Restructuring of a medium-sized automotive supplier in the PE environment

Situation

The group of companies was family-owned for 70 years and went bankrupt in 2020. The group of companies consisted of 6 production plants at 6 different locations in Germany, Hungary and Romania. The insolvent group of companies was acquired by a private equity boutique in 2020. Immediately after the takeover, one plant was closed with the aim of reducing the Group’s losses and returning it to profitability in the medium term.

The earnings situation did not improve structurally in 2020-2023, as good monthly results with high sales were immediately eaten up by negative monthly results, even though sales only fell slightly. The then current management did not realize that the fixed cost structure and thus the break-even point were far too high and therefore slight declines in sales immediately caused negative results. In addition, the previous CFO had failed to create transparency in the figures and measurability of performance “at the touch of a button”.

Challenges/scheduling

1. The earnings situation of the group of companies (5 plants at 5 locations) has not improved sustainably since the insolvency in 2020, even after initial restructuring attempts.
2. The private equity company and its shareholders were dissatisfied and saw all exit plans jeopardized.
3. At the same time, the shareholders no longer trusted the forecasts and wanted clarity about the current situation, but above all they demanded a sustainable restructuring plan with comprehensible milestones and earnings targets.
4. The mandate started on 04.10.23 and the shareholders wanted valid corporate planning from 2024 to 2026 on 17.11.2023. A very short time window.
5. At the same time, the shareholders had signaled that fundamental change was not actually desired, as a company with 5 plants was being purchased and a group with 5 plants was to be sold again for the exit.
6. The initial analyses have clearly shown that a long-term and sustainable improvement in earnings is not possible if 5 locations are retained. At the same time, programs were defined with the controlling team and the plant managers on how, for example, data quality can be improved in the very short term in order to be able to make valid statements about the performance of each plant.
7. The arguments for and against the closure of each plant were compiled on the basis of a “utility value analysis” and the decision was made on the basis of this analysis.
8. After approx. 3 weeks, the interim manager presented his findings to the shareholders as an “idea” for the time being, so as not to let the initial shock and thus defensiveness become too great.
9. Every three days, I backed up my thesis with increasingly validated “hard facts”, so that the shareholders were increasingly convinced of the inevitability of this fundamental restructuring step.
10. Ultimately, the restructuring measures were approved at the shareholders’ meeting on 17.11.23 and I was entrusted with their implementation.

Sustainable result

1. As of April 24, the results are on target and the measures and projects introduced are having a faster impact than expected.
2. The Group is currently making more profit with less turnover
3. The fixed cost structure has been significantly reduced and the break-even point is 20% below the previous situation.
4. The company’s attractiveness as an employer has increased, as the projects encourage interested employees and the resulting changes in structures and working methods attract new employees.

Conclusion

1. The first impressions and perceptions in a mandate are important and should be “memorized”.
2. A “connection” and a basis of trust must be quickly established with the employees so that all relevant information is available very quickly.
3. Results and findings that have been developed on the basis of “technically sound” analysis methods must not be discussed away or “not wanted”, but the task of the IM is to state truths and findings crystal clear.
4. Private equity companies are prepared to change their strategy if it can be clearly demonstrated that the facts do not permit any other solution.