Part II: Post-Turnaround Sale Gains Additional Stability for Owner and Employees

How Platinum guided the sale of an ailing division for 9x EBITDA

Situation

The owner of a 60-year-old distribution company had called Platinum Group to advise and guide him through a severe downturn that had created financial hardships. Within 45 days, gross profit and cash flow had significantly improved, which avoided a liquidity crisis and preserved 130 jobs in the company’s small Midwestern town. Once stabilized and refinanced, the viability of the company’s two divisions was still in peril as its industrial customer base continued to erode.

Challenges

  • Both divisions were impacted by industry consolidation, fluctuating commodity prices and challenging regional economic conditions.
  • The ailing division was a cash flow drain and saddled with a number of long-term real estate and operating leases.
  • While the division was relatively asset rich, EBITDA was depressed making valuation difficult.

Response

With a newly stabilized company, Platinum and the owner quickly turned their sights to selling the distressed division. After canvassing the market with an exclusive focus on strategic buyers, Platinum discovered 15 potential buyers and ran a transparent process with open discussion of the assets that exceeded the cash flow valuation. Platinum worked with potential buyers to conceptualize and model roll-up synergies to create competitive tension and support an asset-based valuation.

Results

The eight-month process resulted in selling the ailing division for nine times EBITDA, which allowed the owner to better capitalize his remaining business and create more stability. He was able to pay off debt and own a cash flow positive company. Since the buyer was a strategic fit, all jobs were retained. The legacy for this owner’s company in the community continues.

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