade sale into a public vehicle supported by a new management team located in North America.
The end result is a dynamic change in everyone’s fortunes. The bio science and discovery products obtained finance, the share value grew from $.2 cents to $.70 cents and operations were moved to North America where the new management and a fresh board of directors took over.

Communications Company

Balaton Group is also expanding their line of services to go beyond its primary role as a leading corporate turnaround firm.
Kubbernus and company recently launched a new corporation under the name Balaton & Co. Inc, in response to the growing need for specialized corporate communications in the financial sector. 
Balaton & Co. has several top tier clients that it has assisted with re-branding and communication campaigns with substantial success. Balaton & Co. boasts a team of design and communication industry experts that understand the small and mid cap space and the challenges these firms face.
Balaton & Co.’s team of experts delivers a full range of consulting and production services that helps their clients meet strategic marketing objectives.
“This is yet another exciting platform from which Balaton Group Inc. can leverage its talent and expertise to a whole new audience,” notes Kubbernus.
“Creating a completely self-sufficient business entity that specializes in corporate communications for the small and mid cap markets and will significantly increase the chances of success for firms that occupy this space,” he adds.
“Traditional large communication firms cannot respond as quickly with the right solutions, nor do they have the depth of specialized experience required to properly service the needs of this client base. As the micro cap and small cap turnaround industry’s most respected authority on corporate re-structure, it’s only natural Balaton Group Inc. would bring together a team of brand and communication specialists destined to become one of the most effective firms of its kind.”

Turnarounds Remain Key Focus

Turnarounds will continue to be Kubbernus’ main focus. One of the most recent turnarounds Kubbernus is orchestrating concerns an American firm – SkyPort – that delivers to very discreet customers – including the U.S. National Guard – a 100 per cent reliable communication connection services to ensure voice, data and other communications are successfully placed regardless of any external factors such as severe weather or war.
A combination of communications delivery vehicles – including satellites and fibre optics – are utilized and organized to ensure the system never fails.
The customers in turn pay a premium for secure access to a fail-safe communications system that also includes two levels of back-up power in case of power failure. Annual sales revenue had been ringing in at around $15 million US.
However, the four-year-old company was established by entrepreneurs and engineers who are not accustomed to describing their operations and cash needs in the precise manner the investment community feels most comfortable with, Kubbernus notes. “You can’t just ask for a lot of money for product development without meeting certain financial reporting and accounting criteria and outlining in detail exactly how the money will be spent, the expected results and so on.”
The firm’s biggest investor, Century Tel, invested $20 million in SkyPort before deciding it would not back the fledgling firm any longer. The Century Tel board of directors felt the investment level of $20 million was sufficient and refused to entertain SkyPort’s cash call requests for another $4 million. No other investors were interested in coming forward as they would be ranked secondary to Century Tel, a position unlikely to be acceptable to their shareholders. Kubbernus was called in to assess the situation.
“A restructuring of the company was the most appropriate approach as Century Tel did not want SkyPort to fail. We rejuvenated the management and reworked the business plan. We turned it around and bought the company at a significant discount. We have improved the balance sheet by just under $30 million, restored profitability and stabilized operations”

Cooperative Spirit Aided Turnaround

Kubbernus says the success of the SkyPort turnaround is owed in part to the entrepreneurial engineers who founded the company. He notes these executives could have sought and received golden parachutes that would have lined their pockets at the company’s expense.
“Instead, the executives have shown an incredible amount of integrity and truly exemplary behaviour. Management has responded very well to the challenges and kept the emphasis and their focus squarely on helping the company succeed. To a large extent, they’ve also restored my faith in managers to act responsibly and helped me to further appreciate the value of these turnaround efforts in terms of saving companies and jobs and building sustainable prosperity. All too often the worst in people comes out during trouble times, however in the case of SkyPort the best surfaced.”
Asked what continues to drive him to assist troubled companies, what motivates him to achieve greater returns for investors, Kubbernus says his core philosophy is best summed up in Balaton’s mission statement: “Our objective is to create long term value for our clients, investors, markets, and for ourselves. Through management and vision, Balaton fosters company growth and development through capital market expertise and extensive business networking. We love what we do and we are the best at it and this is reflected in our portfolio companies' share prices.”

Leadership Lessons:

1. Realize that there are no rules, just guidelines, and every situation is different; calling for tailor-made solutions.

2. Get rid of fear: If you think you can’t succeed it’s a self-fulfilling prophecy. Rise above fear and seize opportunity.

3. Challenge yourself to do more: The more tasks and challenges you take on, the better you become and the more you raise your threshold for pain and exhaustion. Simply put: The more times you take on the tough stuff, the better you get at it and the more you enjoy doing it.

4. Deal with the “tough stuff” – the difficult decisions – first and save the easy problems for last when you’ve got your business back on the right track.

5. Know when to reach out for help and don’t be afraid to do so. Your own abilities and persistence can often take you most of the way but few people succeed entirely on their own. Help is often available when you most need it and it’s amazing what you can get simply by asking for it.

6. Don’t think that if you ignore a situation it’ll eventually heal itself. It’s more likely to get worse over time and become that much more difficult to solve as a result of your earlier inaction.

7. Don’t hesitate on initiating a necessary decision or course of action simply because it’s uncomfortable or distasteful. Delay simply adds to the difficulty in doing what must be done. Better to act fast, take the distasteful medicine, and get it over with. As Kubbernus asserts: “If you have to swallow a frog, it’s best not to stare at it for too long.”

8. Force yourself to solve problems and compare your situation with that of others and study how they resolved their difficulties. You’ll be a better business person.

9. Always look for the unexpected whenever problems arise that seem to defy solution. Go over the details and find the missing pieces. The answer is in the problem itself.

10. Know your limitations in terms of ability. There’s no shame in hiring experts to help – in fact it’s a good idea.

11. Don’t over-extend yourself – make sure your business is well financed and growing at a sustainable rate.