AlixPartners helps British Steel with raising asset-backed financing

26 September 2018 Consultancy.uk

Global consulting firm AlixPartners has advised British Steel on the raising of a £90 million of asset-backed finance injection from White Oak Global Advisors. British Steel has undergone a turbulent period recently, citing a weak pound and euro for the potential downsizing of its UK workforce by almost 10%.

In June 2016, Greybull Capital – which purchased UK airline Monarch for £1 in October 2014, before it collapsed three years later – acquired the long products steel division of Tata Steel Europe, rebranding it British Steel. The deal was similarly completed for just £1, and saved the company from collapse. At the time, no jobs were shed, with AlixPartners advising on raising a £175 million asset-backed financing facility to provide the company with sufficient working capital. The consulting firm also provided general acquisition support advice.

While British Steel remains a £1.4 billion turnover operation, the UK-based steel manufacturer has continued to endure hard times since its 2016 revival. This recently resulted in the group confirming it would reduce its 5,000 strong workforce by 400 at its sites in the UK and elsewhere in Europe, blaming a weak pound and euro for driving up costs. As British Steel bids to secure its future with investment that can push a drive for growth, it has secured much needed asset-backed finance, with AlixPartners once again advising on the deal.

AlixPartners helps British Steel with raising asset-backed financing

The new senior secured facility sees £90 million of asset-backed finances from White Oak Global Advisors boost British steel. The investment from the San Francisco-based credit fund is the first major FILO (“first-in, last-out”) facility in the European asset-backed debt markets. British Steel will now look to use those funds to kick on from the first phase of a successful turnaround programme, which has seen a rise in profitability increasing from a £80 million run-rate EBITDA loss prior to Greybull’s acquisition, to an EBITDA profit of £47 million in FY17A, the first financial year post-acquisition, and an adjusted EBITDA profit of £68 million in FY18A.

Roland Junck, Executive Chairman of British Steel, commented, “We’re really pleased AlixPartners is continuing to support the rapid transformation of our business. British Steel is embarking on a period of unprecedented investment and this partnership will enable us to further grow our company.”

Jacco Brouwer, Head of Debt Advisory for AlixPartners in London, added, “We are delighted to have been able to advise British Steel on the raising of further financing facilities that will boost the company’s liquidity and position it for further growth through add-on acquisitions and expansion capital expenditure.”

Related: AlixPartners to restructure Prezzo while Carluccio's hires KPMG.

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8 tips for successfully buying or selling a distressed business

18 April 2019 Consultancy.uk

Embarking on the sale of a business is one of the most challenging experiences a management team can undertake. Even serial dealmakers acknowledge that the transaction process can be gruelling, exposing management to a level of scrutiny and challenge through due diligence that can be distinctly uncomfortable.

So, to embark on a sale process when a business is in distress is twice as challenging. While management is urgently trying to keep the business afloat, they are simultaneously required to prepare it for scrutiny by potential acquirers. Tim Wainwright, an experienced Transactions Partner with Eight Advisory, says that this dual requirement means sellers of distressed businesses must focus on presenting their business in a way that supports buyers in identifying value, whilst simultaneously being open about the causes of distress. 

According to Wainwright, sellers of distressed businesses should focus on eight key aspects to ensure they are as well prepared as possible:

  • Cash: In a distressed situation cash truly is king. Accurate forecasting and day-by-day cash balances are often required to ensure any buyer is confident that scarce cash reserves are under proper control. 
  • Equity story and turnaround plan: Any buyer is going to want to understand the proposed turnaround strategy: how is the business going to enact its recovery and what value can be created that means the distressed business is worth saving? Clear presentation of this strategy is essential.
  • The business model: Clear demonstration of how the business model generates cash is required, with analysis that shows how financial performance will respond to key changes – whether these are positive improvements (e.g., increases in revenue) or emerging risks that further damage the business.  Demonstrating the business is resilient enough to cope with these changes can go a long way to assuring investors there is a viable future.
  • Management team: As outlined above, this is a challenging process. The management team are in it together and need to be consistent in presenting the turnaround. Above all, the team needs to be open about the underlying causes that resulted in the distressed situation arising.  A defensive management team who fail to acknowledge root causes of distress are unlikely to resolve the situation.

8 tips for successfully buying or selling a distressed business

  • Financing: More than in any traditional transaction, distressed businesses need to understand the impact on working capital. The distressed situation frequently results in costs rising as credit insurance becomes more difficult to obtain or as customers and suppliers reduce credit. Understanding how these unwind will be important to the potential investors.
  • Employees: Any restructuring programme can be difficult for employees. Maintaining open communications and respecting the need for consultation is the basic requirement. In successful turnarounds, employees are often deeply engaged in designing and developing solutions. Demonstrating a supportive, flexible employee base can often support the sale process.
  • Structuring: Understanding how to structure the business for the proposed acquisition can add significant value. Where possible, asset sales may be preferred, enabling buyers to move forward with limited liabilities. However, impacts on customers, employees and other stakeholders need to be considered.
  • Off balance sheet assets: In the course of selling a distressed business, additional attention is often given to communicating the value of items that may not be fully valued in the financial statements. Brands, intellectual property and historic tax losses are all examples of items that may be of significant value to a purchaser. Highlighting these aspects can make an acquisition more appealing.

“These eight focus areas can help to sell a distressed business and are important in reaching a successful outcome, but it should be noted that it will remain a challenging process,” Wainwright explains. 

With recent studies indicating that the valuation of distressed business is trending north. With increased appetite from buyers who are accustomed to taking on these situations, it is likely that more distressed deals will be seen in the coming months. “Preparing management teams as best as possible for delivering these will be key to ensuring these businesses can pass on to new owners who can hopefully drive the restructuring required to see these succeed,” Wainwright added.