Turnaround Consulting: Construction and Mining Machinery and Equipment Distributor

Client

Construction and Mining Machinery and Equipment Distributor

After its senior lender sent default letters and made it clear it wanted to exit the relationship, the shareholders of a family owned aftermarket construction and mining machinery parts distributor engaged BlueWater Partners Turnaround Consulting to advise on alternatives, including a sale to a supplier or liquidation. In the end, we worked with the lender and supplier to negotiate a loan participation agreement, which gave our client time to turnaround its operations, the bank an exit plan, and the supplier an opportunity to help save one of its major customers. The keys to success in this case?A comprehensive review of the company’s alternatives, a well developed understanding of each stakeholder’s interests, facilitation of wider and more inclusive communications, and BlueWater’s passion for creative solutions.

Problem

  • The recession eliminated the company’s earnings and weakened its already overleveraged balance sheet
  • Global production capacity contracted and credit terms tightened, leaving the company with inadequate inventory to meet customer demand as the economy started to recover
  • Lack of earnings, a weak balance sheet and tougher underwriting standards made refinancing highly unlikely and liquidation the most obvious next step
  • As is often the case, the company’s largest unsecured creditor was also its largest supplier
  • The company and the supplier had negotiated for 6 months, but were unable to agree on a payment plan to reduce the supplier’s exposure or the structure of a joint venture
  • The fourth generation of the founding family demanded that they remain in control of the company should it continue operations

Solution

  • Prepare a valuation opinion and analyze the company’s balance sheet for undervalued assets and short-term liabilities that could be restructured as long-term debt
  • Build a 13-week cash flow model and identified cost reduction opportunities
  • Prepare a liquidation analysis to illustrate the unattractive impact to the senior lender and supplier
  • Implement budget and plan to improve profitability during current year and next three years
  • Present breakeven analysis, 3-year projections, and turnaround plan to supplier
  • Improve communication and visibility with the senior lender to provide the time required to facilitate negotiations between our client, the supplier, and the senior lender
  • Facilitate three-way negotiations between our client, the supplier, and the senior lender

Results

  • Reduced breakeven by over 24% by cutting labor, manufacturing overhead, and SG&A
  • Successfully completed a “loan participation agreement” between the senior lender, the supplier, and our client
  • Senior lender secured a clear path to exit in less than 1 year, which was ahead of schedule
  • Supplier eventually transitioned from an unsecured to a secured position while retaining a major customer
  • Client retained ownership
  • Improved on time delivery performance by opening up credit lines with supplier during negotiations