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Back in March, Handy Hardware was a member-owned co-op intent on staying that way, even as it struggled through a reorganization under bankruptcy protection.
But with a stroke of a pen, that all changed in April when it was announced that Greenwich, Conn.-based private equity firm Littlejohn Management Holdings would acquire Handy and run it as an independent distributor.
Despite the loss of the co-op structure, it was the best result the members could have hoped for, according to Handy management.
“[Members] wanted to see Handy remain independent,” said Morrie Aaron, president of MCA Financial Group, Handy’s financial advisory firm. “And it has. It’s still there to provide a consistent transparent, no-frills low-price model around which they can build their business.”
According to Handy, if the deal is approved by the court, then Handy would emerge from bankruptcy this summer as a subsidiary of a Littlejohn portfolio company, while maintaining its Handy Hardware brand.
The deal — which has the support of Handy’s board of directors, its member advisory committee and member equity committee — is expected to gain court approval in July 2013, Handy said.
According to Aaron, the deal includes Littlejohn payments of $15 million in Debtor in Possession funds, and roughly another $15 million in claims and payment to unsecured creditors, working capital and other costs. For that, Littlejohn takes Handy’s inventory, accounts receivable, brand, and miscellaneous assets.
Mickey Schulte, VP marketing and purchasing, said the deal achieves the goal of exiting bankruptcy as an independent distribution company offering low prices and good service. “Our members will now become customers,” he said. “But that doesn’t change anything, they are still family to us.”
Handy described Littlejohn as a company with “substantial holdings in the wholesale distribution business and the hardware industry.” Its portfolio includes hardware products distributor Howard Berger Co. and Installed Building Products.
Aaron said that Howard Berger and Handy are expected to be sister companies, operating independently of each other.
In a note to members alerting them of the agreement, Handy’s board of directors explained: “Current Handy member dealers will not have to contribute additional equity as part of the plan, and Littlejohn will also eliminate the 2% warehouse service fee upon closing.”
The 1,300-member regional co-op filed for Chapter 11 bankruptcy in January.
A major cause of the bankruptcy was an ill-fated attempt to expand into the Southeast, an effort that began to take shape in 2008 as the housing and home improvement markets and the general economy hit hard times.
A groundbreaking of a new, $20 million state-of-the-art distribution center took place in 2009, an investment the co-op described at the time as a growth vehicle. But Handy incurred more than $30 million of debt in connection with the building and operation of the facility, due to operational challenges and the economic environment at the time of opening. It closed Dec. 31, 2013.
For members, the damage meant that what was once $27 million in member equity in Class A and Class B shares was wiped out, according to Handy management.
Under Littlejohn, the Handy story will continue, albeit under a completely different structure. Handy management intends to explain the changes to current Handy dealers at a series of town hall meetings in the coming weeks.