Pre-Engineered Metal Buildings Manufacturer

 

Background

  • $92 million pre-engineered metal buildings manufacturer was in payment default on $46 million of senior debt within six months of being acquired by a Private Equity firm through a leveraged buyout transaction (LBO)

    • Despite the fact that the LBO transaction had recently been completed, the Company was considering filing for Chapter 11 bankruptcy protection

  • Upon defaulting on its debt covenants, the Company’s senior lender was extremely nervous about the long-term prospects of the Company

  • Shrinking gross margin and increased overhead spend over the prior twelve months resulted in significant performance issues (negative $1.2 million annual EBITDA at time of CM&A engagement) 

  • Private equity ownership engaged a CM&A Partner as Workout Advisor and Chief Restructuring Officer (CRO) for the business

CM&A Role / Turnaround Process

  • Upon engagement, negotiated a twelve month forbearance agreement with the Company’s senior lender to provide time for an operational restructuring

  • Within two months of CM&A involvement, quickly sold a non-core, self-storage warehouse division ($20 million in revenue), which was significantly cash negative

    • The acquirer of the division was the Company’s previous owner who had continued to operate the specific division

  • Combined the remaining two divisions into a solitary division with the aim to eliminate overhead redundancy and duplicative sales efforts

    • Separately, the two divisions were selling identical products into the same market through different sales channels

  • Successfully increased product pricing by 3% for customized non-specification jobs without experiencing significant loss in sales volume

  • Instituted strong job-cost estimation procedures to eliminate error-prone pricing and estimation from the previous year

  • Centralized the purchasing function from three separate locations into one while also reducing the necessary number of steel suppliers from greater than 10 to 3  

  • Established national steel buying contracts with the Company’s steel suppliers and obtained purchase volume concessions 

  • Modified the purchasing specifications to alleviate scrap issues and improve material variance

  • Developed a scrap reduction / recovery program to address $0.5 million per year of scrap waste

  • Shuttered one of the Company’s manufacturing plants and instituted variable cost reduction programs at the two remaining plants

  • Sourced and retained a new Vice President of Manufacturing to oversee and protect plant process changes that had been implemented as part of the turnaround process

Outcome

  • Within five months of CM&A engagement, increased the Company's gross margin by five points and reduced annual overhead spend by approximately $2 million

  • As a result of the scrap reduction / recovery program, successfully reduced the previous scrap problem by $0.3 million annually

  • Increased annual EBITDA by $6.4 million

  • Negotiated a multi-party debt restructuring whereby the Private Equity owners injected new capital in return for the debt being restructured

  • Company avoided a Chapter 11 filing and was later sold for a significant return to the Private Equity owners