A New Generation Takes the Helm at Gordon Brothers


Date october 2014

Featured in The Secured Lender

Kenneth S. Frieze became CEO of Gordon Brothers on October 1.  As President of Gordon Brothers Group, Ken oversaw Gordon Brothers Group’s North American retail, commercial & industrial, real estate and brand businesses.  He also serves on the board of Gordon Brothers Group.  Ken joined the firm in 2003 and led the valuation, brand and business development groups at various times until being promoted to President.  During that tenure, he oversaw more than $100 billion of appraisals and was part of the core team driving the Polaroid and Sharper Image transactions, among other brand acquisitions.  Prior to joining Gordon Brothers Group, he was CEO of RetailExchange.com, a management consultant with Bain & Company and a turnaround consultant with The Recovery Group.  Ken currently serves on the Polaroid board, is a former board member of The Sharper Image and served on the board of the Turnaround Management Association for six years.  He holds a BA from Lehigh University and an MBA from the Wharton School of the University of Pennsylvania. Ken recently sat down with Michele Ocejo of The Secured Lender to discuss his priorities in his new position, the reasons for Gordon Brothers’ staying power and his predictions for the industry.

Can you tell describe the evolution of your career before joining Gordon Brothers in 2003?

I actually grew up with my father, grandfather and great grandfather in the business. It has always been a part of my history and background. Just to connect the dots, I am the fourth generation Gordon. My grandmother, Bernice Gordon, married Phil Frieze, and that’s how the name changed from Gordon to Frieze. Now we are all Friezes, but Gordon is in our blood.

In college I worked over the summers for one of the divisions called Jewelry Promotions, Inc. which ran the Jewelry concessions inside Filene’s Basement. That was back in the 1980s. After graduating from Lehigh University, I went into the turnaround industry, working for The Recovery Group, now part of Deloitte CRG.  Then, just before going to business school, I returned to the Retail Division of Gordon Brothers for a year working on retail dispositions. 

I joined Bain & Company as a management consultant after graduating from Wharton in 1995.  Given my prior retail experience at Gordon Brothers and TRG, I was assigned a number of retail clients at Bain, including Staples and Bob’s Stores.  I picked up some terrific strategic skills during my time at Bain that I still use to this day.  In 1999, I returned to Gordon Brothers. Not long after that we started a B2B marketplace for excess consumer products.  At the tender age of 29, I became CEO of RetailExchange.com, which was backed by Gordon Brothers and funded by $50 million from a group of venture capital funds.  Ultimately, we sold the company back to Gordon Brothers in 2002 and merged it into what is now called our Commercial & Industrial Division.

In 2003 I returned to Gordon Brothers to lead the Valuation & Advisory Services group.  Since then, I have rotated through different roles and divisions at Gordon Brothers, most recently serving as President of the Company.

Turnaround and restructuring has been an undercurrent throughout my entire working life.  However my interest in this industry is not just simply due to my history or legacy.  I love what I do.  We have the opportunity to extend the life of companies, save jobs and recycle assets into their highest and best use. Every day it’s a different deal and it’s an exciting place to be. Beyond the family heritage, I have great personal job satisfaction. It’s very rewarding.

What will your goals and priorities be as the new CEO?

First, I want to recognize that this company has been around since 1903, 111 years, so a top priority is to continue the legacy of integrity and excellence that was established by my great-grandfather, J.B. Gordon, our founder. That’s something very special and unique in the business world and especially in our industry.   We live and die by our reputation, so upholding that by putting our clients first is our number one priority. If we do what’s best for them, the rest will follow.  That has always been the case. 

While our brand and current platform is one of the strongest in the industry today, we’re not resting on our laurels.  Going forward, we will continue to grow and expand into new practice areas and geographies.  While we believe that there is plenty of opportunity remaining within our existing business, we’re equally excited about adding new dimensions to Gordon Brothers. 

Probably the most visible part of this growth will be seen in deepening our expertise in key industry sectors; much of which is already underway.  For example, anybody who has been following Gordon Brothers recently knows that we acquired Emerald Technology, which extended our expertise in the high tech sector. Whether it’s an appraisal, a disposition or a loan, we have a level of expertise that’s unparalleled to execute in high tech.

Another example is the more recent launch of our energy practice, GB Energy Partners, which combined our existing energy expertise with that of ASI, following our acquisition of the company in September of 2013. So now, whether its oil & gas, coal, nuclear, wind, solar, hydro or biofuels, we have the expertise to serve our clients comprehensively. Other examples of sector expertise include food processing, textiles, e-commerce, grocery, construction & building materials, consumer electronics, apparel, sporting goods, aviation, chemicals, trucking & transportation, and, of course, the sector where Gordon Brothers got its start: jewelry.

While our solutions all revolve around asset disposition, lease mitigation, appraisals and loans, we’re very focused on certain key individual industry sectors as the best way to add value to our clients.  That said, we’re not trying to be everything to everybody. We have very specific, defined expertise in industry sectors where we can add unique value to our clients. The goal is to continue to enhance the expertise within our specific sectors, as well as add new ones. 

That’s not to say we are turning away from our core areas of expertise. Within the ABL and turnaround community, most people know about our retail heritage. While we certainly are dominant in the retail space, we continue to refine our toolkit so we can add more value to our retail clients.  We’ve been able to enhance recoveries during our store sale events through a number of continually evolving techniques.  This has enabled us to bid higher in bankruptcy auctions.  It’s also helped our non-distressed clients protect brands and transition customers to a company’s other stores, e-commerce site or other distribution channels.  So even in areas where our expertise is more mature, there is continued innovation. There has to be or you lose relevance. 

On the other end of the supply chain, one of the better kept secrets of Gordon Brothers is the extent of our commercial and industrial operations.  We focus primarily on private-treaty transactions while many other players in the industry focus on auctions.  We believe that auctions are just one of many tools rather than a strategy in and of itself. A great example of that philosophy is a transaction we did a couple of years ago called Adanac.  We had the opportunity to dispose of molybdenum mining equipment in western Canada. Our approach to that project was to complete the open purchase orders of equipment so we could present the opportunity as a complete mining package rather than breaking apart all of the components for individual sale. As a result, the recovery was a multiple of what an auction would have achieved. 

 We’re finding more and more of our clients are looking for guaranteed solutions, so we continue to develop innovative, principal transaction structures that help our clients meet their objectives and focus their attention on on-going business operations.  A great example is what we did for Totes when it made the strategic decision to exit its factory outlets. We were able to provide the company with a guaranteed solution for its remaining leasehold obligations and excess inventory at recoveries that exceeded their expectations. 

Our lending platform, GB Credit Partners, has continued to grow its business in the US and Europe.  Already this year we have closed two European transactions and seven deals in North America.  GB Credit Partners, in its early years, was focused on retail and consumer second-secured loans, but we are now in 14 different industries ranging from aerospace to restaurants. Our goal is to grow the platform as we leverage off the expanding industry sector expertise of Gordon Brothers.

Within our Valuation and Advisory Services group, which I know is top of mind for readers of TSL, we have a unique offering.  Our appraisal expertise follows our disposition expertise.  Unlike most other appraisal shops, our extensive disposition experience is weaved into every appraisal, making the values all that more accurate.  I’ve managed this business twice during my tenure at Gordon Brothers, so I’ve had the opportunity to hear from many of our ABL and private equity clients over the years as to what’s most important to them.  Clearly, it starts with the right number.  We’ve built the best-in-class appraisal process, which results in timely and accurate appraisals of inventory, M&E, real estate leases, brands and other intellectual property.  One of our key goals is to ensure our clients understand where we are truly an expert.  To that end, we’re providing more and more examples of recent appraisal and disposition expertise when we’re solicited by clients for proposals. 

That folds into another priority of ensuring we are top-of-mind with our existing and potential clients.  We haven’t been great at getting the word out, so you’ll see us more prominently market the unique capabilities we’ve developed as an organization.  With Gordon Brothers’ historical expertise in retail, our clients and professionals are often not fully aware of our non-retail capabilities and knowledge.  Each year we work on over $40 billion of transactions throughout the supply chain out of a dozen offices spanning three continents.  And despite being the best capitalized firm in our industry—deploying more capital than anyone to effectuate transactions —too many are still not familiar enough with Gordon Brothers.  My goal is to work with my partners to deepen our relationships within the ABL, private equity and professional communities so our clients can clearly understand how we can add value.

Lastly, in other areas of the business we are working on a number of very exciting partnerships that will fundamentally elevate our platform overall. They’re not public yet, but I think we will be in the position to discuss them later this year. There are a few developments that I think will be very exciting for the clients and referral partners that we work with.

Gordon Brothers Group has divisions in Europe and Japan. Are there any plans for expanding into other areas of the world?

Absolutely.  Just to clarify though, we still believe there is substantial growth for us in the U.S., Canada, Europe and Japan, where we are already established. In fact, we’ve been very active in Canada recently, where we’ve had a presence for a long time. The U.S. is obviously the biggest economy in the world and has the most mature capital system, so there is plenty of activity here and that will continue to be the case.  Europe has been the fastest area of growth for us over the last two years as the capital system has stabilized and market conditions continue to present opportunities for us.  We did the largest transaction in our history this year in Germany.  With North America, Japan and Europe already well-established, we have the unique ability to help clients through cross-border transactions across the most mature economies of the world.  In fact, many of our ABL clients have engaged us to perform cross-border appraisals where having boots on the ground in North America, Japan and Europe was essential to being able to get the project done.

We believe our platform can be leveraged in other markets throughout the world as well.  We already have a worldwide expansion plan underway led by Frank Morton, who is now CEO of our international businesses.  Prior to this expanded role, Frank had been overseeing our European practice and our Japanese joint venture. One of his primary goals is to introduce Gordon Brothers’ offerings to markets in Central & South America and Asia, where we don’t have a local presence.

This expansion is very exciting for us. Naturally there are unique challenges to entering any new market. There are different countries, languages, cultures, rules of law, regulatory environments, and levels of sophistication of the insolvency practices, but we have also found many deal attributes to be universal as well. We will be looking at each one of these, and other, components as we pursue international growth for Gordon Brothers.  Frank has assembled an experienced, multilingual, multicultural team to do just that.

It seems many companies and industries refer to a “new normal” since the recession. How did the recession affect the company specifically and the appraisal industry in general? And if you could give us a few predictions for the coming year for the industry we’d appreciate that also.

It’s a common misperception that when macro-economic factors are bad, Gordon Brothers does well, and when the economy does well, Gordon Brothers does poorly.  In reality, we are helping companies cope with secular change more than cyclical change.  Economic cycles exacerbate secular change and that is part of what we saw during the Great Recession.  In retail, as well as in other industries, the rate of secular change has never been greater.  During the recession, capital was scarce and those that couldn’t create a compelling case for themselves couldn’t attract capital and ceased to exist.  We were there to help facilitate the recycling of those assets.  In other cases, struggling, but ongoing businesses needed access to capital.  We were able to step in with junior secured loans, extending the runway for management.

Today, the majority of our asset disposition and lease mitigation business is working for healthy clients.  With the recovery underway, it has created opportunities for us to work strategically with ongoing companies to help them exit underperforming subsidiaries or dispose of excess assets in their core businesses.

On the ABL side, in the last couple of years, it’s been relatively flat in the domestic marketplace with most of the activity driven through refinancings.  Loan volume is down substantially from 2011 peaks. Pricing continues to be extremely competitive. ABL terms are covenant light, similar to where we were in ‘06-‘07.  Even though there’s financial flexibility in the marketplace for borrowers, companies are still facing headwinds in many sectors and we’ve started to see an uptick in distressed situations.  These highly-levered companies don’t have the financial flexibility to absorb substantial underlying sector shifts.

The high level of competition in the ABL market, due in part to the entrance of new players including business development companies and finance companies, is driving an increase in the efficiency of asset-based lending. ABLs are running out of ways to differentiate themselves to borrowers. The money center banks have the advantage of a broad array of products and access to cheap capital.  Finance companies and hedge funds have the advantage of flexibility and less regulation. So while there used to be all this boot collateral that ABLs would use just to create a buffer, lately, we’re finding lenders are asking for appraisals on every piece of collateral possible—from brands to intellectual property to even hard assets that had been previously excluded.  This trend towards capturing all the value is keeping us pretty active on the appraisal side. 

On an international scale, things look much different.  ABL in Europe is nowhere nearly as developed as in the United States, but it’s now growing as ABL-experienced U.S. banks try to find new markets. These inroads are still tempered by the linguistic, cultural and jurisdictional issues across different countries. Consider Germany and the UK, our two most active markets, followed by Spain. ABL is different in each country.  The ability to secure the assets as collateral differs in each of those jurisdictions.  For example, in the UK, there is a retention of title issue on inventory which has made inventory difficult to lend against.  Nonetheless, we believe conventional ABL will continue to weave its way into European capital structures.   In Japan, ABL is still a relatively a new product, so broad acceptance of the structure has still not been fully adopted by the market. That said, our Tokyo office has seen sustained annual growth in providing appraisals and guidance for many of our Japanese banking clients.

Macro-economically in Europe there’s more stability today than existed during the depths of the austerity measures of a few years ago. The two biggest European economies, Germany and France, have reached pre-crisis levels of growth. Others have not, but we expect to see more stability in the future.  There are three phases of emerging from a period of great instability: in the first phase, there are not a lot of actual transactions, as banks extend due to their own inability to absorb losses; then with some stability comes the ability to actually transact on companies and assets that are in distress; then, of course, in a growth period there is less distress and credit is easier, so asset disposition is more heavily driven through sector changes.  Europe is in that middle phase now.

In the coming years, we will likely see the macro-economic environment stabilize, but the rate of secular change will continue to accelerate.  We believe these sector changes will be driving the bulk of asset dispositions going forward.  For example, in today’s omni-channel environment, all retailers are reevaluating how they go to market and adjusting the number of stores in a given market, the size of stores and how they interface with the e-commerce business.  As digital commerce has now reached a tipping point it will force the reduction in brick & mortar retail square feet, particularly in the U.S.  In commercial and industrial, asset disposition activity will continue to follow the movement of manufacturing to lower cost regions of the world.  Brands will continue to be relieved from integration with manufacturing operations and will be “leased,” not too unlike real estate.  These trends will create opportunities for asset-based lenders, private equity sponsors, strategic acquirers, real estate players and brand platforms. We are often asked to partner with these groups to underwrite or transition the underlying asset pools.  I expect the next few years to be quite active all over the world.

Gordon Brothers has been in existence since 1903. To what do you attribute its longevity and growth?

It starts and ends with the people at Gordon Brothers.  Obviously, I’m biased, but I’m very proud of the team that we’ve been able to put together.  The average tenure here is over 10 years. That gives you some sense of the stability of the organization and the loyalty of the people I work with. 

What keeps Gordon Brothers going is innovation. It may surprise you that even though we’ve been around since 1903, we’re a highly entrepreneurial firm that is constantly changing. We believe that we need to perpetually reinvent what we do and how we do it.  That is what keeps the Gordon Brothers platform exceptional, the brand elevated and solutions relevant to our clients.  

I think the combination of people, integrity, and embracing change is what has perpetuated Gordon Brothers. Today we’re as strong as we’ve ever been and we’re focused on continuing to grow and improve.

Lastly, I’d like to add that while Gordon Brothers is a business with four generations of family in it, we don’t actually think of it as a “family business” in the traditional sense.   There are only two members of the Gordon-Frieze family in the business today, my father, Michael Frieze, and me.  We have outside board members, other investors, and our divisional leadership, who are all partners in the business.  There is this nice balance between the family heritage and legacy, and an independent, professionally-operated business.