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Franchisor Works Down Credit Exposure to Allow Refinancing

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Home·Franchisor Works Down Credit Exposure to Allow Refinancing

The Situation

$100 million retailer franchisee of home improvement and garden products with approximately 50 stores throughout the Detroit metro area. $15 million debt.

  • The company previously operated a chain of over 65 stores under an independent name, selling low-cost home improvement and gardening products throughout the Detroit metro area.
  • The company began reformatting all of its locations as Ace Hardware locations and reopened almost 50 locations.
  • Distribution was also shifted from a centralized warehouse to a direct-to-store shipment model.
  • Conversion was to be funded by liquidation sales, but an unfavorable contract with the liquidators resulted in the company being significantly short on the funds necessary to complete the store conversions.
  • Additional funding was generated by not paying for Ace merchandise shipped to new stores, resulting in a significant unsecured trade obligation to Ace Corporate, the product supplier, beyond the bank debt.

How We Advised

Our experts conducted an independent assessment of the company's business operations and sales and earnings forecasts to evaluate its viability and ability to pay down its trade debt while staying within the constraints of its ABL loan.

  • Determination of management strength and whether key personnel would be able to successfully execute the operational turnaround and store conversion plans.
  • Ace provided operating consultants to assist with remaining transitions and store performance improvement initiatives; additional inventory investment was necessary to complete the conversion.
  • Complete the sale of the now-unneeded warehouse facility to reduce debt.
  • The assessment confirmed that ACE Corporate should continue to support the company and its ongoing operational improvements.
  • The ABL loan was refinanced based on the quality of inventory, supported by ACE Corporate, and improving EBITDA.

Key Contact

Dan F. Dooley, CTP 
Senior Managing Director 
Strategic Advisory Practice 
+1 603 660 8952 
[email protected] 

Related Practice Areas

> Business / Operational Assessment 
Most consulting firms approach a business assessment from a purely financial perspective — our assessments provide a 360° view of a business, addressing growth drivers, profitability, and uses of capital. Along with detailed financial performance reviews and cash flow forecasting, our comprehensive Business / Operational Assessment identifies the various challenges clients encounter throughout their operations. 

 

> Turnaround and Restructuring Services 
Navigating the many challenges confronting a company in transition requires an operationally focused approach that looks beyond the balance sheet to minimize further degradation and build a path to sustainable growth. Drawing upon decades of experience in the turnaround space, we help companies in transition identify practical strategies to improve profitability and liquidity for immediate relief, while concurrently developing and executing a comprehensive turnaround plan for long-term, sustainable value creation. 

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