Railroad Equipment Design and Manufacture
The Situation
A third generation family run business engaged in the design, manufacturing, installation and maintenance of track components and systems for all classes of railroads and industrial facilities. The business had grown to $120MM in revenue and $8MM in EBITDA. Almost half of that revenue and $6MM of the EBITDA had been cultivated over the last 24 months via a joint venture developed to remove and resell scrap rail for Class 1 railroad operators. The company’s asset based lender supported the expansion by increasing its line of credit from $20MM to $35MM to accommodate increased working capital, total outstandings grew to $33MM. When engaged the business was in violation of several loan covenants and eight month EBITDA was ($2MM). The change in EBITDA was created by the failure of the joint venture, onerous contracts and a $5MM+ inventory write-down.
Role(s)
Consultant:
- Financial Advisor
The Work
- Developed and helped implement a plan to shutter the scrap business and liquidate the inventory and associated equipment from numerous scrap yards around the country.
- Led negotiations with customers to transfer contracts to new service providers and minimize dilution of accounts receivable.
- Developed inventory control and standard cost processes and procedures for the manufacturing group and trained the staff.
- Formulated and executed a strategy which saw the assets of the construction business sold to another family entity in order to raise cash.
- Scaled headcount to reflect the new level of operations and installed a new president for manufacturing.
The Results
- Proceeds from the liquidation of inventory, transfer of contracts, asset sales and collection of accounts receivable reduced the loan balance to $8MM.
- The manufacturing business was refinanced with a new lender as a standalone concern.
- The remaining manufacturing operation saw margins increase by 6 bps by the time of the refinancing and service levels were measurably better.
- Though under a different structure, the businesses were retained by the family.