Case Study: Tool Manufacturer Undercapitalised Buy Out.

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West Midlands Machine Tool Manufacturer. Sales £4m Staff 67. Undercapitalised buy-out with sales drop causing failure.

KSA was approached by the company's accountants to rescue this well regarded and technically excellent company.

This was a management buy out of a long established (100 years old) engineering company in receivership. As is common, the MBO was undercapitalised from the outset but the business was profitable, making £170,000 on £3.9m of sales in its first year. The company had won a large contract early in its life which was planned to be spread over 2 years.

A change of mind by the contractor led to this work being compacted into 9 months. The expected margins were not made and the whole management team focused on ensuring delivery time scales were met. This led to a sharp fall in enquiries as sales development and marketing had been shelved.

A subsequent sharp drop in sales led to a cashflow crisis. Although a quality management team was in place some changes were necessary. The factory director left and the remaining directors invested new capital into the business.

We organised a CVA restructuring, deferring £600,000 of debt. KSA was appointed to the board to provide management depth and KSA Client Services has introduced a new marketing plan, enabled the restructuring of the management team and helped build a strong platform for growth.

The sales book (which continues to grow as confidence grows and marketing approaches led to new sectors) is now at a level 16 times higher than January 2002.

The company has made some losses since the CVA but is now on target to make modest but sustainable profits.

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