A private equity business invested in a start-up business that produced secure pre-printed vouchers for the telecommunications industry.
None of the targets in the business plan where being met, the bank loan had not been serviced and the company was in breach of all the bank covenants. A request for a further funding round had been initiated and we were tasked in assisting the private equity firm in deciding what the best course of action would be.
What we did
Brought the financial information up to date
Prepared a detailed customer and product analysis
Prepared a model of profitability per production constraint
Redesigned the quoting model based on profitability and customer requirements
We charged a premium
for smaller runs
Planned the production to focus on cash generation
Invested time (and resources) to resolve production constraints
Developed a revised business plan and cash flow model
Used the revised cash flow model and business plan to renegotiate with the bank regarding the covenants
Secured fresh short term funding
Developed an investment memorandum
Sold the business to a listed entity, the surety for the bank loan was replaced, and upside was secured through warrants being exercised in the listed entity.
Ultimately the MD was replaced.
Case study 2
Distributor of pharmaceutical products
A proposed merger between the entity and a potential suitor fell through, the due diligence led to a price adjustment, a conflict arose between the existing management and the owner. Existing management wanted to proceed, the investor did not. The management team resigned in masse in order to force the hand of the investor.
Evaluate the business and execute a strategy to save the business.
What We Did
Performed a full review of the business
Reorganised the financial information
Identified underperforming product lines
Identified underperforming customers
Divested product lines and freed up capital
Renegotiated terms with key customers
Streamlined the business processes to focus the business
Secured new product lines to represent
Brought in a new management team
The capital committed by the investor, and required by the business dropped 75%, this enabled the businesses to pay back most of its loans. The refocused business was profitable at a lower level of activity. The new cost base and narrower position enabled the business to introduce new product lines.
From being in a barely break-even situation, the return on capital skyrocketed and it has managed to maintain this, and an above industry profitability, despite initially shrinking to 40% of its previous turnover, it is now over 200% of its initial turnover.
Case Study 4
A listed company had a wholesale and retail subsidiary in Australia, despite impressive turnover growth the business was unable to generate cash flow and the roll out of new stores was causing cash flow constraints in other areas of the business.
Determine if the group would achieve the required cost of capital in its Australian subsidiary, and find a more efficient capital structure to fund the growth.
What We did
Performed a through profitability analysis
Gain an understanding
of profitability per customer
of the profitability per product line
of profitability per retail store
total capital requirement.
Realign management incentives based on cumulative profitability and cash flow, with the ultimate goal of making this business a self-sustaining entity requiring no further investment from the parent to fund growth.
Secured additional funding.
Renegotiated creditor terms.
With the realignment of management and owner’s incentives, equity based on performance targets, the business shifted its focus from turnover to cash flow, this focus enabled it to weather the GFC , and a substantial premium was paid for this entity when a private equity investor bought out the entire group.