Solvency Opinion - Financing

Stout was engaged to advise the board of directors of a $100 million manufacturer of complex metal stampings and assemblies used primarily in the automotive market. The board was considering an offer to sell the business to a larger strategic buyer. However, while the target company was virtually debt-free, the prospective acquirer already carried debt and was planning to fund the acquisition entirely with newly issued debt, the result being a fairly highly levered business competing in a market segment that is known to be volatile. The board and their legal advisors had concerns about selling into a situation that might in retrospect be deemed a fraudulent conveyance if the automotive market were to experience another sever downturn.

Stout's analysis relied on projected cash flows as well as trading multiples of comparable publicly traded companies and recent mergers and acquisitions of similar companies in order to assess the viability of the post-transaction capital structure. In addition, we performed an analysis to determine the ability of the post-transaction combined company to satisfy its post-transaction debt obligations. Our work also included a sensitivity analysis in order to provide the board with a sense of the post-transaction combined company’s ability to continue satisfying debt obligations and operate the business without undue stress in the event of unexpected turbulence resulting in lower than expected future cash flows.

We issued an opinion to the board of the selling company that the post-transaction combined company should remain solvent subsequent to the transaction. Our analysis was one factor that enabled the board to recommend the transaction with confidence and the company subsequently successfully undertook the transaction.

Related Professionals

All Related Professionals