Case History: Assessment ...Turnaround ... Sale
The Organization
80 year old regional commercial bakery with annual sales of $22 million.
The Situation
Company essentially insolvent and collapsing as a result of steady loss of market share and no profits over 10 year period, climaxed by severe losses when new production line failed to perform as expected. Owners were planning to close down.
The Approach
Pace made an in-depth evaluation of the business and its options which indicated that the company should be sold, but if that was not possible, a turnaround effort had a reasonable chance of success. The time and cost for a turnaround effort was estimated at 1 1/2 years and $1.5 to $2.0 million.
The owners contracted with Pace to attempt the turnaround on an interim management basis with the understanding that efforts would be continued to identify a suitable buyer and/or investment partner.
Pace placed a full time Chief Operating Officer on site, with appropriate support from others in the Group as needed.
Key factors in the turnaround program included ...
- Implementing a highly controlled cash management system
- Reducing costs to bare minimums including a 35% cut in overhead expenses
- Reversing the downward market share
- Obtaining interim financing through an aggressive pressure on state and local officials and other sources already involved in the business
- Restructuring long-term debt and obtaining equity infusion
Results
The cash management procedures allowed the business to function for 7 months until interim financing could be arranged. Aggressive marketing efforts resulted in increasing market share by several points in less than 10 months.
While the company's primary lender was being taken over by the FDIC, negotiations were initiated with two major bakery operations and the Company was sold within 12 months of Pace's engagement.