When selecting an investment banking and advisory firm, finding one that has a comprehensive and in-depth understanding of all aspects of an M&A engagement could make or break your deal. Our unique process combines our expertise in both healthy and distressed M&A to create an approach that fits the challenges of your business. Our goal is to find the best solution for our clients by utilizing all the resources available to us.
Ken Mann is a Managing Director of SC&H Capital, our Investment Banking and Advisory practice, where he provides distressed M&A advisory to private company business owners. With more than 25 years of experience, Mann leads the team’s go-to-market strategy, lender and attorney interface, offer and purchase agreement negotiation, and everything in between.
- To connect with Ken directly, email kmann@schgroup.com
Video Transcription
As we think about how our clients benefit from working with SC&H Capital, a firm that has expertise in both distressed M&A and healthy M&A, it’s helpful sometimes to look at real-life examples.
Distressed M&A | “Melting Ice Cube”
If you think about a company that is the proverbial “melting ice cube”—meaning it is falling apart quickly and if you don’t get to a transaction fast, there won’t be anything left to sell—I can offer this as an example.
An $80 million-a-year sports nutrition company, founded by a famous bodybuilder from the 80s was falling apart. So much so that, before we were even retained and while meeting with the founder, he had handed me a phone that he’d already dialed and asked me to talk to his protein supplier. He wanted to get them to ship protein because they had not been paid and weren’t shipping product. At the same time, he informed me that retailers were taking his product off the shelf and giving that space to other brands because they didn’t believe he could produce any longer. It was clear that this case was a “melting ice cube” and that we had to very quickly get to offer.
We hit the market within a week with a CIM (confidential information memorandum) and a teaser. With no time to do a deep dive or research, we got our initial bids in about four weeks. What that allowed us to do was:
- Give the market confidence that this business would survive,
- Get the protein supplier to ship,
- Get customers to believe that they were going to continue to get product,
- Get employees, frankly, to stick around, and, maybe most importantly,
- Get the secured creditor to put in additional funds because they could see the light at the end of the tunnel.
Then over the next four weeks, we generated additional bids and we got to a level that paid off the secured debt. We had a bid off among four bidders from four different continents at which the price more than doubled and the founder was able to gain equity in the buying entity. We doubled the price, got him 30% equity, and an ability to claw back additional equity after the closing.
This was a great success story where speed was key. If we had waited one more week, there would be nothing left to sell.
Tailored M&A | “Diamond in the Rough”
Conversely, when we represented Gourmet Express, a manufacturer of frozen skillet meals, this was a healthy underlying company. We viewed this as a “diamond in the rough”. There was $50 million in revenue, good margins, but they were hampered by some internal litigation between partners. We were able to take a more of a thoughtful, intentional approach to who the buyers might be, why they would have interest, and really sell the value of the cash flow and the growth of the company.
Although we still ran a very fast process, it was in a bankruptcy—we were able to draw in some private equity buyers and were able to achieve a very competitive auction where, not only were all the debts in the bankruptcy paid off, but shareholders got $18 million for their equity. Two of the three shareholders decided to stay involved in the business and continue to operate it, one was the CEO, whereas the third shareholder took his money and a non-compete and went on to the golf course.
Leveraging Both Distressed and Healthy M&A Expertise
More recently, we represented a company in the bedding and furniture industry that was facing some distress related to Covid-19 and a disruption in the supply chain combined with some litigation. We thought selling the company in the Covid environment would be a mistake. We were able to use relationships across our healthy and distressed teams to bring different kinds of options to the table, including an option that allowed the shareholder to maintain his equity, actually gain equity, become a 100% shareholder, and refinance the debt to allow the company to move forward.
As we come out of the pandemic, they are doing very well, growing rapidly, and actually looking to make acquisitions now that they are properly funded.
Those are three deals on the distressed spectrum that deserved different approaches, different results, and differently structured transactions. The varied expertise of the people on this team who know private equity groups, lenders, distressed buyers, and who understand how to think like a CEO (as both a buyer and seller) allows us to bring value that we think is above and beyond what you would typically see in a distressed situation.
