4 Location Injection Molding and Plastics Manufacturing Company Turnaround
The Company: The 34 year old private equity-owned plastics molding company with US and Mexican operations exhausted their PPP and ERTC capital by late 2022 and faced new challenges with cash flow. The company was facing a potential cash crunch and the owners wanted to exit the company through a 363 sale with its senior creditor.
The customer orders declined due to a shift in product mix and sourcing consolidation after the COVID-19 pandemic. The drop in sales and increased overheads eroded the $12mm working capital with no room for raising new capital. The senior ABL lender terminated the credit line due to liquidity concerns late 2022 .
- Revs FY’23- $47,000,000
- Assets- $16,000,000
- Liabilities- $12,000,000
- A/R- $8.4mm DSO 71 days
- A/P – $9.3mm DPO 51 days
The Situation: The Company faced tighter cash crunch in early 2023 and the PE owners decided to cease production by mid-2023 unless the management executed a restructuring plan ASAP. A major customer began to notice changes in management turnover and organizational communications. They called for an “all-hands” meeting and announced an 6-month exit plan from the Company.
Investment thesis: “Resize and revise OpEx”
Marabek was contacted early 2023 by the PE firm to fix the issues and right-size the company or explore exit strategies quickly since leadership lacked a clear plan. The decision to terminate the CFO and VP Operations was decided before the CEO resigned and Marabek could review their proposed turnaround plans.
The Company after the first 3 months with Marabek help was able to eliminate 22% of the non-essential workforce in US and 16% in Mexico. Additionally, developed a VMI plan for raw materials, MRO and supplies with major vendors. Marabek was able to advise the main customers to provide better forecasts and lead times to lean operations. After the 5th month, our SIOP systems got the bleed to stop.
By Dec. 2023, Marabek placed the company back on track to stabilize cash flow with reduced debt and A/P and increase margins by eliminating variances and scrap. The PE firm has since retained a search firm for a new CEO and CFO as well as put new incentives for sales and business development. The company is expected to hit break even in 2023 and a positive net margin over 13% in 2024 with EBITDA over 17%. Another investment recovered and restored to its portfolio for growth.
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