Case #425

$20 million plastic thermoformer

This plastic thermoformer, which serviced the horticultural marketplace from three plants in the Midwest, had annual revenues of $20 million with debt at $9 million.

The company lost $2 million from operations in 2002-primarily driven from losses associated with an ill-fated acquisition two years prior. Unfortunately, the owners had saved an insolvent company from bankruptcy and liquidation by absorbing all its debts, including a beautiful manufacturing plant in the middle of a non-industrial rural area that would be difficult to sell. Continuing price competition on commodity-type products had squeezed margins, and the company had inadequate cost systems to identify which products and customers were profitable. The company had been bleeding cash profusely and had exhausted all of its liquidity. Additionally no one was in day-to-day management control of the company. The owners wanted to sell the company and salvage something, as they were at retirement age.

After our assessment revealed the seriousness of the problem, we recommended that our project manger become CRO to salvage as much value from the company as quickly as possible. We quickly closed the corporate office and one of the plants, relocating all functions to the other two plants and then, as poor conditions continued, finally consolidated into one plant, to improve significant underutilized capacity, and conserve cash and reduce costs. We attempted to keep the business operating, as we hoped to bridge to a sale transaction and avoid a liquidation that would be disastrous for all parties. We negotiated on a daily basis for two months with the vendors and the banks to keep the business alive as a going concern in order to sell it.

We used the MA&A Quick Sale process to market the business and received a number of proposals to buy the business. The Company decided on two prospective buyers who both strongly preferred to purchase the business through a bankruptcy 363 sale. Continued problems with negotiating the sale with the secured lender resulted in the loss of one of the buyers. However, wewere successful in selling the business via the 363 sale to the second buyer who moved the business to one its other facilities.Our previous marketing was critical in convincing the court of the market value of the proposed deal. That left the expensive real estate in, apparently, completely the wrong location to sell. However, we sold the business to one of our earlier business buyer prospects and it is back in business as a thermoformer with the hiring back of some of the past employees. The building sale was completed using a stalking horse buyer and resulted in eight rounds of overbidding and a final price25% above the stalking horse bid and at full market value based on the latest appraisal the secured lender had obtained. Essentially, we executed an orderly liquidation of the company while selling the business and its major piece of real estate independently. The secured lender recovered more than 90% of its loan in this very difficult and painful process.