A $65 million independent music publishing company, owned by two brothers, was suffering from poor financial performance, deficient cash management and lack of visibility into its business and financials by its bankers. Concerned about long term financial health, the bank syndicate indicated their preference to get out of the credit facility. One of the brothers also needed to be removed from ownership due to his lack of interest in the business, but there was insufficient liquidity to accomplish this. Clearly, the company was in a turnaround situation and possibly headed to restructuring and workout.
A new CFO, now a NextLevel Partner, was hired to address these issues, including business performance and the need for new banking. After a comprehensive assessment of the situation, he took the following initial actions:
- Improved the company’s internal reporting and forecasting processes
- Implemented a sophisticated cash forecasting and management process
- Initiated a broad, systematic process to secure new banking facilities
- Established an Employee Stock Ownership Plan (ESOP) for the owners which made the company more attractive to replacement bankers and provided additional capital for the business, part of which was used to buy out the disaffected owner
Even with the new banker group and the successful buyout of one of the owners, after a few months the company was still placed in the bank’s workout group. The CFO was then able to convince the remaining owner that he needed to make more structural changes, so he executed a broad range of cost reduction and efficiency enhancement initiatives including:
- Renegotiating freight contracts
- Renegotiating printing costs, including overseas divisions to lower global printing costs
- Making a rational, systematic reduction of global headcount and personnel costs
The company greatly improved cash flow and working capital management by, for example, achieving a 10% reduction in freight costs, so that it emerged from workout. This combined with getting past its disaffected bank group and owner issues, put the company in a more solid position to continue to build financial performance and enterprise value.