Working Wonders for a Small Equipment Distributor
KGI Creates Positive Equity from Nothing
The client is a privately-held wholesale equipment distributor. The business model, tied to new construction and renovation budgets, experienced a decline in revenues over the last several years that left the company unable to reduce costs enough to maintain positive cash flow.
As the business declined, the client's trade debt grew significantly and the cash burn worsened. Ultimately, the balance sheet turned upside down. A $2+ million deficit shareholder equity position and more than $5 million of unsecured debt threatened to force a closure of the business. Accounts Receivable dropped quickly from $5M to $2M and Inventory decreased from more than $5M to less than $3M over the same time. Because of the significant cash requirements related to bankruptcy proceedings, this alternative was not an option.
The client brought in KGI to develop a turnaround plan and to help with the process of creating value in a highly over-leveraged condition. Once KGI was on-board, a plan was developed and implemented that eliminated substantially all of the unsecured trade debt, salvaged nearly all of the company's operating assets, and created a positive net worth. KGI's consultants and other advisors which KGI introduced worked side-by-side with management to finalize and implement the plan. Essential to the process, KGI also sought and obtained the approval and cooperation of the Company's senior secured lenders. In fact, once the plan was implemented, the potential for full recovery by the senior lenders improved considerably.
Despite a highly unstable situation, KGI helped the client stabilize cash flows and enabled the owner to retain a majority equity stake with considerable value. The Company's cash flow has markedly improved and the business is now being funded as needed to satisfy the demand for its product.
Whether a Company is struggling financially or on the cusp of breakthrough growth, KGI can help. Our seasoned experts work alongside management to solve complex cash flow issues, operational challenges and other business crises. If liquidity or sale is needed, KGI provides a powerful combination of services and expertise to achieve outcomes that cannot be duplicated by other standalone consulting firms.