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caregologo


Case Study

the situation

A shareholder disagreement concerning a modern, warehouse logistics business in Hamilton. We had been originally approached by one of the partners but we were not convinced that he could operate the business if we backed him.

Several weeks later we were introduced to the partner running the operation and after due diligence we supported his pulling the shotgun clause in the shareholders agreement at a fair price.

After all was said and done The Shotgun Fund ended up as a 50/50 partner with the operator. We set about hiring a new CFO, reviewed strategy and augmented the board with an independent industry director.

Industry Background: The business was in automated storage of high value steel products such as steel coils for the automotive industry. 

The company had recently completed construction of a 180,000 square foot Class 1 (Automotive class) facility on the CPR lands in Hamilton which was a nexus for steel logistics in Canada. The company’s clients included the CPR, Stelco US Steel, Dofasco (Ancelor), Samuel Steel and Algoma Steel. It was and remains today the largest, most modern, steel transfer facility in Canada. The company added strategic assets over the next several years while the economy grew.

At the same time, the steel business was undergoing global consolidation. Local service storage and logistics providers were closing their doors as supply chains were changed or disrupted. Steelcare’s founder, our partner, was able to move quickly enough to keep the company profitable while revenues were falling. In addition, the company had been developing a software system around its warehouse optimization and automation know-how.

After the warehousing business recovered from the recession, the Fund and management embarked on a board sponsored mandate of optimizing shareholder value.

When all but one division was sold, the Fund sold our management partner the remaining interest in the warehouse automation business, which has become a successful stand-alone entity.

The Inflection Point: The inflection point for this business was the combined effect of the global recession and the global consolidation of the steel industry.

This motivated management and the board to monetize the company’s operations as going concerns while providing acceptable returns to investors. This was done through divestitures to strategic buyers with long term perspective.

the investment

The Investment was held for 12 years and provided a 2.8x return on capital for the Fund's investors despite challenging industry conditions. 

  • Every business regardless of its nature must invest in technology
  • Not every business has the ability to be a 10 timer but if the hard decisions are made you can get an adequate return
  • Every business is cyclical
  • Continuous improvement is not a platitude, its necessary
  • Strong customer relationships are a moat against a downturn
  • Strong alignment with the owner-manager and senior management team helped insulate the company during a significant downturn against a loss in value