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MorrisAnderson takes Victor Plastics from possible liquidation to successful sale in only 4 months
The problem: Victor Plastics, a custom plastics injection molder, was a $100 million business in 2006. With three plants in Iowa and one in Mississippi, the company was thriving. The largest customer, Maytag, represented about 40 percent of sales.
Following Whirlpool’s acquisition of Maytag, Victor and Whirlpool management engaged in heated pricing and supply discussions. The result: Victor exited the Whirlpool business in 2007, sold the Iowa plant that had supplied Maytag, and became a $60 million company losing $3 million per year. Saddled with $16 million of senior secured debt, $9 million of junior secured mezzanine debt, and $13 million of vendor and other unsecured debt, Victor was suddenly unable to meet its obligations.
MorrisAnderson was brought in to assess the situation. Resin vendors were charging $3 for every $1 of materials shipped and Victor was losing a quarter of a million dollars a month. MorrisAnderson quickly determined that the company was viable, but significant operating changes were necessary, and a minimum investment of $2 million would be required to consolidate multiple plants. This would allow Victor to serve its most profitable customers and operate at a high utilization level.
None of the debt or equity holders would fund the consolidation. With the company running out of cash, MorrisAnderson encouraged the lenders to try a “Quick Sale.” The junior and senior lenders preferred a bankruptcy proceeding and a liquidation, believing that a liquidation was the quickest and highest value path to repayment of their loans. The company filed bankruptcy; customers were told to make final orders; and employees were notified that a 12-week orderly liquidation was in the works.
The solution: After the bankruptcy filing, MorrisAnderson continued believing in the long-term viability of Victor even though the lenders preferred a liquidation. The lead engagement professional and the rest of the MorrisAnderson team developed a comprehensive plan to close the unprofitable facility in Mississippi, raise customer margins, and get the company back to positive cash flow levels. One week into the bankruptcy, the lenders agreed that a sale was the appropriate path, and MorrisAnderson’s investment banking team was engaged to sell the company as a going concern.
MorrisAnderson reiterated to lenders and employees the detailed plan to return Victor to long-term, sustainable profitability. To help maintain sales and speed collections, agreements were reached with most customers to provide for temporary price increases and revised shipment and payment procedures. Customers that were not profitable and declined to pay price increases were encouraged to leave. The unprofitable plant in Mississippi was closed. Middle-management and MorrisAnderson’s team worked together to reduce scrap levels and eliminate overtime hours. Anyone who was not adding value, including hourly employees and remaining upper management that was not focused on internal operations, was let go.
On a parallel tract, MorrisAnderson’s investment banking team delved into finding the appropriate buyer. Teasers were sent to 175 prospective strategic buyers, private equity, and investment firms. Forty-three signed confidentiality agreements and were granted access to a virtual data room that was up and running only seven days after the engagement began. Eleven prospective acquisition participants made offers. During this process, the investment banking team communicated progress with Victor’s customers, ensuring them that viable offers were on the table and that production would continue uninterrupted.
The result: MorrisAnderson’s operations team returned Victor to cash flow positive status, including legal and professional fees associated with the bankruptcy. All major profitable customers were retained. The investment banking team located the stalking-horse buyer, negotiated an asset purchase agreement, and successfully concluded the sales process. Victor sold for 5.5 times 2008 projected EBITDA, a substantial multiple for a plastics company in bankruptcy. The total engagement was four months. The investment banking portion, from start to sale, took only three months.
Following the loss of a $40 million customer, a bankruptcy filing, and the initial stages of a liquidation, MorrisAnderson’s expert operations and investment banking teams were able to rescue a distressed company in a distressed industry, return it to profitability, and bring about a successful sale, thus saving more than 400 jobs.
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