Canada’s Strongco to Sell Its U.S.-based Chadwick-BaRoss Division

Canada’s Strongco to Sell Its U.S.-based Chadwick-BaRoss Division

Canadian distributor Strongco Corp. said it is selling 100 percent of the shares of Chadwick-BaRoss, its United States-based distribution division to ISH Capital Inc. for U.S. $12.75 million. Strongco expects the transaction to close around Sept. 9. The final purchase price remains subject to satisfactory completion by ISH Capital of due diligence investigations, obtaining certain third party approvals and final approval of the independent directors of Strongco’s board.

Over the past several years, Strongo has made significant investments in its business, building new branches and investing heavily in a new ERP system, with the anticipation of higher growth in sales and service revenues. However, Strongco said, because of ongoing challenging economic conditions in many of the regions Strongco operates in, the growth has not been realized. These investments, combined with lower revenues and margins, have put strain on the company’s earnings and cash flow. Cash flow from operations was negative in 2014 and 2015 and several times during the past two years, the company has breached financial covenants under its lending agreements with its bank and equipment finance companies. To compensate for the reduced cash flow, current bank operating lines have been fully utilized and trade accounts payable have been extended.

While revenues have been more stable in the first half of 2016, gross margins were down. Strongco has determined that the current financial situation is no longer sustainable and the company requires an injection of new cash and that the sale of Chadwick-BaRoss is the best means to provide additional financial resources in the shorter term until market conditions improve.

Strongco has also reduced staffing and put in place general expense control measures, as well as adopted a salary deferral program for its senior leadership team and directors to further improve cash flow.

“I remain optimistic that the goal of getting our Canadian operations back on stable footings for the future is within reach,” said Robert Beutel, executive chairman of Strongco. “The disposition of Chadwick-BaRoss would provide us the funds to assist our recovery. With the advantage of hindsight our previous expansion was poorly timed, but we are refocusing to create the most value for our customers, employees and our shareholders.”

Strongco Corp. rents, sells and services equipment in diverse sectors such as construction, infrastructure, mining, oil and gas, utilities, municipalities, waste management and forestry. It represents Volvo Construction Equipment, Case Construction, Manitowoc Crane, Terex Trucks, Konecranes, SDLG and more.

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