Areas of operation:
Elcomex, a Romanian business with two major companies each with €40 million turnover had stretched its funding limits and ambitious expansion plans in one of the divisions had stalled bringing the whole group close to insolvency due to cross guarantees. The Funding requirement to reactivate the problem subsidiary was €8 million but local funding sources had lost confidence in the shareholder and senior management. BM&T identified a funder to take majority control of both businesses which would avoid insolvency and a total loss for the shareholder. BM&T identified additional collateral for the funder which would have raised a significant part of the funding requirement. BM&T guided the parties to a letter of intent (LOI) covering majority rights whilst protecting the minority shareholder and which would keep the group of five existing banks to continue support of the new majority owner. In pressing for completion and contrary to BM&T’s advice, the buyer and seller changed the LOI and majority control of one of the companies which forced the banks to withdraw support. Both businesses fell into insolvency, customers and value were lost. The group was broken up in insolvency and sold to opportunistic buyers.
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Notes, insights and reflections from Matthew, one of our directors and turnaround experts, as he works with companies during Lockdown.