CLEANING UP A MESSY DISTRESSED ASSET: SAVING SHOP-VAC

Brent Bonham joins Steve Katz on the Hilco Global Smarter Perspectives Podcast Series to discuss how thorough diligence and the right monetization partner can deliver maximum asset recovery value for companies in distress.

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Steve Katz  0:09  
Hello again, and welcome to the Hilco Global Smarter Perspective Podcast Series. I'm your host Steve Katz. Today we're speaking with Brent Bonham, Executive Vice President at Hilco Commercial Industrial about how thorough diligence and right monetization partner can deliver maximum asset recovery value for companies in distress. Just as a little quick background, Hilco Commercial Industrial (HCI) is the preeminent global leader in providing advisory evaluation and monetization solutions to the commercial and industrial sector. The company's highly tenured team has managed billions of dollars in transactions with 1000s of clients around the world. HCI's unique unified solution for special situations ensures that clients receive highly customized creative and effective monetization solutions that are tailored to their unique needs and designed to deliver the broadest access to a global network of highly qualified buyers and sellers. With that said, welcome to the podcast, Brent. 

Brent Bonham  1:05  
Thanks, Steve. Great to be here. 

Steve Katz  1:07  
Absolutely. Great to have you on. So today, we're gonna talk about a client engagement that really exemplifies just how important it is for a company, particularly one in or nearing distress, to engage the right monetization partner. The client that we're talking about is Shop-Vac Corporation, maker of the ever-popular heavy-duty vacuums used by construction and other trade-oriented businesses, as well as by consumers in homes for decades. I have one in my home. Brent, can you get us started by telling us why Hilco was initially engaged by Shop-Vac and what services the company was really looking for you to perform when they engaged you? 

Brent Bonham  1:44  
Absolutely. So we actually got engaged by their lender. Right. So there were there were some things going on at the company that caused their lender to reach out to Hilco Valuation Services, essentially for some valuation work to perform an appraisal, if you will, on some specific assets, namely the machinery and equipment and the inventory, right. So all of the stuff that's used to make the vacuums and the pieces and parts that make the vacuums and then the vacuums themselves. So when we were approached by Shop-Vac's lender to take a look at kind of what their stuff is worth, our team appropriately kind of took a step back and had a conversation about you know, not only what is the stuff worth but what's going on with the company, are there services we can offer outside of valuation that may be more beneficial, and you know, a) help the company b) help the lender potentially get a more meaningful return to the extent that there would be a monetization process necessary. So we gathered a team of Hilco, let's say division heads, to look at all of the potential different asset categories that were there and really begin diligence on what we would recommend through our advisory practice as a comprehensive process to look at everything that was going on and put a potential solution together for the lender of Shop-Vac and Shop-Vac itself.

Steve Katz  3:13  
Okay, great. That's kind of level sets us on how you got there and what was happening. So then, what was the next step? What happened that led you and the team to pursue development of a strategy that was somewhat different from what Shop-Vac initially thought they were bringing you in for and how did you arrive at that conclusion?

Brent Bonham  3:32  
So as we dug into our comprehensive due diligence, which look, it consisted of a lot of different things. We took a look at the value of the machinery and equipment, took a look at the value of the intellectual property, the brand name, and all of the things that go behind that; there was an accounts receivable portfolio that obviously needed to be valued as well. And a large component of inventory, both finished vacuums and work in process and raw materials. So through that diligence, in consultation with our Performance Solutions Group, we kind of came to the conclusion that there was more than just an asset monetization opportunity here; there was an opportunity to potentially collect out on the receivables, turn the work in process into finished goods and potentially sell those finished goods, which led us to trying to customize a process for Shop-Vac and their lender, above and beyond simply an asset monetization process. 

Steve Katz  4:33  
Right. So the great example of how what you were called in to do isn't necessarily what you ended up doing. So what can you tell us about that solution that you structured, what specific services you/or and the other integrated Hilco teams performed and how those efforts dovetailed to deliver what I believe from my reading of the case were really superior results for the company?

Brent Bonham  4:55  
Sure. So look, ultimately, you know, time is a very important factor in these processes, right. So whilst we, you know, hope for a solution that is above and beyond selling the assets of the company, we still need to be prepared for that, right. So what we did was we proposed a multi-phased, multi-pronged process wherein we would simultaneously kind of prepare for your traditional asset monetization process, while we, in concert with other various Hilco groups, converted the work in process and raw materials into finished goods sold those finished goods both to the company's preexisting customer base and through our own sales channels, which allowed us to collect out at very good percentages on the accounts receivable portfolio. And, of course, keeping the company operating while we were doing that preserve the value of the intellectual property. Also, while we were doing all of that, we were marketing the company to sell as a going concern. And as I mentioned, at the same time preparing in the event necessary for a traditional asset monetization process.

Steve Katz  6:07  
Okay, great. And listen, I know there was a simultaneous effort that was going on managed by Hilco at the same time that was given quite a bit of effort and it's something that you guys specialize in to sell off the Shop-Vac assets in the U.S. and in Canada. What can you tell us about that effort, how you structured it, and really just in general, how you guys come at that type of work and the resources you have that makes it so successful for your clients?

Brent Bonham  6:37  
Sure. So one of the benefits to our team is, we do have a truly global footprint, right? So leveraging our global Rolodex, we created an international marketing campaign. It was, again, multi-pronged. Right? So we marketed the assets of the company in several different ways. So anyone, globally, that could potentially have an interest in purchasing, you know, all of the assets of Shop-Vac, the U.S. assets of Shop-Vac, just the IP, just the M&E, we really kind of, you know, use the shotgun approach to cast a very wide net to really test the market to see what type of interest was out there. You know, probably a 30-day initial marketing campaign which we then, you know, fine-tuned. Once we were able to see the types of responses that we were getting, we had multiple offers for all assets in bulk. So then we really drilled down and focused on working with those multiple buyers to ultimately try to close with one of them to purchase all of the assets of Shop-Vac. So, really the special sauce there, Steve, is that wide net right? That shotgun approach, just really getting out there with all of our kind of known qualified buyers, really determining what the highest and best result would be through a combination of potential offers.

Steve Katz  8:00  
Yeah, impressive. Wow, a big effort, a big shift from what you originally asked to look at. And, you know, a lot of creativity and customization in a solution like that. So, you know, I think you have really illustrated a lot of what makes an effort like this unique. What process or best practice would you suggest that companies in a similar condition and their lenders take to ensure that they don't pigeonhole themselves into a preconceived path that's likely to deliver a really less than optimal monetization outcomes for them?

Brent Bonham  8:37  
Well, I think you've hit the nail on the head, Steve. I mean, look, the most important thing is to not pigeonhole yourself in these types of situations. Right? So we've found, you know, having the conversations as early as possible. Right? We're always happy to chat with potential clients be at the company, their lenders, their professional advisors, to walk through exactly these types of situations where oftentimes look at, you know, the result that would have been achieved through a traditional liquidation or asset monetization process, versus the result that was achieved through this hybrid solution of operating the company for a period of time, working through the inventory conversion process, working through the inventory sale process, working through the accounts receivable collection process, and all the while running an international marketing campaign to sell the company any which way would be possible. You know, the result that was derived from that was far in excess, let's say of what would have been derived from a traditional monetization process. So the real key here is to reach out to Hilco as early as possible so that we can work with you to potentially, you know, put together one of these customized processes and created a better result for all involved. So simply said, the key is let's talk as early as possible.

Steve Katz  10:11  
Yeah, well, it certainly sounds that way. So I think in what you shared with the listeners today, I think not only illustrates the importance of that but also to make sure that the partner that they select is one with the experience, the perspective, the resources, and the creativity, to really develop and execute a monetization solution that's really tailored to that specific business and its best interests at that particular moment in time as well. So, listeners, if your business or business in your portfolio is currently in distress or is headed in that direction, it certainly would be worth your while to reach out to Brent and the Commercial Industrial team at Hilco. With that in mind, Brent's email is bbonham@hilcoglobal.com. That's bbonham@hilcoglobal.com. Brent, listen, it was a pleasure having you on the podcast. Thanks so much for sharing all this great info with the audience today. 

Brent Bonham  11:05  
Thanks for having me, Steve. Really appreciate it. 

Steve Katz  11:06  
And listeners. We hope that today's Hilco Global Smarter Perspective Podcast provided you with at least one key takeaway that you can put to good use in your business or share with a colleague or client to help make them that much more successful moving forward. Until next time for Hilco Global, I'm Steve Katz.

Transcribed by https://otter.ai