NetComm experienced a sharp decline in revenue from USD 200 million in 2021 to USD 80 million by 2023, with projected losses of approximately USD 20 million in 2024. The financial situation was aggravated by unresolved intercompany transactions with its parent company, Casa Systems Inc., which were not cash-settled and led to significant cash flow constraints. Additionally, NetComm had a large stock of slow-moving inventory due to sudden technological shifts and lingering post-COVID-19 supply chain disruptions. This crippled NetComm’s ability to meet customer orders and invest in crucial R&D for new product development.

Casa Systems Inc. made two attempts to divest its interest in NetComm, first in 2022 and again in late 2023, but both sale processes failed. This left NetComm burdened not only with its declining financial performance but also with its obligations as guarantor for Casa Systems Inc.’s substantial borrowings, totalling over USD 186 million. High fixed operating costs and large legacy financial claims added further obstacles to a successful turnaround.

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The Cor Cordis team, led by Kate Conneely and Rahul Goyal, employed a strategic approach to stabilise NetComm and facilitate its successful turnaround and sale. Key aspects of the strategy included:

• ‍Continuing Operations: Cor Cordis determined that continuing trading while seeking a buyer was the best way to preserve NetComm's inherent value. This decision was informed by their extensive experience in similar administrations, where the sale of the business as a whole yielded greater returns for creditors.
• ‍Stakeholder Engagement: The Administrators secured and maintained the support of key customers, suppliers, and employees by negotiating favourable payment terms, adjusting delivery schedules, and managing employee welfare across global operations.‍
• Cash Flow Management: A robust cash flow management system, including daily monitoring and control, was implemented, which was crucial for maintaining liquidity. The Administrators also obtained a three-month extension to the convening period for the second creditors' meeting, providing sufficient time to negotiate and enter into a binding  transaction.‍
• Business Separation: A critical strategic component was developing a plan to separate NetComm from its parent company, Casa Systems Inc., enabling it to operate independently. This included renegotiating customer contracts and securing direct payments to NetComm. To maintain essential corporate services during the transition, Cor Cordis negotiated a shared services agreement with Casa Systems Inc., ensuring IT, finance, and payroll continuity.
• Sale Process: The Administrators re-engaged with potential buyers who had previously expressed interest in acquiring NetComm. By leveraging the pre-appointment groundwork laid by Casa Systems Inc., the sale process was expedited and ultimately successful. NetComm was sold to DZS Inc., a NASDAQ-listed US trade buyer with a complementary product offering.

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The sale of NetComm to DZS Inc. was completed on June 1, 2024, just 11 weeks after the appointment of the administrators. This rapid turnaround provided several significant outcomes:

• Sale Structure: The sale was structured to maximise value, with DZS Inc. acquiring NetComm’s shares rather than specific assets and liabilities. This allowed NetComm to exit administration free of its legacy liabilities through three inter-related Deeds of Company Arrangement (DOCA).
• Financial Terms: The sale included an upfront cash payment of USD 7 million, with an additional earn-out potential of up to USD 3 million. The Administrators retained all cash on hand and accounts receivable. A fixed return was negotiated with the financiers, and DZS Inc. assumed the liabilities for retained employees. Redundant employees received full payment of their entitlements.
• Working Capital Injection: DZS Inc. provided a working capital injection post-sale to cover anticipated losses during the restructuring, helping NetComm stabilise its operations and cover immediate financial needs.
• Creditor Distribution: Unsecured creditors were expected to receive a distribution of approximately 23 cents in the dollar, a significant recovery considering the alternative of liquidation, which would have likely provided no return. At the time of writing, the actual dividend is likely to be closer to 30 cents in the dollar.
• Operational Continuity and Employee Retention: NetComm continued to trade throughout the administration, ensuring customer retention and supplier support. The sale also allowed for the retention of approximately 80% of NetComm's workforce, with DZS Inc. providing ongoing working capital to support the business post-sale.
• Legacy Claims and Transition: The sale and associated restructuring allowed for the management and resolution of legacy claims, removing cash flow burdens and ensuring a smooth transition to new ownership under DZS Inc. Additionally, DZS Inc. took on all Administrator liabilities and all warranty claims, ensuring the company could transition seamlessly into its new ownership structure.

This case highlights the effectiveness of the voluntary administration and DOCA restructuring processes in achieving a positive outcome for all stakeholders, demonstrating Cor Cordis’ capability to manage complex and time-sensitive turnarounds.

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Acknowledgments

The success of this complex and time-sensitive project was made possible through the collaborative efforts of several key parties. Cor Cordis acknowledges the significant contributions of:

• Arnold Bloch Leibler: for providing legal expertise to Cor Cordis in shaping the sale and transaction structure.
• DZS Inc.: for its strategic acquisition and commitment to NetComm’s future growth, supported by Baker McKenzie.  
• NetComm management and staff: For their unwavering support and cooperation throughout the administration process.
• Alvarez & Marsal (A&M): in its capacity as restructuring advisor to Casa Systems Inc.
• Ashurst and FTI: for their legal and financial contributions to the lenders, which facilitated critical stakeholder negotiations.