Situation

A $280 million revenue manufacturer of industrial test and measurement equipment increased its debt to make a $180 million acquisition of the market leading color management technology company. It was the company’s second acquisition in two years. Within the next year, a four percent year-over-year decline in revenues combined with lower margins, resulted in leverage increasing to 6.47x EBITDA, compared to a bank covenant of 6.0x. The company was in covenant default with its lenders and at risk of insolvency proceedings.

Solution

The company engaged an experienced corporate banking executive, now a NextLevel team member, as a restructuring advisor. His in-depth approach to fact gathering and analysis resulted in four key actions:

  • Assessed financial and cash forecasting, with stress testing to determine debt repayment capacity, to define the size and type of investment required to stabilize the company and support strategic direction
  • Secured forbearance agreements with banks and lenders, gaining access to liquidity and securing time for management to act on restructuring initiatives
  • Derived liquidity solutions and sources of cash, including sale of a key person’s company-paid life insurance policy and elimination of a large FX trade exposure
  • Negotiated new lender agreements to increase the company’s ongoing liquidity and operating flexibility in coordination with the new capital raised

Results

The company closed on a $155 million minority equity investment, which combined with other actions reduced its debt burden by 35% from $411 million to $267 million. The recapitalization and renegotiated lender agreements reset the company’s financial foundation providing flexibility to operate with no significant changes in strategic direction and limited workforce reductions.

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