How PKF used administration to rescue a food manufacturing business that had fallen into financial difficulties.
The client
Our client produced high quality, rare breed meat for the UK hospitality sector, including a number of Michelin starred restaurants.
Although a well-known and highly respected name in its market, the business had experienced a number of operational and financial difficulties over several years and had accrued creditor arrears which were no longer sustainable.
The problem
Due to several years of gradually worsening financial performance, caused both by changes in its market and problems with its operating model, the company had built up large creditor arrears. The owners of the business were not willing to introduce further funds and management recognised that the company was no longer sustainable without additional capital being introduced and action being taken to address the creditor position.
The company was beginning to experience significant cash flow pressure and several creditors were threatening imminent legal action. The management team approached us for advice on whether the business could be saved.
The plan
Because the business needed the introduction of significant capital, as well as a mechanism to deal with its large creditor arrears, a sale of the business via a pre-pack Administration, appeared to be the best option; the other main rescue procedure – a CVA – would only deal with the creditor position and would not solve the need for a capital injection.
A pre-pack involves finding a buyer and agreeing the terms of a sale before the company enters administration. Once a deal has been agreed the company is placed into administration and the sale takes place immediately: the business and assets (including employees) move across to a new limited company owned by the purchaser, whilst the creditors remain with the original company in administration.
Working with management we prepared a long-list of potential purchasers – this was based on management’s market knowledge, our own research and our extensive professional contacts, including a variety of investors who buy and fund financially distressed businesses. A one-page confidential flyer was issued to our target mailing list of several hundred parties. This initial mailing generated significant interest and a full sales pack was provided to all parties who who were willing to sign a confidentiality agreement. A number of parties then visited the business and met with management to assess whether to make an offer.
The result
Within three weeks of our initial meeting with management we had received three credible offers to purchase the business via Administration. Within a further week we had agreed terms with a trade purchaser, the company was placed into administration and the sale of the business completed.
The purchaser was a larger food manufacturing business, which not only had the resources to fund the business but brought access to new routes to market, which were expected to grow sales, and synergies to reduce costs.
The company’s entire workforce (some 25 employees) were transferred to the purchaser, providing full continuity of employment (including their accrued length of service and other entitlements). In addition the proceeds from the sale of the business, together with the collection of the company’s outstanding sales ledger, were sufficient to enable us to make a distribution to creditors.
