KGI Hits a Home Run for Defense Manufacturer
Going from Crisis to Stability in Creating Equity Value
The Company, an engineering and manufacturing company specializing in products for defense, medical, and other commercial applications was facing a dire cash shortage. Ownership engaged investment bankers to explore options of finding an equity infusion or to sell the company. Until either financial outcome materialized an interim plan to maintain operations was essential.
Facing a lender who threatened to liquidate, the Company turned to KGI and the team of Jonathan Wernick and Bruce Conklin, who delivered some exceptional results including:
- Avoided cash crisis
- Achieved maximum sale value through an orderly process
- Stabilized cash flow by focusing on the vendor base
- Secured replacement financing of $7.0 million
- Supported and expedited due diligence
- Provided analysis and advisement in the sale process
The Challenges
There were a myriad challenges involving the Company when KGI
arrived. Operationally, the Company cut costs by reducing pay, initiating
salary freezes and reductions in force but it wasn't enough to stabilize
the Company.
With the ABL line constricted to about 25% of the original amount, the accounts payable were falling far behind and many vendors were either requiring COD or cutting-off shipments. All the while the company saw a 20% upswing in new sales in the pipeline without the capital to fund the growth.
Finding a new interim lender proved difficult. Ownership was spread over many shareholders and none were willing to provide a personal guarantee. The Company's substantial real estate holdings could not be used for collateral because of related environmental issues. Furthermore, the company was in the midst of several litigation issues that had substantial liabilities already accrued for.
The investment bankers were concerned about maximizing value unless overhead costs were reduced and financial projections were improved. KGI led these areas.
The Results
Built credibility with the lender. The KGI team quickly assessed
the situation and immediately led a key structural project to work
around the antiquated IT infrastructure and enable the extraction of
previously unattainable critical financial data. Armed with this new
information, KGI and the executives were better able to manage
the Company's financials and cash flow forecast, building credibility
with the lender and providing more time to identify new financing.
Increased interim funding $7.0M without a personal guarantee. Compiled transparent easy-to-understand industry standard financial information and analysis. In response, the new lender was motivated to provide a new, increased financing.
Stabilized the vendor base. KGI worked side-by-side with the Company's management to create an effective, achievable plan for managing vendor debt. The result was ensured access to raw materials and services to meet growing production needs and fill orders on time.
Obtained the highest value in sale process. By providing accurate financial projections and analysis and by stabilizing the cash flow, the investment bankers had the additional time necessary to prepare the company for a successful sale. In the end, the company received a multiple that was much higher than anticipated.
Whether a Company is struggling financially or on the cusp of breakthrough growth, KGI can help. Our seasoned experts work alongside management to solve complex cash flow issues, operational challenges and other business crises. If liquidity or sale is needed, KGI provides a powerful combination of services and expertise to achieve outcomes that cannot be duplicated by other standalone consulting firms.