Case Studies
J.S. Held Acquires Shechter & Everett to Expand Forensic Accounting Capabilities for Family Law Disputes in Florida
Read MoreLocated in the Midwest, the Client was a privately held Distributor of Pharmaceutical and Durable Medical Supply Products to skilled nursing facilities, group homes, assisted living facilities, correctional institutions, and home healthcare providers.
As a result of numerous industry changes impacting the Company, it began suffering cash flow problems that led to a significant loss of business as service levels declined. This business erosion resulted in the Company defaulting on its $3.0 million line of credit and the stretching of vendor payables significantly beyond acceptable terms. In addition to its bank debt, the Company carried an additional $3.2 million of secured debt owed to its main supplier. The Owner personally guaranteed that both the bank and supplier secured debt. Our experts were retained to assist the Owner in developing a turnaround plan and communicating with its bank and other creditors. Based on our assessment of the situation, the decision was made to sell the Company, as opposed to attempting a turnaround of the operation. This decision was primarily driven by the fact that the Company could not reasonably service the magnitude of debt owed to the secured and unsecured creditors, which totaled over $8.0 million, in a reasonable time frame. While bankruptcy reorganization would be one option to reduce the amount of debt, it was clear that the Company could not withstand the cost associated with a bankruptcy filing. The cost of bankruptcy and the required time also precluded selling the business through a Section 363 process. Our team’s analysis projected the Company had approximately 10 weeks before exhausting its working capital and availability, which would leave no other alternative but to liquidate the Company’s assets. Liquidation was projected to result in a significant loss for the primary secured lender; a total loss to the second lien lender; interruption of patients’ medication needs; as well as the loss of 65 jobs.
Given the lack of time and available funds, our experts recommended that a sale of the Company’s assets be conducted under Section 9-610 of the Uniform Commercial Code (referred to as an “Article 9 Sale” or a “Secured Party Sale”). A properly conducted Article 9 Sale would convey the assets to the buyer free and clear of liens and encumbrances. Discussions and negotiations were conducted with the primary lien lender and second lien lender, as well as several prospective strategic buyers. We also assisted management in identifying and implementing actions to reduce the cash burn in order to create as much runway as possible to complete the intended transaction. Eleven weeks (78 days) following the initial meeting with the primary secured lender, the Article 9 transaction was completed. The results included, full recovery of the primary secured lender’s debt, 32% recovery of the second lien lender’s debt (as opposed to a total loss, which would have resulted in liquidation), elimination of the Owner’s personal guarantee to the primary lender and a substantial reduction in the Owner’s personal guarantee to the secondary lien lender, uninterrupted patient service, and the retention of jobs.
Brian F. Gleason, CTP
Senior Managing Director
Strategic Advisory Practice
+1 610 659 8118
[email protected]
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