2023 Lending & Credit Conference
Al Davis will be on this panel: 11:05 AM – 12:00 PM “Factors in your Decision Tree on a Problem Loan”
Al has served as CEO, President, Chief Restructuring Officer, Court Appointed Receiver and Management Advisor for public and private companies in such diverse industries as high technology, real estate, media and broadcasting, consumer products, wholesale and retail distribution, wood products, and professional services; providing significant returns to both creditors and stakeholders.
Mr. Davis holds an MBA from Pepperdine University and a B.S. in Electrical Engineering from the University of Southern California. He serves on the advisory board of the Western Governors University of Washington.
Link: https://wabankers.com/credlend/
Yahoo Finance: Revitalization Partners Executes Complex Brewery Sale
Revitalization Partners Executes Complex Brewery Sale
PR Newswire
Mon, July 24, 2023 at 2:10 PM PDT·2 min read
Court-Appointed Receiver Sells Formula Brewing LLC for Market-Based Multiple
SEATTLE, July 24, 2023 /PRNewswire/ — After nearly two years of resolving contentious disputes between the founding partners as well as other stakeholders in an Issaquah, Washington brewpub, restructuring specialist Revitalization Partners (RP) has sold the company to a group of investors operating as Formula Brewing LLC. The motion for sale approval was granted July 20 in King County Superior Court.
Sold as a going concern, the proceeds effectively satisfy all major creditor obligations, with the buyer receiving all assets free and clear of any liabilities or liens. The specific purchase price was not disclosed.
Revitalization Partners has operated the popular 8,000 square-foot micro brewery since November 2021. The court named the well-established Pacific Northwest firm as receiver following a bitter dispute between the founding partners that eventually resulted in litigation.
RP Senior director Kern Gillette, whose professional background includes C-level experience in large foodservice and retail companies, stepped in as a custodial receiver to oversee day-to-day operations at the brewery, along with Revitalization Partners principals Al Davis and Bill Lawrence. Once conditions stabilized, the trio successfully petitioned the court in April 2022 for an appointment as a general receiver, a strategic decision that allowed the competitive sale of the popular brewery.
Leveraging the opportunities of selling the cash-flow-positive company, RP designed a sales process that attracted some 15 bids from investors across the United States. Formula Brewing LLC prevailed, subject to the approval of the landlord and appropriate regulatory agencies, all of which were ultimately granted.
“This case serves as a cautionary example of what happens when two equal partners in a business find themselves in a position where they disagree on virtually everything,” said Mr. Davis. “Fortunately, with the objectivity and background of experienced receivers, we were able to keep those differences from destroying the company and, in the process, created value that substantially exceeded the auction value of its assets.”
About Revitalization Partners
Revitalization Partners specializes in improving the operational and financial results of small and mid-market companies nationwide and abroad. Whether the situation calls for interim management, business valuation or assessment, revitalization, re-engineering or managing through the receivership/bankruptcy process, the firm focuses on finding the best resolution in the shortest amount of time – with the highest possible return.
CONTACT: Michael Shepherd
michael@theshepherdgroup.com
(760) 861-9596
Cision
View original content:https://www.prnewswire.com/news-releases/revitalization-partners-executes-complex-brewery-sale-301884395.html
SOURCE Revitalization Partners
PR Newswire: Revitalization Partners Executes Complex Brewery Sale
Provided by PR Newswire
Jul 24, 2023 2:10 PM PDT
Revitalization Partners Executes Complex Brewery Sale
PR Newswire
SEATTLE, July 24, 2023
Court-Appointed Receiver Sells Formula Brewing LLC for Market-Based Multiple
SEATTLE, July 24, 2023 /PRNewswire/ — After nearly two years of resolving contentious disputes between the founding partners as well as other stakeholders in an Issaquah, Washington brewpub, restructuring specialist Revitalization Partners (RP) has sold the company to a group of investors operating as Formula Brewing LLC. The motion for sale approval was granted July 20 in King County Superior Court.
Sold as a going concern, the proceeds effectively satisfy all major creditor obligations, with the buyer receiving all assets free and clear of any liabilities or liens. The specific purchase price was not disclosed.
Revitalization Partners has operated the popular 8,000 square-foot micro brewery since November 2021. The court named the well-established Pacific Northwest firm as receiver following a bitter dispute between the founding partners that eventually resulted in litigation.
RP Senior director Kern Gillette, whose professional background includes C-level experience in large foodservice and retail companies, stepped in as a custodial receiver to oversee day-to-day operations at the brewery, along with Revitalization Partners principals Al Davis and Bill Lawrence. Once conditions stabilized, the trio successfully petitioned the court in April 2022 for an appointment as a general receiver, a strategic decision that allowed the competitive sale of the popular brewery.
Leveraging the opportunities of selling the cash-flow-positive company, RP designed a sales process that attracted some 15 bids from investors across the United States. Formula Brewing LLC prevailed, subject to the approval of the landlord and appropriate regulatory agencies, all of which were ultimately granted.
“This case serves as a cautionary example of what happens when two equal partners in a business find themselves in a position where they disagree on virtually everything,” said Mr. Davis. “Fortunately, with the objectivity and background of experienced receivers, we were able to keep those differences from destroying the company and, in the process, created value that substantially exceeded the auction value of its assets.”
About Revitalization Partners
Revitalization Partners specializes in improving the operational and financial results of small and mid-market companies nationwide and abroad. Whether the situation calls for interim management, business valuation or assessment, revitalization, re-engineering or managing through the receivership/bankruptcy process, the firm focuses on finding the best resolution in the shortest amount of time – with the highest possible return.
CONTACT: Michael Shepherd
michael@theshepherdgroup.com
(760) 861-9596
View original content:https://www.prnewswire.com/news-releases/revitalization-partners-executes-complex-brewery-sale-301884395.html
Is The Timing Right to Sell Your Business?
It’s no secret that the landscape for selling a business has not been particularly favorable for business owners.
Particularly in an environment where interest rates have substantially increased and where banks have moved to tighten lending requirements.
This situation, along with the prospect of a recession in the not-too-distant future, has created headwinds for owners of small to medium-sized businesses who are planning for retirement and wanting to monetize what is most likely their largest asset, by selling their business.
BABY BOOM GENERATION OWNERS …
In fact, an accelerating number of business owners in the baby-boomer generation are interested in exploring alternatives to sell their businesses.
Recently, a 2023 BizBuySell’s quarterly Insight report presented a survey of business owners and business brokers.
The survey revealed that 31% of baby boomer respondents indicated that now may be the right time to retire as businesses recover from a challenging 2020.
Furthermore, 45% of business owners say they are, in fact, selling their business to retire.
MIDDLE-MARKET M&A ACTIVITY …
While the current environment may present certain challenges to business owners who are planning to sell their business, there are also advantages as well. Capstone Partners, for example, recently released their Q1 2023 Capital Market Update that summarized first-quarter middle market merger and acquisition activity.
They indicated that middle market deal volume declined 14% Q1 2023 year over year, although the decline in middle market deals was much improved over the broader M&A market volume that declined over 25%.
Capstone’s update revealed that buyers demonstrated increased selectivity demonstrating a higher interest in quality companies with strong margin profiles, and the buyers were willing to command M&A interest at premium valuations.
Capstone’s report indicated that the average middle market EBITDA multiple amounted to 9.1x in Q1/23, which represented a significant increase from Q4/22’s multiple of 7.2x.
WHAT DETERMINES VALUATION?
While sellers oftentimes focus on multiple valuations or their own perception of what their business is worth, it’s important to understand the reality of the value of the business and work diligently to improve its worth ahead of putting it on the market.
Revitalization Partners has had substantial experience in helping business owners sell their businesses and we advise them it’s important to develop a plan to improve value in advance of a sale.
Developing a plan at least a year in advance to improve the EBITDA of the business is incredibly important. EBITDA improvement takes time to implement and is seldom accomplished without a plan.
Remember, for every $100,000 that EBITDA can be sustainably improved, the value of a business improves by $500,000, assuming a 5X multiple.
Improving the performance of the business in advance of a sale can have a significant impact on improving the value a business owner receives and can be an advantage in negotiating with the potential buyer.
EBITDA IMPROVEMENTS …
Business owners can set a target for EBITDA improvement and work with the management team to execute strategies to accomplish their goals.
EBITDA improvement can come in many different ways, including gross margin improvement, targeted marketing campaigns that are focused on increasing revenue, and strategically reducing or renegotiating expense reductions that will improve the bottom line.
Business owners can also improve their overall return and cash received when they sell their business by negotiating favorable terms.
A SELLER’S NOTE …
For example, after a total purchase price and valuation is negotiated, providing a seller note that is secured by the assets of the company can increase the overall return to the seller.
In today’s high-interest environment, the interest on a seller’s note will most likely be higher than putting cash in the bank, thus, the seller would increase their return for the overall sale.
It’s important to work with an attorney to make sure a seller’s note contains provisions that protect the seller’s interest.
Including a seller’s note as part of the transaction can also have income tax advantages if structured properly.
It’s important to obtain advice from a tax advisor to consider options for minimizing income taxes.
Even though the current business climate may be somewhat challenging, it should not discourage a business owner, particularly a retiring business owner, from considering selling their business.
SELL YOUR EXPERIENCE ?
Furthermore, the seller might also negotiate a consulting contract with the buyer to assist with the transition and to ensure the buyer has the benefit of the seller’s experience as they move forward.
Putting together a plan and process to prepare for selling the business, which includes improving EBITDA, documenting steps required to prepare for a sale, and selecting competent legal and business advisers, is key to preparing for the best possible outcome.
And don’t be afraid to ask for help in the beginning of the process, it improves the odds of success.
Revitalization Partners specializes in improving the operational and financial results of companies and providing hands-on expertise in virtually every circumstance, with a focus on small and mid-market organizations. Whether your requirement is Interim Management, a Business Assessment, Revitalization and Reengineering, a State Receivership or Bankruptcy Support, we focus on giving you the best resolution in the fastest time with the highest possible return.
Do You Know What Drives Bank Loans in Today’s World?
Recently there have been a number of posts on social media regarding the tightening of credit from banks.
The reasons given relate to several recent bank failures and attribute this tightening to banks being less willing to take “risks” with depositors’ money.
The truth is that banks do not need deposits, in the form discussed, in order to make loans.
WHAT CREATES DEPOSITS?
In today’s modern economy, most money takes the form of deposits, but rather than being created by a group of savers entrusting the bank with holding their money, deposits are actually created when banks extend credit, which means making loans.
As Joseph Schumpeter, a famous Austrian economist, once wrote; “It is much more realistic to say that the banks create credit; that is, that they create deposits in their act of lending than to say that they lend the deposits that have been entrusted to them.”
When a bank makes a loan, there are two corresponding entries that are made on its balance sheet, one on the asset side and one on the liabilities side.
The loan counts as an asset to the bank, and it is simultaneously offset by a newly created deposit, which is a liability of the bank to the deposit holder.
Contrary to popular thinking, loans create deposits.
WHAT CONSTRAINS BANKS?
If loans create deposits, then are banks creating money, which is the sole right of the central bank? The answer is maybe. The central bank controls the money supply by establishing financial reserves for each bank. As loans and deposits increase, the reserves that the bank must hold also increase.
The reserve ratio, set by the central bank, is the percentage of a commercial bank’s deposits that it must keep in cash as a reserve in case of mass customer withdrawals. In the U.S., the Fed uses the reserve ratio as an important monetary policy tool to increase or decrease the economy’s money supply.
The truth is, however, is that the reserve requirement does not act as a binding constraint on banks’ ability to lend. The reality is that banks often first extend loans and then look for the required reserves later.
But, as we have recently seen, if there should be a “bank run”, where most or all depositors all at once demand their money, the demand may exceed the reserves on hand, leading to a potential bank failure.
THE RISK/RETURN ANALYSIS …
So, if bank lending is not constricted by the reserve requirement, then do banks face any constraint at all? The answer is yes, the first being profitability.
Given a certain demand for loans, banks base their lending decisions on their perception of the risk/return tradeoffs. This is one of the main reasons to match the lending institution (bank) to the requirement of the loan requested.
Different lending institutions have differing views of the risk/return tradeoff. For example, certain lenders believe that commercial construction is too risky due to the requirements for progress payments and retainage in the contracts.
These lenders believe that recovery would be difficult in the case of a loan that defaults. Other lenders have industries that they both favor and deem as too risky.
If bank lending is constrained by anything at all, it is capital requirements, not reserve requirements.
RECENT BANK FAILURES …
Since capital requirements are specified as a ratio whose denominator consists of risk-weighted assets, they depend on how risk is measured, which in turn is dependent on subjective human judgment.
Subjective judgment combined with ever-increasing profit demands may lead some banks to underestimate the riskiness of their assets.
Thus, even with regulatory capital requirements, there remains a large amount of flexibility for a bank to lend. This was, in large part, what caused the recent bank failures.
Before deciding to make a loan, a Bank does a thorough credit check on an individual or institution. In the case of lending to an institution, a lender will review the institution’s balance sheet, profit and loss statement, credit history, cash flow, and in many cases, the value of the company’s assets that can be used as collateral against the risk of the loan.
And, of course, the reason for the loan. They will then measure the results of their due diligence against their institution’s risk/return profile.
TIGHTENING CREDIT CAUSES …
The bottom line is that banks do not create loans from reserves or bank deposits. Banks create a loan asset and a deposit liability on their balance sheets.
The loan creates a deposit of which reserves need to be held against. Although banks don’t need your money to make loans, they do want your money.
As discussed, banks often lend first and look for reserves later. But they do look for the reserves.
The tightening credit that we appear to be seeing in the small and medium business market is due to both risk/return profiles changing at many banks and the increasing capital requirements being placed on some banks by the Fed.
If you perceive potential difficulty in obtaining a new loan or loan renewal in this changing market, it’s always a good idea to ask for help.
Revitalization Partners specializes in improving the operational and financial results of companies and providing hands-on expertise in virtually every circumstance, with a focus on small and mid-market organizations. Whether your requirement is Interim Management, a Business Assessment, Revitalization and Reengineering, a State Receivership or Bankruptcy Support, we focus on giving you the best resolution in the fastest time with the highest possible return.
Weighing the Benefits and Costs of Lender Forbearance
Lender forbearance is a valuable tool for borrowers facing financial challenges, providing temporary relief from loan obligations.
While forbearance offers immediate benefits, it is essential to consider the potential costs associated with this arrangement.
This article explores the benefits and costs of lender forbearance, enabling borrowers to make informed decisions about their financial future.
POTENTIAL BENEFITS …
1. Extended Loan Term: Lender forbearance often comes with the cost of an extended loan term. While this can provide temporary relief, it means borrowers will be in debt for a longer duration, potentially resulting in higher overall interest costs. Borrowers should carefully assess the long-term financial implications of accepting forbearance and weigh them against their immediate needs.
2. Avoidance of Default and Foreclosure: Forbearance helps borrowers avoid defaulting on their loan obligations, which can have severe consequences, such as damaged credit scores and potential foreclosure.
By granting forbearance, lenders demonstrate a willingness to work with borrowers during challenging times, giving them an opportunity to regain their financial stability and avoid the negative repercussions of default.
3. Preservation of Credit Score: By entering into a forbearance agreement, borrowers can prevent a negative impact on their credit score, provided they adhere to the agreed-upon terms.
Maintaining a good credit score is crucial for future borrowing opportunities and financial well-being, as it affects interest rates on loans, insurance premiums, and even employment prospects.
POTENTIAL DRAWBACKS …
1. Extended Loan Term: Lender forbearance often comes with the cost of an extended loan term. While this can provide temporary relief, it means borrowers will be in debt for a longer duration, potentially resulting in higher overall interest costs.
Borrowers should carefully assess the long-term financial implications of accepting forbearance and weigh them against their immediate needs. As you can see, the ‘extended term’ feature has both pluses and minuses.
2. Accrued Interest: During the forbearance period, interest on the loan may continue to accrue, even if the payments are reduced or suspended.
This means that borrowers may face higher outstanding balances once the forbearance period ends.
It is essential for borrowers to understand how interest and fees will be handled during forbearance and its impact on their loan balance.
3. Limited Duration: Forbearance is a temporary solution, typically granted for a predetermined period.
Once the forbearance period ends, borrowers must resume their regular loan payments, potentially including any missed or reduced payments from the forbearance period.
It is crucial for borrowers to plan ahead and ensure they will be financially capable of meeting these obligations once forbearance concludes.
4. Communication and Documentation: Engaging in lender forbearance requires open and effective communication with the lender.
Borrowers must clearly understand the terms of the forbearance agreement, ensuring they can meet their obligations and avoid misunderstandings.
It is advisable to document all communication and agreements to avoid any future disputes or confusion.
IN TOUGH TIMES …
Lender forbearance offers significant benefits to borrowers in times of financial hardship, providing temporary relief and the opportunity to avoid default and foreclosure.
However, borrowers must carefully weigh the costs, such as extended loan terms and accrued interest, and ensure effective communication with their lender to make informed decisions about pursuing forbearance as a viable solution for their financial well-being.
In today’s financial climate, lenders are less inclined to offer forbearance agreements and, if offered, to extend them. If a loan is in technical default, it is important to understand all the options available before entering into a forbearance agreement. Seek help from a qualified professional before taking action.
Revitalization Partners specializes in improving the operational and financial results of companies and providing hands-on expertise in virtually every circumstance, with a focus on small and mid-market organizations. Whether your requirement is Interim Management, a Business Assessment, Revitalization and Reengineering, a State Receivership or Bankruptcy Support, we focus on giving you the best resolution in the fastest time with the highest possible return.
How to Get a Receiver Appointed
A recent article in the Daily DAC, a newsletter focused on corporate insolvency, discussed the above-referenced topic.
And while it made several interesting and educational points, the writer was based in Minnesota, and the article demonstrated the importance of understanding the issues and ways of getting a receiver appointed according to the rules of the state where the receivership is being requested.
Receivership laws are different in each state, and Minnesota law, while having some commonality with Washington law, is also very different in a number of respects.
THE FIRST STEP IS …
For example, the article begins by stating Receiverships are most often commenced by creditors, but they can be commenced by an equity holder as well.
The first step towards a receivership is to initiate a lawsuit.
Most commonly, the lawsuit is filed for breach of contract and is seeking foreclosure or repayment of collateral. Appointment can also be sought as an independent action but is less common.
In Washington, this would not be the case. Many receiverships are initiated through the process of an Assignment for the Benefit of Creditors.
INITIATED BY THE COMPANY ITSELF …
This process, while separate from a receivership, allows a company to initiate the insolvency process itself without either a lawsuit or court process. Once the assignee accepts the assignment, it is the assignee that initiates the receivership.
The article goes on to state that the next step is to bring a motion for the appointment of a receiver. It suggests that to maintain a good relationship with the lender, it’s a great idea to seek a mutual appointment.
It’s important to note that where an assignment for the benefit of creditors is used in Washington, the assignment is required to be on behalf of all the creditors.
Section 7.08.010 of the statute states: No general assignment of property by an insolvent, or in contemplation of insolvency, for the benefit of creditors, shall be valid unless it be made for the benefit of all of the assignor’s creditors in proportion to the amount of their respective claims.
PRIORITY OF PAYMENTS …
Once converted to a receivership, the receivership statutes in Washington state the order and priority of the payments made by the insolvent estate.
Lenders with contractually secured UCC filings have the highest priorities, followed by other creditors with UCC filings. Where there are conflicts, the priority is established by the date of the UCC filing. Following these priorities come unsecured debt (trade debt) and lastly equity.
This particular article stresses the way to get a receiver appointed in Minnesota and deals with the legal actions necessary in that state.
In Washington, some statutes are similar to other states, while there can be significant differences. When doing internet searches, especially related to insolvency and state laws, it is important to focus on a number of factors related to the decision.
The state of Washington has, what are considered to be, some of the strongest receivership laws in the country.
A MAJOR DECISION IS …
A major decision is if a federal bankruptcy or state receivership is the right decision for your organization.
To make that decision, be certain that the attorney you select has experience in both processes.
Make certain that your attorney can explain which process is best for the company and for you personally.
While moving from a receivership to bankruptcy is relatively straightforward, going in the other direction is highly problematic.
WHAT CAN YOU AFFORD?
Another issue is affordability. The federal process is generally more expensive than a state receivership due to certain costs mandated in the bankruptcy code.
A qualified assignee/receiver will make certain that funds are available or will become available during the process.
If funding does not become available, it is a relatively easy process to terminate a receivership.
Federal bankruptcy statutes provide solutions for dealing with a lack of funding which are more complex.
EXPERIENCE MATTERS A LOT …
Lastly, it is important to select an assignee/receiver that you can work with as the process moves forward.
The objective is to maximize the returns from the estate to the creditors.
The debtor is represented by counsel, the secured lender is most probably represented by counsel.
Some trade creditors and those owing the estate have counsel.
Each of these is seeking the best returns for their particular situation.
Knowing that your selected assignee/receiver has the experience to manage the various parties and can work with you to maximize the returns in accordance with the statutes, will provide the most piece of mind in what is always a stressful situation.
Revitalization Partners specializes in improving the operational and financial results of companies and providing hands-on expertise in virtually every circumstance, with a focus on small and mid-market organizations. Whether your requirement is Interim Management, a Business Assessment, Revitalization and Reengineering, a State Receivership or Bankruptcy Support, we focus on giving you the best resolution in the fastest time with the highest possible return.
