A Successful MRO Distributor Restructuring & Turnaround Program
Client Context
A publicly traded mid-market MRO (Maintenance, Repair, and Overhaul) distributor faced declining profits, cash flow shortages, and rising debt. While the company had a strong brand reputation and commanded premium prices across its 350,000+ SKUs, it experienced gradual sales declines and increasing costs since 2016 due to external and internal challenges.
Unlike larger MRO distributors excelling through supply chain capabilities, IT tools, and global sourcing, mid-market competitors relied on customer intimacy. However, the client struggled to compete effectively due to inefficiencies in execution and strategic misalignment.
Key Challenges
- Declining profitability ($7M net income to -$1.7M by 2017).
- Negative cash flow ($5M positive to -$10M).
- Debt increase ($14M drawn from a line of credit).
- Stock price drop ($25 to $14 per share in 8 months).
- Ineffective restructuring plan, lacking aggressive process improvements and leadership changes.
- Weak execution capabilities, lack of accountability, and deteriorating sales force relationships.
Approach & Key Success Factors
EFESO was engaged to analyze the restructuring plan and develop a more aggressive turnaround strategy. Within three weeks, EFESO identified critical gaps and designed an execution-focused approach, centered on three key steps:
1. Strengthening the Restructuring Plan
- Conducted a deep analysis of operations and cost structure.
- Identified top-heavy management inefficiencies and recommended adjustments.
- Revised financial projections to achieve break-even by end of 2018 and profitability in 1Q 2019.
- Instituted a daily Restructuring Command Center to drive execution and accountability.
2. Operational Efficiency & Cost Reduction
- Led a two-phase headcount reduction program in June and November.
- Redesigned special product sales to optimize value and reduce non-core efforts.
- Improved credit approval processes to enhance cash flow management.
- Revamped sourcing and procurement, achieving $3.5M in savings through better volume negotiations.
- Provided logistics expertise when a key project manager resigned, ensuring continued execution.
3. Driving Execution Through Governance & Accountability
- Installed daily performance meetings to monitor progress and accelerate decision-making.
- Established the Restructuring Command Center, involving the CEO and executive team.
- Encouraged cross-functional collaboration to map and streamline processes, reducing inefficiencies.
Results
$900K
In labor savings by June, improving EBITDA by $400K over plan.
Break-even operating income
By end of 3Q 2018, reversing a projected $2M loss.
Positive EBITDA Of $500K
Compared to a forecasted $200K loss.
$1.5M Lower operating expenses
In 4Q, leading to $3M in operating income.
EBITDA of $3.3M
Surpassing bank forecast by $1.5M.
Stabilized net debt
Preventing further financial deterioration.
New CEO onboarded
Fully aligned with the restructuring strategy and execution plans.
EFESO’s structured approach ensured a successful turnaround, restoring financial stability and setting the foundation for long-term growth.