The Bottom Line:
As CRO of a troubled manufacturer / wholesaler of retail products, Stapleton Group successfully designed and implemented a strategic plan that returned 100% to the company’s secured lender, generated a return to shareholders, and preserved jobs by operating and then selling the company’s two divisions in separate transactions.
When Stapleton was hired as CRO, the company’s private equity owner had fired its CEO. The best offer it had received to liquidate its Washington division was $500,000. We quickly:
- Took control of the company’s two divisions, located in Washington and Alaska;
- Demonstrated the feasibility and benefits of separate going-concern sales for the two divisions;
- Quickly sold the Washington division to a strategic buyer in a competitive process and liquidated FF&E for $2.0 million (4x best offer prior to our engagement), paying down the secured lender’s outstanding debt by 30%;
- Negotiated a forbearance agreement for the company’s Alaska division, allowing time to:
- Stabilize operations and generate liquidity to sustain working capital needs
- Sell inventory profitably given the company’s normal business cycle
- Design realistic cash flow projections and covenants
- Develop a timeline for milestone paydowns to the secured lender
- Sold the Alaska division to a strategic buyer in a competitive process for $1.75 million.
- Generated over $4.0 million through A/R collections and inventory sales.
The Business Issue:
The 65-year old manufacturer / wholesaler of screen print, embroidery and pad print goods supplies national parks, zoos, ski resorts, gift shops and cruise lines. When the Covid-19 pandemic brought tourism to a screeching halt, the company became insolvent.
Optimizing Return for Secured Lender and Equity Sponsor:
We considered the unique value drivers for the two divisions, including sales cycles, the effect of the pandemic, assets and intellectual property.
Washington: The vertically integrated, turnkey business was an attractive asset for strategic buyers. Our approach optimized proceeds paid to the secured lender, reducing the loan outstanding by 30%:
- Prior to the going-concern sale of the business, finished goods inventory was sold to good credit customers at bulk discounts. This improved the average blended return to approximately 95% of cost vs. 20-30% of cost as part of the going-concern sale.
- Bulk asset sale of the remaining inventory, brand / artwork / IP and certain equipment to a strategic buyer in December 2020. The buyer preserved some jobs.
- Auctioned all other machinery and remaining FF&E.
Alaska: We negotiated a forbearance agreement with the secured lender by demonstrating a going-concern sale was achievable and would yield a much better return than liquidation. We then:
- Designed realistic covenants, milestone paydowns to the lender, and a timeline to pay back the remainder of the secured lender’s debt.
- Demonstrated that operating the business through the summer season to sell inventory-on-hand would create more value than liquidating at $0.10 on the dollar, and would enable us to collect outstanding A/R.
- Reforecast the company’s financial projections for an extended closure of key cruise line ports due to COVID-19.
- Sold the Alaska division in a competitive process to a strategic buyer.
We actively managed both divisions throughout the engagement:
- Provided timely cash flow reporting and forecasting to the secured lender and equity sponsor.
- Provided sale accounting and financial reporting.
- Served as liaison / communicator between equity sponsor and lender.
- Kept lender apprised of operations.
- Provided liquidation analyses to compare auction vs. going concern sale options and pacing to forecasts.
- Led the company’s accounting and operations teams.
- Obtained PPP1 and PPP2 loans.
- Managed all aspects of marketing the two divisions for sale through closing, including sell-side due diligence and buyer negotiations.