For Immediate Release
Contact: Chris Martin
630.670.2745
Turnaround Firm Rescues Minneapolis-based Company from Shut Down and
Bankruptcy
Chicago—January 12, 2007--Is it possible to sell a company that is in Chapter 11
and still get a better than value than anyone could have expected?
Chicago-based turnaround specialists Morris-Anderson pulled it off, and for its
efforts, the Turnaround Management Association Chicago/Midwest Chapter is presenting
them with an award for best turnaround of 2006 in the Mid-Size Company Category
Annual Awards Program on January 12 in Chicago.
Morris-Anderson was brought in to salvage a company called Hitchcock
Industries, which was a third generation, family-owned business that made large
aluminum and magnesium castings for commercial airplane engines. Like many
companies that served the airline industry, the suburban Minneapolis-based Hitchcock
was hit hard after 9/11. Bad market conditions, continued pricing pressure from
customers, and management missteps put the company into financial distress in 2003.
In response, Hitchcock’s board had replaced the existing chief financial officer
with a board member and quickly found out that senior management had been pre-billing
shipments and misreporting the company’s accounts receivables.
“When the board learned about this, it terminated the CEO and reported this to
company’s major lenders,” said Dan Dooley, principal of Morris-Anderson.
“Unfortunately, the lender chose to discontinue funding Hitchcock, effectively shutting
the company down in September.”
When Hitchcock’s major customers found out, they agreed to provide a $4
million guarantee to the lender to keep this company afloat. After this funding was
arranged, the company filed Chapter 11 and began searching for a firm to help the board
sell the company.
Morris-Anderson was retained at this time and immediately began to go though
the company’s books and financial statements. Much to his chagrin, Dooley found that
things were worse than suspected.
“Hitchcock’s financial records were in poor shape and there was no historical
financial knowledge on the new staff to explain any of the numbers,” Dooley explained.
After the Chapter 11 filing, Morris-Anderson worked with management to create
a multi-year financial projection.
“We believed that Hitchcock could operate at approximately $50 million in sales
and $5.5 million of Earnings Before Interest, Taxes, Depreciation and Amortization
(EBITDA), which was much stronger than the company’s recent track record of $1 to $2
million,” Dooley said.
In the first quarter of 2006, Morris-Anderson began marketing Hitchcock to
potential buyers and was able to attract two buyers to go through due diligence and five
parties participated in its bankruptcy court supervised auction in April, 2006, according to
Dooley. As a result of this competition, Morris-Anderson was able to negotiate a
successful sale of Hitchcock to CFI Holdings for $46 million, at least double the
expectations of the Hitchcock stakeholders, 8.4 times prospective earnings and 31 times
recent historical earnings.
Dooley attributes Morris-Anderson’s success to its strategy of allowing
prospective buyers conduct preliminary due diligence in a manner in which the
competitors actually ran into each other, which focused bidders on the competitive nature
of the transaction.
“We were also successful negotiating two ‘stalking horse’ bids that ensured that
Hitchcock would receive a fair market value for its assets should no bidder tender a
competitive offer,” Dooley said.
The Turnaround Management Association (www.turnaround.org) is the only
international non-profit association dedicated to corporate renewal and turnaround
management. The Chicago/Midwest Chapter of TMA has over 1,000 members and is
comprised of turnaround practitioners, attorneys, accountants, consultants, investors,
lenders, venture capitalists, appraisers and liquidators. For more information, visit the
Chapter’ s web site at www.chicago.turnaround.org or call 815-469-2935.