Background

A successful manufacturer and distributor of consumer products expanded into areas beyond its core competencies. The company also failed to adapt to a changing economic environment, continuing to use an outdated and expensive business model.

Key Issues

• The company possessed a strong core business, with well-known brands and high consumer recognition.
• Covenants under the company’s bank loan were continually violated.
• The company’s assets were under-performing yielding a negative return on assets, and collateral far exceeded the bank debt.
• Selling and administrative overhead was not properly (or realistically) aligned with current economics.
• Working capital management was poor.

Actions

• RSI developed and helped the company execute a strategic plan to refocus the company’s business on its strengths and extract the inherent value of underutilized assets.
• RSI recommended the sale of underperforming businesses that did not build on the company’s core competencies, and assisted with negotiation and implementation of the sales.
• RSI recommended the licensing of certain strong brands where the company was not competitive (in the areas of manufacturing and distribution), and assisted with the negotiation and implementation of the licensing transactions.
• RSI supported the company’s sale of licensed brands that did not fit into the long-term core business.

• RSI formulated plans to eliminate excess overhead and helped the company to execute the reductions.

• RSI enabled management to achieve better focus on working capital to reduce capital requirements.

Outcomes

• The company returned to profitability in eighteen months.
• Total debt was eliminated, and the company had excess cash to reinvest and use to grow its core business.
• The company was able to negotiate a new and more flexible credit facility based on its repaired and improved capital structure.