November 14, 2005
Another chance | New owners hope to turn around Hartland's troubled Irving Tanning
By Sean Donahue
When Irving Tanning Co. filed for Chapter 11 bankruptcy in March, its survival seemed doubtful despite management's assurances that it was talking to new lenders and interested buyers to keep the company afloat. After all, it was the Hartland company's second bankruptcy in four years, in an industry that ˆ like other manufacturing industries ˆ was moving more of its production and manufacturing overseas in search of lower labor costs.
Irving's outlook remained hazy even after Meriturn Partners, a turnaround company with offices in San Francisco and Raleigh, N.C., emerged in June with an offer to buy the struggling company. That's because negotiations between Meriturn and Irving's main creditor, TD Banknorth, dragged on for several months, with TD Banknorth at one point rejecting Meriturn's offer in favor of another bidder that subsequently walked away from the deal.
But in mid-September, Meriturn finally closed its buyout of Irving with a $14 million package ˆ featuring financial support and loan guarantees from several state and federal agencies ˆ that paid off much of the company's debt and provided new working capital. And though painful, that months-long process gave Meriturn and Irving time to develop a new operating structure and market focus that longtime Irving President and CEO Richard Larochelle says should make the company profitable once again.
The key to those changes ˆ some small, some major ˆ was the ability to implement them all at once, according to Larochelle, who kept Irving running during the bankruptcy process in part with a $250,000 loan from the state Department of Economic and Community Development. "When you can change all these different elements at once ˆ operationally, financially and strategically ˆ then it all makes sense," he says.
The ability to completely restructure Irving's finances and operations is what attracted Meriturn to the deal in the first place, says Meriturn director Franklin Staley. Meriturn was able, among other changes, to pay off TD Banknorth (though neither TD-Banknorth nor Meriturn will discuss dollar figures), negotiate new deals for taxes, energy, waste disposal and other operating costs, cut the workforce from 250 to 200 and help change Irving's supplier mix and market focus.
Staley says Irving's biggest problem was related to its 2001 bankruptcy, during which the company didn't restructure itself thoroughly enough and came out with $16 million in debt. That kind of heavy debt load after bankruptcy almost guaranteed Irving a second trip to bankruptcy, something Staley calls the "Chapter 22 effect."
"They made some cuts, but I compare it to cosmetic surgery," says Staley. "What the company really needed was Civil War surgery, where you have to cut off whole limbs to save the patient."
Smaller, but more profitable
Eighty-year-old Irving Tanning, which in the 1990s underwent a plant modernization and peaked at revenues of $120 million a year, started stumbling in 2001, when a foot-and-mouth disease scare in Europe caused a shortage of hides that drove the company into its first bankruptcy. "The company was not capitalized properly, and as the market declined we couldn't support the debt we'd taken on," says Larochelle.
Although Irving emerged from that bankruptcy in 2002, its revenues dropped to about $65 million a year, and it still carried significant debt. Then, as the company continued to struggle with competition from overseas tanneries, TD Banknorth in March decided not to renew the company's revolving credit line, forcing the company to once again file for bankruptcy protection. (A TD-Banknorth spokeswoman would not comment on the reasons for canceling that credit line.)
Meriturn learned about Irving's situation this spring from a bankruptcy lawyer familiar with the deal, says Staley, and saw a turnaround opportunity in Irving's modern equipment and ability to turn out high-quality leather for shoes, boots and handbags. But as initial negotiations between Meriturn and Banknorth proved difficult, it became clear that Irving might not be able to continue operating through a lengthy bankruptcy process, says DECD Commissioner Jack Cashman.
So in July, DECD extended to Irving a $250,000 loan to fund ongoing operations. It was a risk Cashman says he was willing to take because of what he saw in the firm's turnaround proposal. "Meriturn's plan is not to be content with business as usual. They want to expand that operation up there," says Cashman.
As the parties continued to negotiate, Larochelle began implementing much of that turnaround plan. For example, Meriturn helped Irving cancel a long-term hide contract with Springdale, Ark.-based Tyson Foods Inc., which had become too restrictive, according to Larochelle.
Instead, the company can now buy hides from about a dozen different sources ˆ flexibility that one industry expert says is essential for a domestic tannery. "The choices have actually broadened over last five or 10 years, so you don't have to be locked into the highest-priced American hide," says Andy Barnett, owner and president of Barnett Trading in Marblehead, Mass., an exporting company that handles hides. "You can bring the same product up from South America or someplace else and finish it quite nicely."
Larochelle also identified a new product focus for the company, aimed at high-quality apparel customers. Irving also plans to go after more U.S. military contracts, because the military is required to purchase American-made boots and other supplies.
Of course, almost all the roughly 200-remaining U.S. tanneries are going after similar markets, since they can't compete with Asian tanners for low-cost, mass-market projects, says Barnett. Fighting for a piece of that niche won't be easy, but Staley says the company is at least better funded for the effort. Following the reorganization, Irving now carries debt of only $2.75 million and has access to new lines of credit. Meriturn also invested $2 million of equity capital into the firm to finance future growth.
Although Larochelle and Staley won't offer many specifics about where that growth might come from, Cashman says Meriturn Partners indicated to him that the company was looking to buy out smaller, less efficient tanneries in the Midwest and consolidate those operations into Irving's facility. While there is currently no formal plan to do that, Staley says, "it's definitely on the table."
For its part, Meriturn says that it typically looks to get out of its investments in four to seven years ˆ but with the incentive to create a profitable company during that time in order to get a good return on its investment. Irving CEO Larochelle says that's a path he hopes the company is already on. "We'll end up with a little smaller business," says Larochelle, "but a more profitable business."
Irving's outlook remained hazy even after Meriturn Partners, a turnaround company with offices in San Francisco and Raleigh, N.C., emerged in June with an offer to buy the struggling company. That's because negotiations between Meriturn and Irving's main creditor, TD Banknorth, dragged on for several months, with TD Banknorth at one point rejecting Meriturn's offer in favor of another bidder that subsequently walked away from the deal.
But in mid-September, Meriturn finally closed its buyout of Irving with a $14 million package ˆ featuring financial support and loan guarantees from several state and federal agencies ˆ that paid off much of the company's debt and provided new working capital. And though painful, that months-long process gave Meriturn and Irving time to develop a new operating structure and market focus that longtime Irving President and CEO Richard Larochelle says should make the company profitable once again.
The key to those changes ˆ some small, some major ˆ was the ability to implement them all at once, according to Larochelle, who kept Irving running during the bankruptcy process in part with a $250,000 loan from the state Department of Economic and Community Development. "When you can change all these different elements at once ˆ operationally, financially and strategically ˆ then it all makes sense," he says.
The ability to completely restructure Irving's finances and operations is what attracted Meriturn to the deal in the first place, says Meriturn director Franklin Staley. Meriturn was able, among other changes, to pay off TD Banknorth (though neither TD-Banknorth nor Meriturn will discuss dollar figures), negotiate new deals for taxes, energy, waste disposal and other operating costs, cut the workforce from 250 to 200 and help change Irving's supplier mix and market focus.
Staley says Irving's biggest problem was related to its 2001 bankruptcy, during which the company didn't restructure itself thoroughly enough and came out with $16 million in debt. That kind of heavy debt load after bankruptcy almost guaranteed Irving a second trip to bankruptcy, something Staley calls the "Chapter 22 effect."
"They made some cuts, but I compare it to cosmetic surgery," says Staley. "What the company really needed was Civil War surgery, where you have to cut off whole limbs to save the patient."
Smaller, but more profitable
Eighty-year-old Irving Tanning, which in the 1990s underwent a plant modernization and peaked at revenues of $120 million a year, started stumbling in 2001, when a foot-and-mouth disease scare in Europe caused a shortage of hides that drove the company into its first bankruptcy. "The company was not capitalized properly, and as the market declined we couldn't support the debt we'd taken on," says Larochelle.
Although Irving emerged from that bankruptcy in 2002, its revenues dropped to about $65 million a year, and it still carried significant debt. Then, as the company continued to struggle with competition from overseas tanneries, TD Banknorth in March decided not to renew the company's revolving credit line, forcing the company to once again file for bankruptcy protection. (A TD-Banknorth spokeswoman would not comment on the reasons for canceling that credit line.)
Meriturn learned about Irving's situation this spring from a bankruptcy lawyer familiar with the deal, says Staley, and saw a turnaround opportunity in Irving's modern equipment and ability to turn out high-quality leather for shoes, boots and handbags. But as initial negotiations between Meriturn and Banknorth proved difficult, it became clear that Irving might not be able to continue operating through a lengthy bankruptcy process, says DECD Commissioner Jack Cashman.
So in July, DECD extended to Irving a $250,000 loan to fund ongoing operations. It was a risk Cashman says he was willing to take because of what he saw in the firm's turnaround proposal. "Meriturn's plan is not to be content with business as usual. They want to expand that operation up there," says Cashman.
As the parties continued to negotiate, Larochelle began implementing much of that turnaround plan. For example, Meriturn helped Irving cancel a long-term hide contract with Springdale, Ark.-based Tyson Foods Inc., which had become too restrictive, according to Larochelle.
Instead, the company can now buy hides from about a dozen different sources ˆ flexibility that one industry expert says is essential for a domestic tannery. "The choices have actually broadened over last five or 10 years, so you don't have to be locked into the highest-priced American hide," says Andy Barnett, owner and president of Barnett Trading in Marblehead, Mass., an exporting company that handles hides. "You can bring the same product up from South America or someplace else and finish it quite nicely."
Larochelle also identified a new product focus for the company, aimed at high-quality apparel customers. Irving also plans to go after more U.S. military contracts, because the military is required to purchase American-made boots and other supplies.
Of course, almost all the roughly 200-remaining U.S. tanneries are going after similar markets, since they can't compete with Asian tanners for low-cost, mass-market projects, says Barnett. Fighting for a piece of that niche won't be easy, but Staley says the company is at least better funded for the effort. Following the reorganization, Irving now carries debt of only $2.75 million and has access to new lines of credit. Meriturn also invested $2 million of equity capital into the firm to finance future growth.
Although Larochelle and Staley won't offer many specifics about where that growth might come from, Cashman says Meriturn Partners indicated to him that the company was looking to buy out smaller, less efficient tanneries in the Midwest and consolidate those operations into Irving's facility. While there is currently no formal plan to do that, Staley says, "it's definitely on the table."
For its part, Meriturn says that it typically looks to get out of its investments in four to seven years ˆ but with the incentive to create a profitable company during that time in order to get a good return on its investment. Irving CEO Larochelle says that's a path he hopes the company is already on. "We'll end up with a little smaller business," says Larochelle, "but a more profitable business."
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