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Roman Becomes a MorrisAnderson Turnaround Success
After three generations of selling religious articles and seasonal giftware and collectibles, Chicago-based Roman Inc. began to experience severe losses. Buffeted by competition from Internet merchants and mass retailers, loss of key distribution rights and excessive overhead from its warehouse, the family owners put the company up for sale. When a sale fell apart at the last minute late in 2005, however, Roman decided liquidation was its best option.
Management put together a liquidation plan that anticipated a recovery of $2 million to $3 million, but there were some key areas of concern:
- When Roman told vendors it wouldn’t purchase goods for the next season, the vendor community would be alerted.
- Orders and reorders could be cancelled.
- Its highly seasonal business pushed accounts receivable above $25 million, which could be impaired by market reaction.
- Five- to 10-year Christmas tree and lights warranties would have to be managed.
In early 2006, when LaSalle Business Credit suggested that Roman seek assistance, the company chose MorrisAnderson’s Dave Bagley as its financial adviser.
Initially, MorrisAnderson was to evaluate the liquidation plan and present options to increase the recovery. The process was to take two weeks. During the initial evaluation period, however, MorrisAnderson determined not only that several business lines had potential value as ongoing businesses, but also that the company could restructured profitably.
The process involved:
- Identifying a core line of 4,800 mainly religious-oriented items from a total SKU list of 12,800 items
- Reducing inventory from $14 million (high point) to less than $7 million and selling off older inventory
- Reducing warehouse space requirements by two-thirds
- Reducing the number of new items introduced each year, which reduced inventory pre-buys
- Downsizing the warehouse from $2.7 million in 2006 to a projected $800,000 in 2007
- Eliminating the corporate headquarters showroom in favor of the company showroom at the Chicago Merchandise Mart
- Reducing the size of regional showrooms in Atlanta, Dallas, Los Angeles and Minneapolis to reduce rent expense
- Negotiating a 90-day loan extension with LaSalle Business Credit to allow for the restructuring plan to be finalized
MorrisAnderson and company management presented the turnaround plan to LaSalle. The creditor requested a smaller but still substantial seasonal buildup of inventory and accounts receivable, and provided the financial flexibility required to accomplish it. When Roman made it through the winter 2006 season, beating budget, LaSalle provided a more permanent working capital line of credit.
In 2004-2005 Roman averaged $66 million in revenues, but losses each year were $3 million. EBITDA was a $500,000 loss. With part of the restructuring plan in place, on $66 million in sales, Roman’s loss was reduced to $500,000 and EBITDA increased to $1.8 million. The initial, conservative projection for 2008 is for revenues of $40 million and EBITDA of $2 million.
Customer reaction to Roman’s renewed focus on its core business lines has been excellent, and sales have been higher than projected. Now the company’s management is planning to exercise a purchase option on its new location and expand its warehouse to accommodate the additional volume.
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