Consumer Sporting Goods Manufacturer
This $6 million manufacturer of sporting goods went public and raised an additional $5 million dollars of equity through an IPO to expand its current business and diversify into other product categories. The proceeds were used to purchase other companies that added $4 million in revenue but had been incurring significant operating losses. These new companies had different channels of distribution and there were no other synergistic opportunities. The company's information system and management could not provide the proper support to integrate the new companies and to correct their problems.
A year end adjustment reduced raw material inventory to half of its book value, which along with continuing losses led to the senior lender to begin foreclosing on its loan. In the course of negotiations between the company and lender after the company entered Chapter 11 Bankruptcy we were hired to manage the company until we could locate buyers for the different divisions.
We were able to continue limited operations completing the work in process and generated a positive cash flow as we located and negotiated with several buyers. Within three months we were able to generate enough interest to receive multiple bids on all the divisions. The value received was almost double the anticipated forced sale value of the assets.
Construction Services Company
This company provides various construction services to the oil and gas industry in Michigan and successfully rode the growth in the industry in the eighties, growing to over $8 million in revenue. The combination of the industry decline in the nineties and a large project where they could not fully recover their costs found the company generating large uncontrolled losses. The resulting negative working capital position left the company without the resources to compete on larger projects and unable to reach a profitable revenue level.
After our review of the company we formulated an action plan to correct problems in its operations and to strengthen its balance sheet. The overhead structure of the company was restructured reducing costs and increasing flexibility. Excess assets of the company were sold and the proceeds were used to reduce debt and to implement a new information systems that provided detailed job costing information.
With the additional working capital and greater operating efficiency the company was able to target larger, higher margin projects, resulting in a return to profitability in six months. We were then able to obtain refinancing for the company with a $1 million dollar term loan and $ 500 thousand line of credit. This enabled the company to obtain additional work and generate revenues of $6 million for the year. The improved performance enabled the company to again obtain an increase in its equipment loan of $600 thousand and in its line of credit of $250 thousand positioning it to further increase revenues and profitability.