The Company (or “MC”) is a privately held aluminum foundry located in north central Ohio. The Company’s manufacturing and office facilities are situated on 13 acres of land.  MC is a low to medium volume, sand and permanent mold jobbing foundry that manufactures aluminum cast products and provides a variety of after-cast services to small to large OEM’s throughout the U.S. The Company currently employs approximately 23 hourly union (the United Steel, Paper and Forestry, Rubber, Manufacturing, Energy, Allied Industrial and Service Workers International Union) workers in the foundry, 5 salaried foundry management and 5 salaried office/administrative employees.

Prior to the economic downturn in 2008, the Company historically shipped between $8-$10MM annually in aluminum cast products and after-cast services.  From 2009 through early 2012, the Company experienced declining revenue and losses as it tried to recover from the broad financial impacts of the economic downturn. In 2006, the Company delivered $9.5MM in sales, its peak sales performance, with $38K in net income and $347K in EBITDA.  In 2007, the Company experienced a 10% reduction in sales from $9.5MM in 2006 to $8.6MM while incurring a net loss of $185K but positive EBITDA of $199K.  In 2008, the first year of the economic downturn, MC saw a 13% drop in sales to $7.6MM and encountered another net loss of $236K while generating a positive EBITDA of $102K. MC continued to suffer financially in 2009, 2010 and 2011.  In 2009, the final year of the economic downturn, MC’s revenue dropped 12% to $6.7MM resulting in another net loss of $99K but positive EBITDA of $204K.  In 2010 revenue dropped again but by only 6% to $6.3MM, however, margins eroded as manufacturing costs rose and the company failed to raise prices.  The weaker margins resulted in a net loss of $237K with breakeven EBITDA. In 2011 revenue dropped $1MM, or 15% due to the loss of a major customer ($1.75MM in sales) to a competitor who bought the business with substantially lower pricing. Excluding the lost customer sales, the business began to rebound in 2011, however, the 40+% drop in sales over the previous 5 years was putting tremendous pressure on MC’s future viability.  The Company had been operating in a cash crisis during much of 2010 through early 2012. In May 2012, MC recognizing it needed outside help to maintain its viability, retained Turning Point Management Advisors, LLC (“TPMA”) to formulate and lead a financial and operational restructuring. Specifically, TPMA was engaged to focus on a turnaround strategy to restore profitability, manage through the cash crisis and be active in the management of their secured and unsecured credit relationships (Bank, AR Factor, Suppliers and various Federal, State and Local Tax Authorities).  TPMA also had to convince the Bank, MC’s largest and first secured creditor, that the turnaround plan could be successful. MC was already operating under a forbearance agreement with the Bank as it was several months behind on its loan payments.


In early July 2012, TPMA presented its turnaround plan to the Bank (see attached Plan). Bank representatives agreed with the plan and indicated they would support TPMA efforts as long as progress was being made financially and they felt their collateral was being protected.

For the year ended December 31, 2012, The Company had net sales of $4,337K, a 19% drop from 2011, and a net loss of $366K with an EBITDA loss of $65K.  Post financial and operational restructuring (July 1, 2012), the Company achieved $2,215K in net sales with a net loss of $88K and EBITDA of $62K. During the months of July through October 2012, the company experienced average net sales of approximately $425K and generated positive EBITDA which provided hope the business was gaining traction and was stabilized financially and operationally.  If the business sustained monthly net sales of $400K or more it could operate day to day and generate excess cash to resume monthly payments to the bank, its primary secured creditor, and begin payments to its unsecured creditor note holders and tax authorities as planned January 1, 2013. Unfortunately in November and December 2012 net sales dropped to $340K and $200K, respectively, as a slowdown began to occur in the industry.

For the six months ended June 30, 2013, the Company had net sales of $1,842K, down 13% from $2,122K for the same period in 2012, and incurred an expected net loss of $35K and EBITDA of $140K, $90K attributable to interest expense.  Q1 net sales were $986K while Q2 net sales were $856K, a decrease of 13%.  MC was currently experiencing a significant fall off in July and August orders which were traditionally lower volume months but were now problematic for a company that needed approximately $300K per month in net sales to breakeven and operate somewhat effectively.  The Company was projecting monthly net sales of $225K for the months of July, August and September, a 25% reduction from Q2 average monthly net sales of $300K. Such a dramatic fall off in net sales would cause the Company to generate negative to breakeven EBITDA.

Due to the Company’s fall off in net sales in November and December 2012 and into 2013, MC was forced to further delay payments to the Bank; no payments were made since October 2012. The Bank continued to support the turnaround effort and was extremely patient as it wanted to save 33 jobs and see MC remain a going concern.  To that end, it was determined by the Bank and TPMA the best course of action for MC was to sell its assets allowing some recovery for the Bank and give 33 employees a fresh start with a new entity.  In July 2013, MC signed an Asset Purchase Agreement with a Buyer, subject to various contingencies, with a planned closing date of October 1, 2013.  If the transaction closed, MC would be a corporate entity with no assets and sizable liabilities remaining with no means to pay them.  If the transaction did not close, the Bank would be forced to foreclose on MC’s assets and liquidate to satisfy MC’s secured debt obligations to the Bank.  Under this scenario it would be highly unlikely the Bank would fully recover.


The transaction team consisted of TPMA primarily; with support from the VP Special Assets, Bank, MC outside counsel and MC President assisted with the review and execution of numerous legal documents to complete the required lien settlements and agreements necessary to complete the asset sale transaction.

The complexity in completing this transaction stemmed from a number of issues which needed to be addressed simultaneously in a very short period of time.  I have summarized them below:

  1. Keeping MC operational, cash flowing and viable to facilitate an asset sale
  2. Convincing the Bank to provide bridge financing once the APA was signed allowing MC to operate while #3 and #4 below were addressed
  3. Satisfying all Buyer APA and Buyer’s SBA Finance Co contingencies to close deal
  4. Eliminating all Federal, State and Vendor liens (10 Plus) allowing clean title to pass to Buyer
  5. Keep unsecured creditors from filing additional judgment liens

The Bank was the first secured creditor of the Company with approximately $1.4MM outstanding including $205K in bridge financing provided to the Company from August 2013 until the transaction closed in March 2014.  A transaction, at a minimum, is needed to maximize the Bank’s recovery and bring substantially more than a liquidation event.  As stated earlier, there were several other lien holders that we needed to negotiate settlements with to provide clean title to the assets at closing.  The most significant was the Pension Benefit Guarantee Corp. (PBGC) which had a lien on the company’s assets for $7.4MM in unfunded pension contributions over several years.  Further complicating things was the fact the PBGC lien trumped the Bank’s bridge note financing provided to MC to allow it to cash flow until a transaction closing.

Steps Taken by TPMA

  1. Drafted Confidential Offering Memorandum (“COM”) and teaser for Buyer solicitation.
  2. Solicited financial and strategic buyers.
  3. Sent prospective buyers COMs after receiving signed Confidentiality Agreements.
  4. Met with prospective buyers, conducting site visits and management presentations.
  5. Reviewed and negotiated Letter of Intent (“LOI”).
  6. Reviewed draft Asset Purchase Agreement (“APA”) and negotiated terms on behalf of client and ensured such terms were acceptable to the Bank.
  7. Assisted Buyer’s financial consultant in preparing financial models of the MC business on a “normalized” basis to secure SBA financing.
  8. Kept MC viable and operating with cash flow from operations as long as possible.
  9. Negotiated bridge financing with the Bank to ensure #8 would occur once transaction closing date began to slide beyond October 1, 2013, and ultimately to March 2014 (6 month delay).
  10. Kept a major customer (25% of business) in the loop as to status of transaction and a potential buyer ensuring business remained with MC.
  11. Negotiated a subordination agreement with the PBGC, Bank and MC and ultimately a waterfall payout for transaction proceeds.
  12. Negotiated with the PBGC, IRS, OH Department of Taxation, OH Department of Jobs and Family Services (State Unemployment), OH Bureau of Workers Compensation, AR Factor and several other MC lien holders.
  13. Worked with Buyer’s financial consultant and SBA financing firm to eliminate all financing and environmental contingencies.
  14. Successfully closed transaction in March 2014.

First and foremost, TPMA had to continue its turnaround efforts ensuring MC remained operational and cash flowed from operations as it had only one financing option (Bank Bridge Note) available while it sought potential buyers for MC’s assets.  We began the process of seeking potential buyers in December 2012 when revenue fell off precipitously as previously mentioned.  TPMA developed a Confidential Offering Memorandum (“COM”) and a one-page teaser document to send to potential buyers.  We targeted financial and strategic buyers.  This was an opportunity for an investment group looking to expand its holdings and/or expertise in the aluminum casting market or a machining business looking to vertically integrate its business.   Moreover, this was an excellent business opportunity for an aluminum foundry looking to expand its customer base, add capacity and strategically grow its business.

We sent the teaser document out to potential financial buyers and strategic buyers (primarily foundry operations located in Ohio, Pennsylvania and Indiana).   We received limited response with only four parties signing confidentiality agreements and requesting a copy of the COM.  After their review of the COM, we had two very interested parties willing to move forward in the process, both current operators of aluminum foundries.  Both parties conducted site visits and attended our management presentations.  One party emerged from the process as a willing buyer and a Letter of Intent (“LOI”) was signed in June 2013.  After several iterations, an Asset Purchase Agreement (“APA”) was signed in late July 2013.  Keep in mind MC was operating “hand to mouth” every day in regard to cash flow.  It was our anticipation that a transaction of this size could be completed within 60 days of signing a Letter of Intent (“LOI”); a target closing date was set for October 1, 2013.

As is customary in such transactions, the agreement was contingent on the Buyer obtaining the necessary financing, an acceptable Phase I and II environmental assessment and an Asbestos Inspection and Survey in accordance with requirements of the US Environmental Protection Agency.  All of these items proved to be very time consuming further delaying a closing and putting MC at risk of running out of cash and shutting down its operations which would kill the transaction.

The Buyer was a second-generation aluminum foundry operator based just outside Cleveland OH.  His business, in terms of revenue, was less than half the size of MC.  He was looking for a way to expand and grow his existing business and the acquisition of MC’s assets was the perfect opportunity.  The Buyer, who had never completed an acquisition of any type, and at the suggestion of his attorney, retained a financial consultant with several years of experience in obtaining SBA financing for asset purchases.  SBA financing was a must as the Buyer had minimal cash to put into the transaction and no partners or other investors.  It was imperative for the financial consultant and TPMA to develop a normalized financial model going out three years showing a restructured business that could cash flow and cover its new principal and interest payments.  Once the SBA Finance Company underwriters were satisfied with the three-year business plan, this real estate and manufacturing assets appraisals, a commitment letter for financing was issued to the Buyer which contained more contingencies relative to the Buyer and Seller which had to be satisfied before financing approval.

While the financing and APA contingencies and lien settlement negotiations were being addressed, MC continued to operate but at less than breakeven cash flow revenue levels.  Despite pushing MC’s vendor financing (outstanding balances converted to long term notes) to a significant level, MC was unable to fund its operations without additional financing.  TPMA approached our Bank contact to discuss the situation and alternatives.  The Bank agreed to provide a bridge note to the Company if the President and majority shareholder would provide their home as additional collateral.  An agreement was reached based on these terms and the Bank provided an initial traunch of $100,000.  By the transaction closing, the Bank bridge financing had reached approximately $205,000.

MC had a local and very large concentration customer (“GR”) (20-30% of annual revenue), that was critical to the successful conclusion of the transaction.  GR is a public company generating in excess of 500MM in revenue annually.  The founders of MC and GR and their successor family members had been friends for many years. TPMA’s initial turnaround plan required GR to accept sizable price increases.  These price increases ranged from 5-25% on individual parts.  MC had not issued price increases to most of its customers for a few years.  GR understood why it had to be done and accepted it without moving the business elsewhere.  Additionally, they agreed to pay for parts shipped within 7 days to help the company with its cash flow.  As a courtesy to GR, we met with them on a regular basis to keep them apprised of the status of the MC asset sale.

One of the most difficult situations to resolve was the PBGC lien.  Given the size of the PBGC lien, $7.4MM, they wanted to make sure they were getting as much as possible from the transaction proceeds.  Through their lien search and review, they determined they trumped the Bank’s lien relative to the bridge financing.  After several rounds of discussions and negotiations between the Bank, PBGC and TPMA, the PBGC agreed to a subordination agreement up to a maximum funding level of $250,000.  Additionally, TPMA needed to ensure the PBGC settlement amount would allow several other lien holders behind the PBGC to be paid from the transaction proceeds to allow clean title to the assets to pass to the Buyer. Critical to obtaining the subordination and settlement agreement was convincing the PBGC representatives we would not get to closing without the bridge financing and the transaction proceeds would far exceed proceeds from a liquidation event.

Along with the PBGC, several other lien holders needed to be addressed.  Most critical were the IRS and Ohio department of taxation liens for withholding taxes.  The nonpayment of certain 2011 withholding taxes by MC also subjected the President, to personal liability for their repayment.  Through settlement and payment at transaction closing the President’s personal liability exposure was removed.  In regard to the State withholding taxes, TPMA was able to negotiate a settlement which eliminated all accrued penalties and interest (from $38K to $31K), an 18% reduction. TPMA also negotiated settlements with the following lien holders:

  • Ohio Bureau of Workers Compensation- Settlement of $4K on $50K due or $.08/$1.
  • Ohio Department of Jobs and Family Services (UE taxes) – Settlement of $4.5K on $59K due or $.08/$1.
  • Two other unsecured creditors who filed judgements against MC – Settlement of $18K on $62K due or $.29/$1.

With the acquisition of any Foundry, environmental concerns always exist for the Buyer and Buyer’s Bank or finance company.  The Buyer’s SBA finance company, Newtek Small Business Finance, Inc. (“Newtek”), required a Phase I and II environmental site assessment in accordance with EPA standards.  These site assessments take a fair amount of time to complete and further delay the transaction closing.  Once completed, Phase II identified several remediation items which needed to be resolved for the transaction to close.  The cost to resolve these issues was about $65K.  Unfortunately, MC did not have the cash to resolve all of them.  TPMA held discussions with the Bank, and the Bank agreed to cover approximately $40K of the costs.  These funds were withheld from the Bank at closing as certain remediation efforts were completed post-closing.


The MC asset sale was successfully completed March 21, 2014.

The following outcomes were accomplished:

  1. MC’s assets were sold for $2,050,000, $1,850,000 paid at closing and $200K in a seller’s note.
  2. Clean title to the assets was provided to Buyer as all liens were settled.
  3. All environmental issues were remediated on the property.
  4. The Bank, MC’s first secured creditor, was repaid the entire $1.3MM owed to them.
  5. MC (NewCo) under the new name and ownership had a fresh start with a reasonable debt load and no vendor debt overhang.
  6. 30-40 jobs were saved in New Washington, OH
  7. MC’s largest customer, GR, continued doing business with NewCo with the potential to increase volume now that MC’s financial issues were resolved.
  8. All personal liability relative to federal and state withholding taxes was eliminated for MC’s President and major shareholder.
  9. Major Shareholder received a seller’s note for $200K payable over five years at 6% (negotiated by TPMA in APA).  This was extraordinary given the number of lien holders that existed.
  10. President of MC received a one-year consulting agreement paying $60K (negotiated by TPMA).