Duff & Phelps appointed for Meridian Metal Trading administration

08 April 2019 Consultancy.uk

UK steel supplier Meridian Metal Trading has collapsed into administration. At present, none of the firm’s 170 staff have been made redundant, and administrator Duff & Phelps hopes to keep the company running until a buyer is found.

With a growing level of concern around a potential global trade war, the pricing of key commodities has spiked dramatically since the announcement of harsh import tariffs by the US, and with a retaliation due, the profitability of the world’s supply chains could be hit by rapidly rising costs. The global extraction industry had already entered a period of reducing costs amid pricing pressures, and now the problems are being felt further down the supply chain.

In 2017, Tata Steel Europe, since rebranded British Steel, collapsed amid pricing pressures. Now, Meridian Metal Trading has become the latest figure in Britain’s metal industry to suffer an insolvency, following more than 30 years of trading from its Dudley headquarters in the West Midlands.

Duff & Phelps appointed for Meridian Metal Trading administration

Established in 1987, Meridian Metal Trading employs approximately 170 people across five locations in the UK, with service centres in Guildford and Sheffield, and sales offices in Bolton and Newport, South Wales. A leading supplier of galvanised, hot rolled, cold reduced, electro zinc and aluminised slit coil sheets and sheared blanks in both drawing and high strength grades, the company processes steel sheet and coil, and supplies close to 250,000 tonnes of steel to hundreds of customers annually.

Despite the levels of demand the firm enjoyed, it nonetheless succumbed to its debt. In 2018, Meridian secured a £35 million facility from Secure Trust Bank Commercial Finance. Allan Graham and Matthew Ingram, both of Duff & Phelps, have been installed as joint administrators at the group, which at the time of writing has seen no redundancies.

Allan Graham stated, “Meridian is one of the largest, fully independent steel stockholders and processors in the UK and one of the best known stockholders in the sector… It is our intention to continue to trade the business until a buyer is found, a process that we do not think will take long as there are already a number of expressions of interest. As of today there have been no redundancies and it is very much business as usual. We are receiving great support from the experienced workforce, suppliers and customers to find a positive outcome.”

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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.