Woodside Capital - Gardner Glass Products

Division: Phoenix Management Services


Client

Woodside Capital Partners, an equity/mezzanine fund targeted toward middle market companies experiencing some form of financial distress, engaged Phoenix Management Services to conduct a Business Assessment of Gardner Glass Products.

Problem

With plants in North Carolina and Texas, Gardner participates in two business segments: manufacturing and distribution of flat glass and decorative mirrors. Industry pressures impacting the Company’s ability to operate profitably included: offshore sourcing of products competitive with its decorative mirror business; price pressures coupled with existing thin profit margins; vertically-integrated competition in its flat-glass business; a pessimistic forecast for residential housing (a key industry driver); and geographic constraints limiting access to potential markets.

A further challenge facing the Company included maintaining its position with its largest customer in the decorative glass business. In this case, a competitor that sourced product from China had achieved significant penetration. In addition, a lucrative supply contract with its largest customer in its flat-glass business was about to expire. Last, a heavily fixed cost-based operating structure was placing great demands on the Company being able to obtain and maintain volume.

The scope of the Business Assessment included: an overview of the industry; evaluation of Gardner’s competitive position in its industry; a review of Gardner’s historical financial performance; assessment of the Company’s ability to attain its current financial forecast; an evaluation of the Company’s senior management, systems and operations; validation of reported EBITDA; review of key customer relationships in terms of profitability, sustainability and risks; assessment of the Company’s quality of earnings (past and prospective) and quality of its assets; and identification of risks and challenges facing the Company post-closing.

Solution

Based on the risks and challenges facing Gardner, Phoenix concluded the Company’s earnings would continue to erode unless it began participating in the globalization of its industry and could change its operating basis from that of a manufacturer to a distributor. Further, the Company’s heavy reliance on debt would continue to challenge its ability to achieve an adequate level of earnings and cash flow. Last, while historical financial reporting was materially accurate, management was not proficient at financial forecasting. As evidence, Phoenix’s review of the Company’s forecasted EBITDA of $4.5 million (provided to Woodside) was instead revised downward to $3.2 million. Phoenix also identified that no forecast beyond two to three years was available, nor were forecasts periodically updated. In light of the Company’s very challenging environment, poor historical earnings performance and future uncertainties, it was Phoenix’s recommendation that the financial management of the Company be strengthened.on debt would continue to challenge its ability to achieve an adequate level of earnings and cash flow. Last, while historical financial reporting was materially accurate, management was not proficient at financial forecasting.