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Armstrong Flooring Bankruptcy: The Alchemy of Creating Value from Accounts Receivable
April 25, 2024
By Morton Kucey
Finding the right combination of capital resources and strategic knowledge in the sale and restructuring of a business is complicated; but when it works, this seemingly magical process of transformation creates incremental value for all constituents involved in the bankruptcy process. Take the case of Armstrong Flooring, and three affiliated companies, that each filed petitions in the United States Bankruptcy Court for the District of Delaware seeking relief under Chapter 11 on May 8, 2022.
What caused Armstrong Flooring to file bankruptcy?
The company struggled through COVID as approximately 70% of its business was commercial, thus missing the boon in consumer spending on home improvements while simultaneously facing losses in demand from its traditional customer base. During the 12 months prior to filing, the company struggled with product and transportation cost increases. Armstrong experienced additional product and transportation costs of $85 million, according to Michel Vermette, president and CEO of Armstrong Flooring. Though Armstrong raised prices for retail customers by 10 percent and for commercial customers by 15 percent, it was not enough to stave off bankruptcy. “Simply stated, the company’s increasing costs significantly outpaced its pricing power,” Vermette said in a court filing.
What was the outcome of the auction of the assets as part of the 363 Sale Process?
The proposed transactions stemmed from a court-supervised auction that began on June 27, 2022. A consortium, formed among AHF Products, VION Investments, and Gordon Brothers, would acquire substantially all the assets of Armstrong North America for approximately $107 million in cash and the assumption of specified liabilities. AHF planned to continue operating the Lancaster, Kankakee, and Beech Creek locations, and Gordon Brothers would pursue a winddown of the Jackson and Stillwater locations.
As part of the asset disposition of certain parts of the operations, VION partnered with Gordon Brothers in the purchase of a substantial portion of Armstrong Flooring Inc.’s assets. VION was responsible for Armstrong Flooring’s accounts receivable while Gordon Brothers acquired real estate in Stillwater, Oklahoma, and machinery and equipment in Stillwater and Jackson, Mississippi plants for resale. Gordon Brothers was also responsible for inventory and other assets.
“We worked with our going-concern partners to provide an immediate solution for the valuation, acquisition and disposition of receivable assets that did not fit with their overall strategic goals,” said Stacey Schacter, CEO of VION. “Our ability to move quickly and help them offer a total solution contributed to the final success of their purchase.”
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What caused Armstrong Flooring to file bankruptcy?
The company struggled through COVID as approximately 70% of its business was commercial, thus missing the boon in consumer spending on home improvements while simultaneously facing losses in demand from its traditional customer base. During the 12 months prior to filing, the company struggled with product and transportation cost increases. Armstrong experienced additional product and transportation costs of $85 million, according to Michel Vermette, president and CEO of Armstrong Flooring. Though Armstrong raised prices for retail customers by 10 percent and for commercial customers by 15 percent, it was not enough to stave off bankruptcy. “Simply stated, the company’s increasing costs significantly outpaced its pricing power,” Vermette said in a court filing.
What was the outcome of the auction of the assets as part of the 363 Sale Process?
The proposed transactions stemmed from a court-supervised auction that began on June 27, 2022. A consortium, formed among AHF Products, VION Investments, and Gordon Brothers, would acquire substantially all the assets of Armstrong North America for approximately $107 million in cash and the assumption of specified liabilities. AHF planned to continue operating the Lancaster, Kankakee, and Beech Creek locations, and Gordon Brothers would pursue a winddown of the Jackson and Stillwater locations.
As part of the asset disposition of certain parts of the operations, VION partnered with Gordon Brothers in the purchase of a substantial portion of Armstrong Flooring Inc.’s assets. VION was responsible for Armstrong Flooring’s accounts receivable while Gordon Brothers acquired real estate in Stillwater, Oklahoma, and machinery and equipment in Stillwater and Jackson, Mississippi plants for resale. Gordon Brothers was also responsible for inventory and other assets.
“We worked with our going-concern partners to provide an immediate solution for the valuation, acquisition and disposition of receivable assets that did not fit with their overall strategic goals,” said Stacey Schacter, CEO of VION. “Our ability to move quickly and help them offer a total solution contributed to the final success of their purchase.”
Please click here to continue reading the article.
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