Columbus McKinnon has sold most of the assets of its subsidiary Automatic Systems, Inc. (ASI) to the division’s management, backed by venture capitalists.
George K. Baum Capital Partners, L.P. of Kansas City, Missouri, in conjunction with ASI management, have paid $20.6m in cash and provided a 10-year subordinated note for $6.8 m, for a total purchase price of $27.4m. The sale did not include ASI’s steel erection subsidiary, LICO Steel.
CM president and CEO Timothy Tevens said: ‘ASI did not prove to be a good fit for us mainly because of the highly volatile nature of its business, its significant dependence on the auto industry and its heavy use of working capital.’
He added, “Despite the fact that the write-off associated with this transaction will increase our financial leverage, it furthers our efforts to reduce debt and interest expense. With this sale and our continued facility rationalization and implementation of lean manufacturing practices throughout our operations, we are better positioned to capitalize on a potentially improving economy.”
Although CM has been looking to sell ASI for many months, the completion of the deal is not entirely good news.
Columbus McKinnon expects to record a loss on the sale of discontinued operations of approximately $125 million, which includes $105 million of goodwill. The loss will be reported in its fiscal fourth quarter of 2002 and ASI will be classified as a discontinued operation.
As a result of ASI’s sale, CM will not be in compliance with certain covenants of its bank lending agreements as of 31 March 2002 and is negotiating a new bank agreement and credit facility, which it expects to have in place by 30 June 2002. The company also indicated that it had sufficient liquidity to fund its working capital needs until a new bank agreement is in place.
The ASI deal includes provisions for additional payments to Columbus McKinnon of up to $10m over the next two years based on the financial performance of the purchaser. Columbus McKinnon may also receive a share of certain designated receivables of up to $2m.
The cash proceeds of the sale will be used to reduce senior bank debt. Columbus McKinnon had previously announced on July 24, 2001, that it was evaluating strategic alternatives for its Solutions-Automotive segment, including a possible sale of ASI, the principal business unit of this segment.
