The board of directors of a private equity-backed manufacturer of industrial pumps and compressors engaged Stout to advise the board on a proposed transaction and issue a solvency opinion on the ability of the company to remain operational and solvent following a proposed recapitalization.

Through the recapitalization, the company would refinance and upsize its existing credit facility and use the proceeds along with cash on its balance sheet to make a distribution to its shareholders.

Our analysis relied on projected cash flows via a discounted cash flow analysis as well as an analysis of the trading multiples of publicly traded companies. We conducted a cash flow test analysis to determine the ability for the company to satisfy its post-transaction debt obligations.

The analysis also presented a downside case scenario to provide management with a sensitivity analysis on the company’s ability to continue satisfying its debt obligations in the event of unexpected business pressures resulting in lower-than-expected future cash flows.