After 4 and 1/2 years, my time at Clayton has come to an end. It was not my initiative, but theirs. I was not really given as to why I was being offered the package, but I figured the deal would not be as lucrative in six months when the next RIF would be coming. The reality was, the firm is way below forecast, and while there were some "green shoots" coming from the surveillance business to oversee loan mods for FHM, I think the new sales head wants to bring in his own guy, and to do that he was going to have to let one of three of us go.
Anyway, I have mixed feelings. I certainly hated going in everyday, but I liked many of the people I worked with personally. And while I have no doubt that something better will come from this, one always likes these events to be on his or her schedule, not the company's. The truth is the fun had ended a long time ago there, because the work had lost its challenge. The company remains in a troubled mode, and I didn't see a lot of signals that the management team was up to the challenge.
To understand my tenure there, I'll first lay out the ownership and structural changes that occured. When I joined in 2004, the Clayton's founder was still running the firm but he had sold the company that summer to TA Associates, a venture firm. Their goal was to do a "roll-up" of companies that provide products and services in a dominant way to mortgage business. In addition to Clayton, they also bought MurrayHill (another firm run by its founder,), and they made a minority investment in CoreLogic. I know they were looking at others, such as Arc Systems, because I was part of the group to due diligence these potential acquisitions. TA's goals were very clear and firm, they wanted to consolidate what they could, and monetize quickly. Clayton merged with MurrayHill in 2005, and it became clear that CoreLogic did not want to be a part of us (they eventually sold themselves to First American. wise move). Immediately after the merger, TA brought in a new CEO for the merged company - Frank Filipps. Steve Lamando stayed on as President of Clayton, but he became less involved that year and eventually resigned at the end of 2005. In 2005 the two firms consolidated, if that's what you call it when you don't really rationalize any of the duplicative functions. Frank Fillips deserves his own chapter on corporate larceny, but I'll summarize to say that he lived in Philly and rarely made it to Shelton. He hired Keith Johnson in May 2006 as President to run the company day-to-day. Keith is also his own chapter, but while many people were not fans of Keith's style, I liked him overall because he always worked hard and was always looking for ways to make the company better.
At the same time, TA began its exit by borrowing a significant amount of money to redeem its Preferred Shares, and began the IPO process to raise equity to repay that debt and provide an exit for its common shares. Early in the process (Summer of 2005) the value of the entity was estimated to be high enough that the decision to issue shares (I think 20% of the authorized total) to repay all the debt and still leave plenty of cash in the coffers. By the time the process finally began with S1 filings, the IPO value had been cut by 75%. The IPO occured in March 2006, and with the proceeds a fair portion of debt was repaid, but there was still over $100mm in debt outstanding. Over the next 12 months the company did well enough that the stock reached its high of about $24 per share in Feb 2007, which translated into a market cap of roughly $400mm, plus the debt, for an enterprise value of about $500mm. It was all downhill from there. The business crested in Q1 2007, and after Q2, due diligence dried up to an after-thought. The stock kept falling along with the business until it hit about $4 in Q1. At the same time we were using every bit of dry powder we had to repay debt and stay that execution. We were given a "clean opinion" for fiscal 2007 audit only after we made a significant repayment on the bank debt and the bank agreed to waive convenant defaults through the year. Well we certainly knew that we could only do that trick once, so management began looking for an acquirer in earnest in late 2007, and much to my surprise a pidgeon came along by the name of Greenfield Partners. They not only agreed to pay a 50% premium for the outstanding shares, they also repaid the remaining bank debt, so their total investment has exceeded $170mm. That closed in
Beginning two and half years ago, Clayton was faced with an often fatal perfect storm in the market: The market went away for its two main products, and that market went away in general; one year after that its largest customers disappeared. Clayton's two main businesses were: performing loan due diligence to ensure adherence to underwriting guidelines and regulatory compliance; and servicing surveillance of the loans underlying private label MBS (mostly sub-prime). In addition, Clayton had a Conduit business that I ran and accounted for about 12% of the firm's revenue in 2006. This business began to wind down rapidly in early 2007, to the point where it was shuttered by Q4 of that year. In addition, the securization market that the company serviced evaporated, and many of its customers disappeared as "Wall Street" disappeared in 2007 and 2008.
Clayton was faced with a choice of how to proceed going forward, and ultimately I don't think it will succeed. The firm has never made the proper transition to a upgraded technology platform; and the management team (version 4) doesn't know the business well enough to make real decisions about which market strategies to pursue.
So now it's on to the next chapter. I will always be thankful to Clayton because it moved me back to New England from a fate worse than death: living in Florida. And I met good people. But in general it was a very dysfunctional time and I will hopefully take those lessons with me when selecting my next job.
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