05 Nov CASE STUDY NOVEMBER 2014
Financial restructuring is a powerful strategic manoeuvre to extract additional profit and preserve capital within the business. Take a moment to focus on what could be achieved in your business and to provide you with some guidance, below is a recent success story that Robinson Sewell Partners was pleased to be a part of.
- An accountant recommended that one of his clients engage the services RSP on the back of other positive client outcomes the accountant had witnessed.
- The client’s current financial arrangements of $3.75 millionwas outside the security benchmark being applied by their existing bank, and consequently was on a significant loan principal reduction program.
- The loan principle reduction program did not align with cash flow so it either meant capital contribution from the owners or consolidation of assets. Both courses of action were not strategic from an efficient capital allocation perspective.
Robinson Sewell Partners (RSP) Strategy
- RSP conducted and concluded a full credit assessment of the business and documented for formal financial engagement.
- The RSP tender process was put into action, with three lenders being invited to participate whose security benchmarks would not be breached by this transaction.
- One of the early challenges that arose was due to the client’s price per unit produced was well above industry average. This meant that only one of the three potential new lenders would accept the client’s historically proven capacity to achieve the higher prices on the back of a superior product. The two other lenders applied industry average prices against the clients forecast production, thus reducing the attractiveness of the deal.
- Interestingly enough the bank that accepted the clients forecast price per unit on the back of historical evidence had just released an industry analysis paper on the diversity of production, quality, and subsequently the prices that could be achieved in that industry.
- RSP concluded the tender with the client proceeding to move to the new bank that showed a deeper understanding of the industry they operated in.
- The clients also achieved a significant improvement in the pricing and terms of their finances, i.e. finance costs were reduced by circa $95,000 per annum; the new loans were interest only to allow for capital investment in the operation; and the new bank manager was located close to the clients operation, allowing for greater interaction and understanding between the parties.
Feel free to make contact with RSP to discuss what outcomes could be achieved within your own business or within your business networks / clientele.