We were engaged to advise the board of directors of a $150 million home décor and candle company. The private equity-backed company was undertaking a dividend recapitalization transaction whereby it simultaneously raised new first- and second-lien debt, entered into a sale leaseback transaction, paid off existing debt, and returned capital to its shareholders. Adding to the complexity of the engagement, the company in its current form is the result of a 2016 merger that combined of two fragrance companies with contrasting historical results and distinctly different target consumers and sales channels. Prior to the merger, one company was relatively healthy, albeit with key customer risk; the other company suffered from deficient investment from its private equity sponsor, hindering its ability to adequately invest in product innovation and technology upgrades.
Our analysis primarily relied on the projected cash flows of the company, with ancillary support from the trading multiples and recent mergers and acquisitions of similar companies. In addition, we determined the ability of the company to fund its continuing operations and meet the debt service obligations of the post-transaction capital structure. Our work also included a sensitivity analysis of the company’s capacity to pay its debt obligations in the event of lower-than-expected future cash flows, which may arise from increased competition from specialty markets, deteriorating consultant churn, or excess inventory.
We delivered an opinion to the board of the company, providing information to enable the board to recommend proceeding with the transaction.