Situation Overview

Sun & Skin Care Research, LLC (SSCR) was a mid-sized company, based in Cocoa, FL that manufactured, marketed and distributed consumer sun care products. SSCR, was one of the top five providers in the industry, which sold through food, drug, mass merchandisers and specialty retailers across the U.S. and internationally. In 2012, when SSCR was purchased by private equity firm Source Capital, the company already owned NO-AD and Ocean Potion, and shortly thereafter acquired the Bull Frog brand in 2013.

A new management team was brought in who focused on top line growth. This produced increased costs and SG&A as they oversold the channel, spent overhead, poorly allocated marketing dollars, and failed to launch a licensed premium brand. In 2013, the Bull Frog acquisition added a significant amount of debt to SSCR’s balance sheet. Meanwhile, an uncharacteristically cold summer season caused a significant decrease in sales the same year. All of which contributed to substantial operating losses and a need for additional resources to relaunch a number of “tired” brands, introduce new products, and expand offerings.

In June of 2015, facing pressure from lenders who felt the company was overly burdened with debt, SSCR’s management and board decided to sell the company. SSCR sought Carl Marks Advisors’ expertise as exclusive financial advisor and investment banker to help explore strategic alternatives that would support continued growth and maximize value for stakeholders.

Unique Challenges

In preparation for the sale of SSCR, the team at Carl Marks Advisors had to navigate myriad challenges. First, Carl Marks Advisors had to resolve SSCR’s manufacturing dilemma. Because of the extreme seasonality of sun care products, production was highly concentrated in a small window of the year, thus creating an extremely inefficient process.

Second, the Carl Marks Advisors team was engaged in June and thus under a tight deadline to complete the sale of SSCR in time for the company to ship product in November and kick-off the 2016 production cycle.

Results

Because time was of the essence, the Carl Marks Advisors team moved quickly to structure an Article 9 Foreclosure as a cheaper, quicker, and more certain path to selling SSCR than bankruptcy. During this process the secured lender acts as the seller of the foreclosed assets to the buyer. Carl Marks Advisors worked in conjunction with management to tactfully manage SSCR’s various creditors to avoid bankruptcy.

Carl Marks Advisors also successfully negotiated the delicate issue of outsourcing SSCR’s manufacturing to a co-packer, addressing the company’s manufacturing dilemma while maintaining transparency about plans to sell the business.

The team ran a wide auction process, contacting more than 200 bidders, engaging interest with upwards of 80 buyers and receiving 20+ bids. Ultimately, Carl Marks Advisors facilitated the sale of SSCR to SolSkyn Personal Care LLC, a strategic buyer with the ability to quickly absorb SSCR’s manufacturing demands and fund the transaction without outside financing – thus expediting a short, ten-week sale process.

Key Takeaways

  • An Article 9 Foreclosure can be a great alternative to bankruptcy in time-sensitive situations. Because the lender is required to give only 10 days advanced notice to the company and any other secured creditors of the intent to sell, deals can be closed very quickly, and often transitioned smoothly. This ten day period can even be waived by the company.
  • The volume of potential buyers interested in the SSCR sale demonstrates that brand names hold considerable purchasing power in the consumer products space. There was significant interest from co-packers who wanted to buy SSCR outright, bucking the current trend of separating marketing and manufacturing issues. This proves that with the ability to leverage production to increase marginal revenues, a co-packer could benefit from bringing on a recognizable brand name that distinguishes and increases the value of its overall product offering.
  • Clear communication and transparency with key stakeholders is imperative during any sale. Especially in the consumer products space, maintaining operations during a foreclosure or bankruptcy sale often involves sourcing interim vendors, and producers. It takes a financial advisor with specific retail experience to know the ins and outs of supply chain and logistics to have the right contacts to quickly manage and close a complex deal.