Company Overview
The Company is a folding carton producer with locations in the Chicagoland area and on the east coast.
The Company had experienced significant losses that resulted in a dwindling net worth, an over-leveraged balance sheet with $10 million in debt, including a significant cash flow component, and no availability on their line of credit.
Engagement Overview
The Company was financed through a venture capital fund with expectations of implementing a roll-up in the industry. Prior to Fort Dearborn’s involvement, the venture capital fund infused an additional $1 million, in the form of subordinated debt.
The Company had made minimal capital equipment expenditures since its inception several decades ago, and competitive pressures resulted in the installation of a new leased press that increased the financial risk in the business.
The Company had experienced significant erosion of revenue for approximately two years. The union relationships in one of the locations was very tenuous, due to staff reductions implemented by management.
Fort Dearborn Partners was engaged to improve the Company’s operations, assess its strategic alternatives, and develop an operating plan with a financial forecast.
FDP identified $1.2 million of annual profit improvement opportunities that management implemented immediately.
Results
Due to capital and facility constraints, FDP determined that additional capital equipment expenditures were not feasible and identified cost savings would not produce enough liquidity to fund the over-levered Company in the short term.
Ultimately, FDP recommended that the Company divest one, or both, locations to satisfy the bank debt.