Fluid Air Components

A company acquisition project quickly took an unwelcome turn when a partner of the SCA discovered embezzlement within Fluid Air Components financial staff. The falsified books and theft also affected Fluid Air Component’s cash flow and bank lines. The SCA partner had to quickly transition from one role to another when he realized they would have to walk away from the original pending acquisition to focus on an immediate turnaround of the company’s finances.

CASE DESCRIPTION.

Fluid Air Component’s primary business was the distribution of motion control product lines in the Pacific Northwest. A strong secondary business was the design, manufacture, service and sales of motion control systems. Prior to SCA joining the team, Fluid Air Components was reporting approximately $18 million in sales volume.
At this time, Fluid Air Components’ owner decided to sell the business and agreed to sell it to the general manager, if the general manager could raise the necessary funds. The general manager brought in the SCA partner as the new CFO of Fluid Air Components to help finance and execute the buyout.
Once in the CFO position, the SCA partner immediately set out to raise funds. In the meantime, however, the SCA partner was also performing a thorough review of Fluid Air Components’ accounting department and operations. During this due diligence, two major challenges became clear, both of which threatened Fluid Air Components’ survival and required SCA’s expert to abandon the acquisition and focus, instead, on stabilizing and saving the company.
Fluid Air Components was struck by two major issues simultaneously:

  • The first issue for Fluid Air Components was the changing industry for their products and services. The Northwest region was experiencing a decline in housing sales. The result was a decrease in sales in the forest product industry, including sales for Fluid Air Components. This caused a number of cash problems for the company.
  • The second major problem became clear only after SCA identified some questionable accounting practices by the former controller. It was discovered that the controller had been embezzling from the company for almost his entire 17-year tenure with the company. This finding led to the realization that approximately 1/3rd of the assets held for collateral with the bank didn’t exist. Because Fluid Air Components was already a highly leveraged company, a reduction of the bank line would have impaired the business to the point of dissolution.

After the SCA partner’s alarming discoveries, it was agreed that they would immediately implement turnaround strategies.

SCA expert’s role instantly switched from acquisition to turnaround specialist. Throughout the crisis, the SCA partner implemented the following advanced strategies and solutions:

  • Several comprehensive cash management strategies were immediately employed, including: cash monitoring and forecasting, negotiations with creditors to create pay-down plans, and converting old stagnant assets into cash.
  • From an operations standpoint, SCA reduced manufacturing operations, trimmed unnecessary personnel, changed commission structures, and other cost-saving strategies.
  • In regards to the embezzlement, SCA’s expert successfully clawed back embezzled funds, enough to stabilize the company through this transition.

In what could have been the company’s dissolution, SCA’s expert focus and planning helped Fluid Air Components to regain control of its finances and stabilize its cash flow.
In doing so, SCA also helped to:

  • Completely restructure Fluid Air Components’ organization
  • Create positive cash flow
  • Acquire a new bank line
  • Significantly improve operations and
  • Began to grow the company again including acquisitions.

The success of Fluid Air Components’ turnaround got the attention of a national private equity group (PEG) who bought the company a couple of years after the turnaround.

CASE DETAILS

Company:

Fluid Air Components


Industry:

Motion Control Product Lines


Loan Type:


Amount:


Term: