Jack turned out to be one of my favorite clients.  It is a good thing, because on my first visit to meet with him I had to cross a rather vocal picket line marching in front of his plant.

Jack is the fourth generation owner of a manufacturing company located in a rural town of about 1,300 people.  With 180 employees, Jack’s company was a vital contributor to the local economy.  Unfortunately, the combination of Jack’s automotive concentration, a union wage workforce, and increasingly volatile material costs had turned into a perfect storm, which now threatened to destroy his business.

Jack’s company is a plastics manufacturer providing thermoforming and injection molding services.  The company generates annual sales of $35 million and produces returnable industrial packaging and structural foam inserts customized to accommodate specific shipping and storage needs.

When I first visited Jack, his business was—by anyone’s standards—in crisis.  It had suffered seven-figure losses in the past three fiscal years, and his lender had asked him to take his business elsewhere because of the company’s worsening performance, weak financial reporting, and inadequate inventory control systems.  To top this off the union employees reneged on their wage concessions and declared a strike.  He was facing liquidation if he couldn’t turn the situation around.

This was pretty grim stuff we were wading through.  It wasn’t that Jack was a bad businessman, but his decision-making ability was hampered by the fact that the company was the major financial asset for his entire extended family.  Many of them had differing opinions about what was needed, and they weren’t able to reach consensus.  Bringing in O’Keefe was a way to interject a third party, objective perspective that was so badly needed to move forward.

When we began our work, it was clear that Jack and his management team understood that they were in a tight spot.  In past years, the challenges their business faced were manageable.  However, when raw materials costs became more volatile, order turn around expectations increased, and payment terms got tighter, the business no longer felt second nature to him.  O’Keefe & Associates has worked on numerous situations like this.

I also learned that Jack was not only the head of the business, but also a community leader, fixer of problems and go-to person.  He knew that his crisis was also the town’s crisis, as the local unemployment in the community was already over 10%.  The unemployment rate would more than double if his company went under, and most of his extended family would suddenly be jobless. 

As a result, the weight that made his shoulders sag was not only that of his company and his family’s future, but also of the community’s well-being.

It is very common for business owners facing a dire “perfect storm” situation to experience an overwhelming fear of failure and freeze up.  They resist making any significant decisions because circumstances are now so complex and unfamiliar.  What O’Keefe does at this point is carve out the distressed functions of the business and take on the heavy lifting for these stressful activities, allowing the owners and managers to return to doing what they do best—running the day-to-day business.  Not only do we lighten the overwhelming workload, but also owners and managers can breathe a little easier, knowing that experienced and steady hands are guiding the company. 
The first thing we did was secure an extension of the existing lender’s forbearance agreement.  Next, we collected the necessary financial information from Jack’s staff and produced a financing request package, which replicates the underwriting process lenders use internally when deciding whether to extend credit.  Our packages always make deals much more attractive to lenders because we’ve already done the upfront analysis and made it very easy for them to get internal approval to issue a loan proposal.  Bankers appreciate the value and credibility of a financing request from us.  As a result, our packages go right to the top of the stack.

We distributed our loan request to commercial and asset-based lenders who have experience in financing troubled companies like Jack’s, and quickly generated eight proposals.  Jack was stunned that we secured so many viable proposals.    Prior to  our  involvement, Jack’s accounting firm had tried to find him a new lender and was turned down by every bank they approached!  We reviewed all the proposals with Jack, assisted him in selecting “finalist” lenders to bring in for interviews, and then negotiated on his behalf to secure very attractive financing terms on his new loans. 
We were preparing to take another step forward when more bad news hit our desks; the company failed the new lender’s pre-closing field exam due to its weak financial reporting and inventory systems.  A roadblock like that could easily kill a deal, but we quickly negotiated operational change conditions and a revised collateral structure that satisfied the new lender, and got the transaction successfully closed before the existing lender’s forbearance agreement expired.

Now with the critical refinancing hurdle behind him, Jack was open to making other changes, such as engaging an accounting firm to shore up his internal accounting processes, and implementing a perpetual inventory system to improve internal controls and facilitate lender reporting requirements.

With new financing, new energy, and improved business controls, the company has achieved improvements in the operational metrics that signal its health.  Jack knows he needs to tackle diversifying his customer base, not an easy task these days, but with the threat of insolvency behind him, he is a focused man.

I check in with Jack a few times a year.  I enjoy hearing him tell me he is making more money than ever.  I also appreciate his driven, yet conscientious, approach to doing business.  A conversation with Jack is always a mini-celebration of what expertise and experience can do to help a client in distress.

Winner of M&A Advisor’s 2007 Business-to-Business Manufacturing Deal of the Year