Published on November 1, 2016
When the customers of a 75-year old family-owned company with annual revenues approaching $200 million were hit with severe stagnation, the company’s downturn was swift. After defaulting on its line of credit and failing to provide a recovery plan, its lender engaged us for help.
Our Financial Advisory Services team quickly commenced due diligence to ascertain the company’s viability and discovered:
- The company had an extreme concentration of clients whose revenue was highly cyclical with the economy. There were no balancing clients to smooth revenues in an economic downturn.
- The CFO understood the financial statements, but lacked the experience to mitigate the severe downturn in revenues.
- The owners were reluctant to let go of long-tenured employees.
Due to management’s lack of financial sophistication and with the owners’ consent, we proceeded to evaluate long term strategies for the company. We identified the key internal and external business drivers and built a comprehensive financial model demonstrating that the company could not survive until its clients recovered, but would have value to a strategic buyer.
Having earned the trust of the company’s owners while conducting our analysis, they agreed with our conclusion and retained an investment bank to sell the business. The transaction closed with sufficient proceeds to pay the bank in full as well as provide an equity return to the owners.
Moral of the Story
When a borrower’s management fails to adequately diversify sources of revenue and the bottom falls out, our experienced Financial Advisory Services team effectively overcomes adversarial circumstances to assess the situation and establish a logical action plan.