Situation
A mid–sized manufacturing company based in the Upper Midwest with three operating divisions, an iron foundry, a machine shop, and a bridge inspection crane manufacturing unit, had been losing money for several years in its foundry and machine shop divisions. The crane manufacturing division was profitable but was only 20% of total company revenue and considered a noncore operating division. The company had severe cash flow problems as it was struggling to meet supplier obligations to continue operating as a going concern. It had used all its available credit on a working capital line and was struggling to stay current on its term debt payments. The bank was considering a foreclosure on the business given the historical operating results and no apparent plan to achieve positive cash flow to cover their debt obligations. To complicate matters further, the company had not paid employee withholding taxes for some time and the IRS had placed a lien on certain assets of the company. Turning Point Management Advisors was engaged to manage the severe cash crisis, assess the Company’s financial and operating plans, drive a financial turnaround, and re-establish the basis from which to renegotiate the current credit facility, seek a new lending partner and/or sell the business units. The principals of Turning Point Management Advisors were selected based on their manufacturing, operational and financial backgrounds.
Actions
We assessed the Company’s operations, analyzed their financial situation, and examined current cash flow. We determined the quickest and most effective strategy to immediately improve cash flow and operating results was going to be aggressive price increases, commodity surcharge adjustments and cost cutting throughout the organization along with effective cash management (working with customers and suppliers). The price increases were focused on major customers identified with low margin products and implemented within 45 days of engagement. Commodity surcharges were adjusted to provide appropriate margins to the business rather than just a cost pass through to customers. Cuts in discretionary expenses and a reduction in force were implemented after 90 days. After years of losing money, the Company began generating positive EBITDA (free cash flow) in the 4th month after engaging Turning Point Management Advisors and every month thereafter.
Outcome
Turning Point Management Advisors was able to turn the business around and operate it on a positive EBITDA basis for 7 months until it successfully sold the Foundry and Machine Shop divisions to the largest foundry operator in the industry. The acquiring firm invested significant capital in plant and equipment improvements, retained 95% of the employees and 100% of the manufacturing work force and had plans to bring in new business which would require an expansion of the existing workforce. All the Company’s secured and unsecured creditors were paid in full from the proceeds of the transaction.
