Distributor Restructures After Losing Largest Supplier

Background

The financial impact of losing a major customer can send a business into a period of great uncertainty. But it can also be an ideal time to reassess the business and consider restructuring. The client in this success story — a privately owned business representing a collection of several distribution and service businesses — was facing that very circumstance.

Situation

The client engaged the E.L.I. Partner to assist in restructuring the business after the loss of its largest supplier and approximately two thirds of its revenue. To reduce costs, the E.L.I. Partner focused on streamlining operations and also looked for ways to mitigate the loss of revenue.

Solution

In partnership with the CEO, the E.L.I. Partner successfully negotiated a multimillion dollar breakup fee from the supplier that was cancelling the contract. This fee was not required under the original contract. The breakup fee, plus an aggressive reduction in working capital, was used to pay off the senior secured lender in full. The E.L.I. Partner also developed and implemented a plan to restructure the balance sheet of the surviving operations, including a debt-to-equity swap with the mezzanine lender and the investor group.

Results

In the first year after the cancellation of the contract and the resulting restructuring activities of the client, the client grew revenue/EBITDA of the residual business by 26% and 157% respectively. The client has continued to grow and is on its’ way to pay off the mezzanine lender in full.