Case Studies

Situation

• Industry leading manufacturer of heavy industrial machinery, typical build times of 4-6 months, fixed price contracts. 
• Supply chain disruptions extended production times, negatively impacting absorption of fixed overhead; significant increases in costs of labor and materials reduced gross profit.
• The deterioration of financial performance resulted in defaulting on financial covenants and the company had no ability to cure.
• The lender stipulated the company to engage a turnaround consultant to develop a plan to regain compliance with the credit facility.

Consultant’s Actions

1. Assessed profitability and cash requirements of existing contracts, assessed feasibility of obtaining price increases.
2. Reviewed relationships and logistic status with suppliers.
3. Reviewed bid process and made recommendations to adjust costing calculations.
4. Assessed manufacturing labor scheduling and efficiencies; assessed staffing for administrative positions; provided recommendations in several areas to approve productivity and cost efficiency.
5. Established 13-week cash flow forecasting and reporting.; established rolling 4-Quarter financial forecast including Income Statement, Balance Sheet, and Cash Flow that included measurements of financial covenants.
6. Prepared and presented Plan to lender that illustrated a return to credit compliance by profitability and cash flow improvements to the business. 

Outcome

• Lender agreed to extend the forbearance commiserate with the Plan’s financial forecast and timeline.
• Actual results met or exceeded the Plan’s projections, returned the credit to compliance which warranted moving the “rehabilitated” account out of the bank’s special assets department.

Situation

• Industry leader in commercial electronics encountered supply chain disruptions and margin erosion caused by unabsorbed FOH and higher material costs.
• The declining financial performance eventually created a default with the credit agreement.
• The lender offered to not take any action if the company would engage an independent consultant to assess the situation and assist the company with developing a plan to regain compliance with the credit facility.

Consultant’s Actions

1. Negotiated terms for an amendment and forbearance that allowed sufficient time to deliver a plan.
2. Assessed cost structure and product-costing methodology, analyzed inventory, reviewed supply chain process and relationships with key suppliers, analyzed customer contracts.
3. Identified opportunities to reduce fixed costs, assessed management team, assessed departments, and assessed systems for analytics and accounting. 
4. Developed a process to reduce a significant portion of slow-moving products.
5. Identified opportunities to amend contract language to increase ability to pass-through materials’ price increases. Negotiated with customers on changes to policies for returns and for allowances.
6. Identified opportunities to improve labor efficiencies in warehousing and production. 
7. Assessed the billing and collection cycle.
8. Developed detailed budgeting and forecasting models, including integrated weekly cash flow forecasting. 
9. Determined financial parameters to restructure the credit facility.

Outcome

• The implemented changes notably improved EBITDA and significantly improved cash flow.
• The plan was supported by substantial detail which provided the lender confidence in attainability.
• Negotiated new terms for the credit facility compatible with the plan’s financial projections, including increasing borrowing capacity utilizing additional collateral.
• The company successfully executed its turnaround plan and achieved its financial targets.

Situation

• Industry-leading business suffered a decline in financial performance caused by reduced order flow as customers re-set purchasing habits during high-inflation economy.
• Additionally, the company was consuming cash from a new facility it built with endeavors to become more vertically integrated to better ensure supply of materials. 
• The revenue forecasts presented to the lender had not been achieving targets, yet management maintain optimistic forecasting with each new version.
• The company maintained cash liquidity, however had defaulted on FCC and Leverage.
• The lender had a long-time relationship with the company and wanted to work through this situation with objective to retain the credit; requested the company to engage a turnaround consultant.

Consultant's Actions

1. Assess the financial performance of the organic business and the start-up business. Assess feasibility of the business plan for the start-up business.
2. Determined the start-up business would never be viable, would be continued negative ROI; recommended selling or shutting down.
3. Assessed market data and the company’s methods for forecasting sales.
4. Coached management on the importance of achieving expectations so as to retain credibility with lenders and stakeholders.
5. Assisted with developing new forecasting procedures and supporting details.

Outcome

• Closing the start-up facility combined with cost-savings initiatives within the primary business improved financial performance by several million dollars.
• Proceeds from the disposition of the idle assets from the closed facility were used to reduce debt.
• The financial improvements and deleveraging merited the lender to amend the credit facility with terms compatible with the company’s turnaround plan.

Situation

• Grew via acquisitions funded by bank debt - high leverage and tight liquidity.
• Incurred issues with integrating two of the recent tuck-under acquisitions. Delays in transitioning accounts resulted in push-out of shipments/revenue causing a significant miss to financial projections and triggering defaults to FCC and Leverage covenants. 
• Lender syndicate decided to exit the credit and conditioned a forbearance on the company engaging a financial advisor to assess the business and prospects for refinancing.

Consultant's Actions

1. Identified downstream impact caused by COVID-impacted decline in demand for commercial air travel. 
2. Reduced inventory, adjusting for new revenue run-rate, to improve cash liquidity.
3. Established diligent AR monitoring and collections, efforts reduced charge-offs and DSO.
4. Identified pricing issues, to improve procedures for bidding and for costing methodologies.
5. Closed two facilities and negotiated rent concessions with landlords.
6. Periodically tested capital markets, restarted financing initiative when amounts/closing were attainable.
7. Developed detailed cash flow forecasting and reporting.
8. Maintained weekly communications with the lenders on initiatives and liquidity.

Outcome

• Unforeseen economic issues halted refinancing prospects; the lenders were forced to hold until capital markets returned. 
• Cost-savings and efficiency initiatives resulted with stabilizing the Aerospace division.
• After three quarters of stable and improved performance, attracted capital proposals sufficient to pay off the bank debt plus provide go-forward liquidity. 
• The lenders endured twelve months of amendments and forbearances, but recovery improved from a “below-par” to a full recovery.

Situation

• 100 + year old privately held company seeking growth through acquisitions​.
• Acquisition target company was identified; however, target was potentially on the verge of severe financial distress​.
• The acquisition target stipulated a definitive timeline, less than 60 days, for the transaction to close. ​
• The company needed resources to quickly assess the target company and provide due diligence support, timely and cost effectively​.

Consultant's Actions

1. Assessed the structure of the acquisition and valuation, developed a measurable working capital adjustment embedded in the offered purchase price, and led the due diligence process.
2. Estimated valuation by assessing historical performance, non-recurring events, performance enhancement opportunities, environmental risks, estimated synergies, and real & personal property appraisals.​
3. Determined impact on working capital between annual GAAP financial statements and interim non-GAAP financial statements​.
4. Evaluated Seller’s proposed structure of Working Capital measurement and escrow amounts​.
5. Identified and assessed debt obligations, including capital leases and any third parties where Seller was guarantor​.

Outcome

• Led the transaction process to a successful close.
• Successfully completed transaction within 60 days. ​
• Negotiated a working capital methodology favorable to maximizing cash realization within 90 days after closing​.
• Quantified amounts and terms of multi-tiered escrow as indemnification for working capital, environmental, and other reps/warranties.​
• Ensured sale proceeds would be sufficient to pay-off Seller’s debt obligations with remaining balance sufficient for escrow and satisfactory to Seller’s expectations in closing the transaction​.

Situation

• Family-owned, second generation, glass fabricator and glazier.
• Incurred significant issues with implementation of new laminating production line, resulting in financial losses, missed order delivery times which impaired relations with customers.
• The deterioration in financial performance resulted in defaults to financial covenants with bank lender.
• Budgets were not achieved, the losses continued, the company did not have any cash flow planning, and the bank lender was not satisfied with the company’s explanations and belief it could fix itself before running out of cash.
• The bank lender offered to forbear with stipulated the company engage a turnaround consultant.

Consultant's Actions

1. Negotiated terms with bank lender for maintaining the credit facility for reasonable period of time for an assessment and a plan.
2. Assessed the business operations and connectivity between the two divisions. 
3. Assessed the production process flow, yields and metrics, conducted time and motion studies, reviewed labor productivity, safety, and particulars regarding recruiting and onboarding.
4. Identified and implemented several changes to production that improved gross margin by increasing yields and increasing labor efficiency.
5. Identified and implemented changes that improved safety, which resulted in reduced labor costs and reduced insurance costs.
6. Identified and implemented changes in recruiting and onboarding which resulted in reduced labor costs in production, and increased productivity and satisfaction within the human resources department.
7. Reviewed and validated the selling and bidding process; recommended modest changes to incentives for sales personnel.
8. Identified and implemented changes with order flow and process flow that improved customer satisfaction. 
9. Identified and implemented changes in managing working capital that improved cash flow.
10. Developed detailed forecasting for monthly financials and weekly cash flow.

Outcome

• Gross margin and profitability improved significantly. 
• Financial and cash flow forecasts achieved their targets.
• The company regained compliance with financial covenants within nine months.
• The bank lender regained confidence with the company and the credit was moved back from the bank’s special assets group to the bank’s relationship team.

Situation

• Food distribution company acquired a processing facility; parent’s management had Distribution know-how, but minimal Production experience.
• After one year of operation the processing facility was operating at significantly higher labor costs and generating lower Finished Goods yields than pre-acquisition projections.
• Quality problems were creating additional costs and relationship problems for parent and its customers.
• The facility was incurring significant financial losses each month which, consolidated, created challenges for the parent’s loan compliance. 
• The lenders conditioned a forbearance on the company engaging a turnaround consultant.

Consultant's Actions

1. Revised and corrected the bill of materials; established standard cost and yield targets. 
2. Established KPI’s for hourly/shift/daily action-based analysis.
3. Developed criteria to measure labor skills and conducted motion/time; adjusted process flow to adapt to variances in equipment’s mechanical capacity/speed and reduce motion.
4. Synchronized start times of labor shifts and actively rebalanced workstations. 
5. Discontinued production of high-cost, slow-moving, low/no-margin product; redeployed skilled production workers and maintenance’s efforts.
6. Implemented improved Quality checks at Receiving, and additional quality testing throughout the processing.

Outcome

• Direct Labor costs favorably reduced by >25% on a per unit FG basis.
• Yields favorably improved by >7% on a per unit FG basis. 
• Production costs favorably reduced to below pre-acquisition’s projections.
• Obtained pathway for parent to regain compliance with credit facility.