Caterpillar equipment dealership with approximately $150 million in revenue. $60 million debt.
- Company had lost over 15% of its revenue as a result of the economic recession that affected the housing and construction industry.
- Further compounding problems, OEM had forced inventory on the Company during recession, to boost its sales, resulting in working capital being tied up in inventory.
- Senior management too had gone through multiple turnover resulting in lack of proper management processes, especially cash flow.
- Cost cutting efforts fell short of achieving profitable operations.
- Company faced a significant crossroads as it was also loosing trust of OEM.
- Inconsistent messaging, multiple version of financial projections that did not reconcile to audited financials had resulted in a very fatigued Bank group.
- MorrisAnderson reviewed Company forecast assumptions for reasonableness.
- While in midst of assessment, the Company decided to pursue sale. The role of MA morphed into Valuation of the Company and monitoring of quality of assets until the sale of company took place.
- Bank debt (approximately $60 million) was unsecured and paripassuwith OEM debt leading to a very vulnerable and exposed position for the banks if the sale proceeds fell short.
- Last minute reductions in buy price resulted in a shortfall of almost $13 million that the Company expected be shared between the OEM and the bank group.
- Thorough due diligence and analysis of the APA with implied legal implications led MA to conclude that the shortfall for the banks was not $6.5 million, but approximately $1.5 million.
- Bank group leveraged this analysis as well as its relationship with the OEM to negotiate proceeds with the Company.
- The Company’s sale was completed and the shortfall was refinanced by OEM.
- The lender group was paid in full.