The Company, a financial services firm, approached GHJ in early 2017 with an interest in preparing the business for a sale. Sale was completed in January 2019.
BACKGROUND
- Finished 2016 with:
- Revenues of $26.2 million
- A significant loss on the EBITDA line
- 2017 started with declines in sales and increased losses
- Challenges:
- An entire business unit, responsible for a significant portion of revenues, was losing a significant amount of money
- The management team was disengaged (along with the board of directors) from understanding the gravity of the issue and was moving forward with operations as if nothing was wrong
GHJ OBSERVATIONS
Upon becoming engaged and seeing that the Company was losing money due to issues with one of its business units, GHJ noted without significant changes the Company would be bankrupt within six months (and its generally retired ESOP shareholders would lose their income).
GHJ assembled Company management and the Chairman of the Board and developed a plan to conserve cash long enough to shut down the losing business unit and engage an agent to put the rest of the company up for sale.
GHJ SERVICES
GHJ was initially engaged to:
- Develop a strategic sales strategy and plan
- Utilize that plan to prepare a forecast model
As GHJ began work, it became clear that there was an existential financial threat from continued losses to the company’s ability to continue as a going concern and we shifted our services to:
- Advise on triaging cash flow losses
- Engage an investment banker to put the successful business unit up for sale before it was too late
Advising on Triaging Cash Flow Losses
GHJ rolled up its sleeves and analyzed current profit and loss statements and advised on stemming losses with a combination of workforce reductions, closing down the unprofitable business unit and opening both ownership and management’s eyes to the gravity of the current situation.
Selecting an Investment Banking Firm
GHJ reached out to investment bankers that could be effective in a sale of a business where the basic business was sound with solid customers and contracts and market around the losing business unit. One banker stood out from the other and was engaged.
GHJ assisted in structuring the investment banking engagement such that the Company would save a significant amount in fees at the time a transaction closed. Additionally, GHJ had a longstanding compliance client in an adjacent business that had previously expressed interest in entering into this market and identified this client to the investment bank.
THE RESULTS
While it took time to close, GHJ’s compliance client acquired the Company in January 2019. The result was a great one for both clients, and they were able to get the results they were anticipating prior to engaging GHJ.
When GHJ is engaged by a client to help them improve profitability of their business and position for growth, possibly with an eye toward a strategic event (such as a sale), it is never know what might be found once the work begins. In this case, the business was in serious trouble, and GHJ helped management and the board recognize the gravity of the situation and take action to save the company and the ESOP shareholders from losing their retirement vehicle.
