CNG is a small entrepreneurial venture established by a successful distributor of air compressors. However, even with a solid offering of industry leading products focused on delivering compressed natural gas, the collapse of oil prices leading to a long-term declining trend in natural gas prices, dampened enthusiasm for natural gas as a fleet fuel source and the delivery systems that CNG had created.
Newpoint was introduced to the situation by a potential investor who passed on the opportunity after the company was forced to lay off a number of staff. The otherwise good company was suffering from a lack of new projects. The lender had grown fatigued by a management team that did not have a plan for reducing its exposure. Vendors were also exasperated by management’s lack of communication over a recovery plan. Lawsuits were filing in from vendors and summary judgements had been granted.
Newpoint was hired to recapitalize the business. We put the company through our 20 Day Proactive AssessmentTM, which included a cash flow model and the TAMETM interview. This revealed an extensive set of working capital and cost reduction opportunities the company could engage in to immediately improve its situation. The recommendations had the effect of moving the company from having to sell or liquidate to being a viable workout candidate to a new lender. The initiatives were shared with the owner and initial buy-in was achieved. These were then shared with the lender who, in spite of fatigue, agreed to enter into 90 day forbearance, providing the company the time it needed to make improvements.
Cooperation was easier than execution. Based on the TAME process, Newpoint set up metrics to help the company track its recommendations and the evolution of change. Unfortunately, the effort proved to be too tough mentally for the company management. They felt overwhelmed by the revenue issues and struggled to prioritize. Newpoint used the metrics to illustrate to management that, in spite of its congenial behavior and regularly attended meetings, the company was not making enough progress to convince lenders and vendors comfort to stick with the company’s turnaround effort. The lack of effort would also impact the company’s ability to attract the appropriate capital.
Using Newpoint’s Metrics methodology, we were able to proactively demonstrate to management and the lender that the company must consider a sale in order maximize the opportunity for all stakeholders. An investment banker was brought in and a rapid process was initiated. Newpoint guided the process, helping management gather data and stay on time with the effort, which enabled the company to get more time from its lender in order to complete a sale that increased recovery for the lender.
Newpoint’s system and guidance allowed the company to explore its strategic options rather than suffer a forced liquidation. This second chance allowed the company to achieve an approximate 200% recovery vs. liquidation. Metrics allowed Newpoint to show management its progress and have a real litmus test of its abilities and successes. This methodology, which is unique to Newpoint, shortened the engagement and allowed the company to move quickly to the correct strategic option and not aimlessly meander to a liquidation or waste the lender’s or company’s resources.