The Bottom Line:
Serving as interim CEO and receiver in a situation that could have been a complete write-off, Stapleton Group successfully recovered approximately $3 million for the lender by:
- Transitioning the shuttered company to a going concern;
- Restructuring an onerous government liability from $17 million to less than $1 million; and
- Selling the company’s assets to a strategic buyer, which would not have been possible with the government liability outstanding.
The Business Issue:
After one of the company’s retrofitted diesel engines failed, causing a large brush fire, the California Air Resources Board (CARB) initiated a $17 million product recall. The company’s lender called its note and the company’s private equity owner lacked the capital to fund on-going operations. Unable to operate the company and concerned about the potential for personal liabilities, management secured the assets, closed the business and mailed all facility keys to the lender.
Genesis of Stapleton’s Engagement:
Knowing that Stapleton Group understood the company’s industry, the lender appointed Stapleton Group as receiver. Stapleton approached the engagement with the goal of working with management to salvage as much of the company’s value as possible and, if possible, protect jobs.
Obstacles and Stapleton’s Solutions:
- CARB’s $17 million recall liability made it impossible to sell the company, its intellectual property or any other assets.
- Stapleton successfully reduced the recall liability from $17 million to less than $1 million by negotiating practical solutions between CARB and the company’s former CEO.
- The company had to fulfill its warranty obligations and redesign the diesel engine that failed to meet CARB’s standards.
- Stapleton negotiated for certain of the recalled engines to be replaced by the buyer.
- The company’s cash flow from new sales was severely impacted by the recalled product and liquidity crisis.
- Stapleton successfully convinced the lender not to pursue an immediate liquidation, enabling the company to fulfill three purchase orders to an overseas customer and generate approximately $800,000, an amount exceeding projected proceeds from an asset liquidation.
- Stapleton sold spare parts to customers prior to a sale of the business to generate additional cash.
- Stapleton prepared a cash flow budget and timeline to guide a going-concern effort prior to the sale of the business and/or its assets.
- Stapleton directed the company’s controller to pursue the collection of A/R and limit payment of pre-receivership A/P.
- Stapleton cancelled leases for 4 of the company’s 5 locations and liquidated furniture, fixtures and small tools to generate proceeds to cover operating costs of the receivership estate prior to a sale of the business.
- There was a high likelihood that no buyer would come forward via a sealed-bid sale process.
- Stapleton engaged a liquidation / auctioneer company to identify all components and estimate values of the company’s inventor, equipment and intangibles to aid in marketing each to prospective buyers or facilitate individual asset sales.