Date of Award
Economics and Finance
ABC Inc., "ABC" or "The Company", is a leading manufacturer of precision rotary valves, feeders, screw conveyors, and components found in industrial material handling systems. Due to their proprietary products, exceptional durability, and custom design and manufacturing processes, ABC has developed a reputation as a premium manufacturer and supplier of choice across various industries. ABC initially targeted the wood products industry, and pulp and paper remains its largest industry segment today, but The Company has since expanded its services to mining, cement, chemical companies as well as coal and biomass burning plants. In addition to its proprietary products, ABC provides custom machining and fabrication services for select clients.
Located in Reno, Nevada and founded in 1977 by the original owners, ABC has had a presence in the West for over 35 years. Current legacy owners purchased The Company in 2003 and grew The Company to record profitability levels in 2008. Following down years during the economic recession, The Owner brought on John Smith, an experienced executive of several private and public machining companies, to act as CEO of ABC in 2011. With John's help, The Company has since rebounded to near pre-recession profitability levels as the housing market and domestic manufacturing continue to improve. ABC did $6.8M in revenue and $1.23M in adjusted EBITDA for 2012 and $6.86M in 2013 with an adjusted EBITDA of ~$1.57M.
Although not currently involved in the day-to-day operations at ABC, The Owner was working to resolve litigation that was brought against ABC by MMM Company. The $1.48M product liability claim was for a damaged machine due to faulty components ABC machined for MMM Company, but has since been resolved. At a court settlement hearing on Jan 7, 2014, a judge ordered a settlement of $500k, which will be paid in full by ABC's insurance company. Documents have been signed and area attached as Exhibit 2. The matter is detailed further at a later point in this memorandum.
The Owner is looking to retire and has approached John Smith to complete a management buyout of The Company. John Smith and sponsor Deal Sponsor have approached CVF to provide capital for the management buyout.
Allred, James Kenneth, "A Management Buyout in the Lower Middle Market" (2014). Undergraduate Honors Capstone Projects. 626.
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