Turnaround Consulting: Construction and Mining Machinery and Equipment Distributor

Client

Family owned, fourth generation aftermarket Construction and Mining Machinery and Equipment Distributor in default with senior lender.

Situation

  • The recession eliminated the company’s earnings and weakened its already over-leveraged 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.
  • For six months the company and critical unsecured creditor/supplier attempted to negotiate a payment plan, establish new credit terms or form a joint venture, but were unable to find agreement as the founding family demanded they remain in control.
  • Senior lender initiated collection action to liquidate the assets.

Solution

  • Management engaged BlueWater to advise on strategic options.
  • BlueWater negotiated a short-term Forbearance Agreement with senior lender.
  • Analyzed the company’s balance sheet for undervalued assets and liabilities restructuring opportunities, built a 13-week cash flow model, identified cost reduction opportunities and prepared a liquidation analysis illustrating a shortfall to senior lender and supplier.
  • Implemented cost cutting budget and plan to improve profitability during current year.
  • Presented breakeven analysis, 3-year projections, and turnaround plan to supplier.
  • Improved communication and visibility with the senior lender to provide the time.
  • Facilitated three-way negotiations between client, critical unsecured supplier and senior lender.

Result

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