The Company manufactures and distributes specialty food products to supermarket chains, mass merchants, food service distributors and food manufacturers from its three plants located in Oregon and Michigan.
The Company enjoys significant market share but is concerned that foreign supply may alter the dynamics of the industry and is considering strategic alternatives.
•The Company had just sold a profitable, but non-core product line, utilizing a portion of the proceeds to pay down debt while retaining the balance to finance possible strategic alternatives.
•After the sale, the Company’s core business was saddled with excess inventory, flat sales and declining margins while also facing significant capital expenditures at its oldest plant.
•The key management team consisted of a father and son who had very different visions of the future of the Company.
•The owners were interested in considering a broad spectrum of strategic alternatives, including improving core business performance, plant consolidation, acquisitions and/or product line expansions. The Company engaged Fort Dearborn to assist with evaluating strategic alternatives.
Working with management, Fort Dearborn:
–Analyzed profitability by product line, customer type and plant;
–Identified detailed inventory reduction initiatives that would reduce inventory by $5 million;
–Identified price increases and other profit improvement initiatives, totaling $1.5 million annually;
–Prepared an updated financial forecast assuming status quo as well as various plant consolidation scenarios and related detailed forecasts, including estimated Cap Ex necessary to facilitate consolidation; and
–Evaluated execution risks with each scenario including managements ability to implement plans.
Fort Dearborn evaluated both short term and long-term investment horizons and developed tactical plans for each:
•Implement cost & inventory reduction initiatives
•Forgo long term growth strategy, maximize profitability and consider exit strategy
•Do NOT consolidate plants
•Become industry consolidator by investing in new product lines, synergistic acquisitions and further developing global supply options
•Must develop and implement management succession plan to provide consistent leadership