Summary
- Restructure of one of Australia’s largest and most well-known commercial solar EPC companies
- The restructure addressed the company’s cash flow pressures brought on by COVID-19 delays of large building and infrastructure projects.
- The utilisation of Australia’s voluntary administration regime
- Traded the business throughout the process protects the going concern value of the business, thus maximising stakeholder returns.
- Used the VA regime to protect valuable contractual rights (such as ongoing WIP, debtors and pipeline)
- Solution saw the business combined with Australia’s largest residential solar company was private equity-backed
- The large workforce’s significant entitlements are protected numerous jobs are maintained.
The Company
The company is one of Australia’s largest commercial solar EPC companies and has operated at the cutting edge and forefront of the industry for many years.
With an enviable reputation, it had built a valuable client base that included many of Australia’s top companies and international multinationals.
Leading into the COVID-19 pandemic the company had a turnover of $50m+ per annum, approximately 100 employees, contracted WIP of $30m+ and a large pipeline of opportunities that would serve the business for years to come.
However, the onset of the pandemic meant the company’s cash flow dried up almost overnight as most clients either banned all contractors from the site (thus preventing current projects) or deferred non-critical capital expenditure (stopping future work). Given the fixed cost nature of the business (mainly highly skilled employees and property costs) the organisation was unable to right-size its cost base quickly enough to continue to trade without assistance.
The Solution
AS Advisory was introduced to the company and, after a detailed briefing, designed a restructuring plan that, if successful, would:
- Maintain the company’s valuable customer contracts
- Financial restructure to sufficiently capitalise the company
- Enable the company to continue to service its ongoing contracts (both construction and service contracts)
- Save as many of the company’s employee’s jobs as possible
- Provide the highest potential return to all stakeholders
Given the company’s unique circumstances the above solution was pursued using the voluntary administration regime (AS Advisory principles acted as the administrators). It provides a short-term respite to the company’s financial pressures, protecting its contractual rights and allowing a thorough investigation of the company’s affairs to allow stakeholders to decide on the restructuring. The regime also grants the trade of the company’s assets in certain circumstances.
Trading the company through administration
It was crucial to continue the company’s operations throughout the administration regime. The administrators formed a small and highly skilled restructuring team to manage the overall operations (including financial risk, operational direction and stakeholder management). However, a feature of this administration was the utilisation of the company’s director and employees to continue to operate most of the day-to-day operations thus providing continuity and keeping overall costs to a minimum.
This blended approach provided maximum benefit as we were able to maintain going forward momentum for current projects, continue to engage with future opportunities and thus retain value in assets such as WIP and debtors. This allowed the going concern nature and thus the value of the business to be realised.
Interest in the company's business and assets
Early in the administration process, it became clear that there was significant interest in some or all of the company’s business and assets, with over 40 unsolicited approaches towards the administrators. Who then executed a three-stage interest process aimed at the market’s level of interest and the best structure to achieve the greatest return for stakeholders.
This process included trade players, large Australian and overseas energy companies, private equity, overseas hedge funds and other interested parties.
The final structure pursued with those short-listed parties was a combination of upfront value for the company’s tangible assets along with an upside reward should certain assets be exploited above-agreed values in addition to an earnout in respect to the company’s future pipeline. The structure utilised a deed of company arrangement in combination with an asset sale agreement providing certainty for the acquirer.
Results
After an exhaustive process, the successful bidder is Australia’s largest residential solar company which is backed by significant private equity interests.
The combination of financial muscle, industry track record and the company’s existing goodwill creates a powerful market proposition.
In terms of stakeholder return, the process has ensured employees received their full entitlements (above $1m), many employees have continued their employment with the company and creditors will receive significant returns over the life of the deal.
Concluding comment
This case demonstrates the power of a well-thought-through and accurately executed restructuring process.
A voluntary administrative regime had been used as a means to an end. In this instance, a takeaway was that a decisive action early in the process (with sufficient funding for trading) led to a successful result.
The experts at AS Advisory have many years of completing complicated restructurings including introducing significant capital, operational turnaround, and stakeholder engagement and negotiation.