Too Much, Too Fast: Intervention Turned Rapid-Growth Losses Into New-Growth Gains

How Platinum helped a manufacturer strengthen operations and recapitalize

Situation:

A historically profitable $33-million manufacturer expanded too quickly in response to the demands of a large customer, resulting in a major facility expansion, large payroll increases, production inefficiencies, higher materials costs, and low-margin products. The resulting operating losses were compounded by sudden commodities increases that caused a rapid increase in a raw-material cost that could not be passed onto customers. Cash also was needed to service the debt for all of the expansion. As liquidity deteriorated, additional capital was needed. The owner contacted Platinum early enough to allow a plan to be developed and implemented to find new capital.

Challenges:

  • The management team lacked the skills needed to manage the growth.
  • High production labor turnover, a small rural labor market, and increasing competitive wages made it difficult to attract and retain workers in a time of growth.
  • The company lacked purchasing controls and effective sourcing.
  • Production issues needed to be addressed to restore profitability, paving the way for financing options.
  • The CEO had to fix internal problems, which limited his availability for customer contact and business development.

Response:

Platinum assisted the CEO in evaluating and restructuring the management team, including a new plant manager who was selected to provide the needed skills, a new HR manager who improved recruiting and retention, and a purchasing manager to negotiate better pricing from suppliers. Platinum located a lender willing to provide a badly needed bridge loan to enhance the working capital required to keep product flowing.

Results:

Within six months, the gross margin improved significantly and the breakeven point was reduced. Production labor turnover decreased, and productivity improved. The company chose to stop producing the high-volume, low-margin products. With operations stabilized, the CEO was able to resume a business development role. The sales pipeline improved dramatically. Platinum arranged a recapitalization, including senior, subordinated and new equity capital to provide liquidity, a merger that provided new product development and a plan to grow the company on a steady path.

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