Tragic Death of Owner Spawns Turnaround Need

Situation

The owner of a six-year-old distributorship in the construction market passed away suddenly, leaving the business to his wife who decided to sell it. Unfortunately, revenues had been steadily slipping due to fewer construction projects — losing nearly half its revenues and a substantial portion of its value in the following year. The interim CEO referred the widow, the new owner, to Platinum for leadership and ownership guidance.

Challenges

• The business was without its hands-on manager and relationship salesperson.
• The business was extremely seasonal, with significant cash flow issues expected in winter months.
• A faltering economic climate.

Solution

More than a year after the owner’s death, Platinum stepped in as CEO to run business operations. Other Platinum members provided ongoing governance, contractual, financial, and sales/marketing expertise. In return, Platinum received a warrant to buy the business, which, if exercised, would provide income for the family as well as support health insurance needs.

The first step was to clean up the balance sheet and streamline the cost structure. Reserves of inventory and accounts receivable were necessary, which lowered collateral value just as the off-season was approaching and a cash shortfall was expected. Platinum’s appraisal of fixed assets indicated that unused collateral value for its loan existed and other ideas were proposed that improved the collateral value of the business. The bank agreed to make adjustments to the loan agreement. Additionally, Platinum negotiated with the landlord and key vendors to gain important concessions.

During the subsequent winter, Platinum met with many customers to better understand needs, listen to concerns and gain trust for continued business. The new owner’s brother was also mentored so that he could assume an expanded role in the business.

Results

A combination of the poor economy and delayed construction projects resulted in poor sales in the following year. But the company’s value was enhanced by nearly $1 million in one year’s time due to a more streamlined organizational structure, better margins, better focus on customer needs and an improved cost structure. The turnaround is progressing. However, the new owner changed her mind about selling and decided to work full-time in the business with her brother. At her request, Platinum elected to not exercise its warrant. Today Platinum continues to provide consulting guidance to the company.