Case Studies
For successful business revitalizations, Windsor’s experience matters
Case Study in Turnaround & Restructuring
Background
$8MM multiple store, national food chain franchisee unable to make bank loan payments, in default of franchise agreements with default notices issued for all locations and shareholder's personal resources depleted.
Need
Assess whether, or on what basis, the franchisee remains viable; whether it could cure the various payment defaults; whether the business is worth more broken up and sold or continuing to operate under various store configurations.
Process (Diagnostic)
Given seasonal nature of the business we completed a 52-week and daily cash flow for each store contribution and determined cash flow high and low points.
Completed store by store profitability analysis to assess which stores were profitable and which ones needed to be closed because they provided no contribution to franchisee overhead. Determined what each store was worth, including those with owned vs. leased real property facilities.
Developed a series of sensitivity analysis to assess different combinations of rents, royalty and advertising rates to be paid to franchisor to cure defaults and avoid further bank financing.
Working with company legal counsel negotiated a Chapter 11 plan of re-organization with franchisor, lenders and suppliers.
Result
The Company successfully restructured all its liabilities and emerged from Chapter 11 bankruptcy. The franchisor agreed to allow continued operations of remaining stores and extended the franchise agreements, while reducing certain marketing fees to improve store profitability. The bank likewise agreed to modify and extend its debt while the owner has the prospect of re-financing or selling the remaining locations at a later date.
Interim CFO to Food Industry Manufacturer
Background
This $40MM multi-product food company, based in New England and controlled by a private equty fund headquartered in Maryland, was suffering year over year declining sales in a frozen meat category that was the leading unit sales contributer for the company. Distribution of key products became more constrained and cash flow limited as a consequence. This, in turn, resulted in the organization facing increasing creditor pressure from key suppliers and its lender for repayment of over $10mm in trade debt and commerical loans.
Need
Work with the the production manager and director of sales and marketing to develop a plan to restore confidence to the creditor body and distributors, while stabilizing the operation and a return to profitability.
Process (Diagnostic)
Created an annual budget process that looked at the contribution margin of each of the client's product lines. This allowed management to evaluate different sales programs and consider other channels of distribution beyond its traditional grocery store sales point. This initial functionality also permitted evaluation of impact to corporate overhead and ultimately cash flow generation under various product sales alternatives. For example, impact of buy one, get one ("BOGO") on volume sales and margins.
Revised the sales commission program to rewarded sales of products with higher gross margin rather than simply unit sales.
In production & material planning created weekly direct and indirect labor work schedules as well as "buy" plans to proactively monitor production yeilds, inventory levels and turnover and allow for immediate corrective action when variances occured from the operating plan.
Developed a comprehensive restructuring plan that permitted the trade creditors to accept payment in full of open accounts over an extended period of time, or immediate payment under discounted terms. This was accomplished outside of a court proceeding. The company's lender agreed to a restructuring of its line of credit upon completion of the trade debt re-composition.
Oversaw the subsequent sale process of interested buyers for the business and created a sales waterfall analysis under different puchase structures including how offers impact the supplier and bank recomposition plan. The latter having a bearing on sale proceeds available to shareholders.
Result
Over the course of the engagement a loss of $2mm was turned into positive EBITDA of $1.08MM. The restructure plan resulted in the company returning to solvency. The combination of these two milestones faciliated the ultimate sale of the business allowing for the fund established by the equity firm to be in a position to return the original investor's investments to them.
Case Study in Corporate Governance Work
Background
Retained by the board of directors to this $12MM retail company based in Down east Maine having lost a significant customer contract representing over 50% of its revenue base. The business had multiple shareholders most of whom were passive investors receiving dividend income on a regular basis.
Need
Evaluate the remaining business and determine whether it should sell; continue to operate the remaining business profitably; or expand the business through acquisitions.
Process (Diagnostic)
Facilitated a series of strategic planning sessions with directors and shareholders to determine views on business direction.
Created a survey for completion by directors to rank order strategic direction, interest in acquisitions, debt tolerance and dividend distribution requirements.
Developed operating scenario forecasts for the “as is” and “acquisition” options to determine profitability and dividend distribution potential;
Organized a valuation comparison of each scenario to assess which option yielded the greatest return on capital to shareholders.
Result
Provided the board and ownership a tool to quantify their strategic options. This assisted the board in facilitating a stock repurchase program. A second benefit through the survey was to achieve a consensus of the board around the company's direction and provide executive management with guidelines for operating and acquisition criteria for the future.
Case Studies in Risk Assessment
Background
Retained by a $36 billion financial services company to provide its commercial banking division an evaluation of a 200,000 s.f. indoor recreational sports facility. The loans, backed by Small Business Administration (SBA) loan guarantees and additional state direct financing were significantly under collateralized albeit meeting current debt service obligations.
Need
The bank was seeking a means to help its borrower begin planning for the maturity of its loans recognizing that the business was slow in recovering from the 2008-2009 recession. The recovery was further complicated by depressed asset valuations that had the potential to make the repayment of the loan in full unlikely thereby triggering possible collection action under the owner’s guarantee with the bank.
Process (Diagnostic)
The initial focus was discussing with ownership how the business fit within their wealth building strategies, explaining that the pending maturities served as a threat to their personal net worth. Thereafter, we completed a competitive analysis and industry peer review comparing the borrower’s performance against area competitors and industry standards, highlighting areas for process and revenue improvements. We further identified alternative funding sources that may provide gap financing should the collateral air ball remain.
Result
The borrower ultimately refinanced its loans with the bank and dramatically improved its cash flow through, among other things, installation of energy efficient lighting that improved debt service capacity. The bank continues to have a performing loan where its exposure has been dramatically reduced.
Case Study in Lender Services: Collateral Preservation
Background
Retained by a publicly traded Northeast based financial services company to provide its commercial work out division with oversight of borrower – directed going out of business sale.
Need
The bank borrower presented no plan for winding down multiple store locations. There was no budget detailing duration of the sale process, sale proceeds to be generated, employee, lease, utility and product costs necessary to support the sale and finally net proceeds available to apply to the bank’s loans.
Process (Diagnostic)
Working with the business owner developed a 120 day cash budget. The forecast, organized by store location, detailed sales receipts with accompanying labor, occupancy, utility, insurance and cost of goods for each location. Sales & register journals were reported daily to monitor both cash and credit cards transactions and cross checked to the bank accounts. Check register was reviewed daily to monitor check float and necessary expenditures to support the GOB.
Result
This was a win-win for both the borrower and the bank. The bank obtained the visibility it needed to ensure its collateral position was not eroding while ensuring cash collateral being spent was both necessary with the balance repaying its loans. The business owner learned who needed to be paid, when and the importance of minimizing his exposure from the personal guarantee the bank held.