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Background

Founded in 1959, Kraus Group grew to become one of North America’s largest manufacturers and distributors of flooring products, comprising a 25 acre integrated nylon extrusion and carpet manufacturing facility in Waterloo, Ontario and satellite locations across Canada and the USA.

A leveraged buyout in 2007 coincided with a major downturn in the North American housing market, a substantial increase in oil prices and the Canadian dollar appreciating by 30% against the US dollar. With an increasingly unmanageable pension liability and a $125 million debt burden, the business was marketed for sale in 2011.

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Hilco Capital’s role

  • Acquired secured debt and effected financial restructuring of Canadian legal entities
  • Acquisition and financial restructuring involved five separate legal jurisdictions and separate legal counsels
  • Senior Hilco team allocated to take nonexecutive roles on the Kraus board
  • Process improvement team deployed to conduct operational restructuring and cost reduction projects
  • Worked with management team and union leaders to restructure uncompetitive union agreements
  • Installed new leadership team and business plan
  • Secured working capital facility with Wells Fargo
  • Renegotiated distribution centre leases

 

 


Results

  • One of the largest ‘prepackaged’ receiverships of a Canadian business
  • Third of secured debt burden written off and large part of the balance refinanced with new lender
  • Number of onerous historic liabilities removed
  • Over $2.5m of manufacturing cost efficiencies achieved and continuous improvement methodology applied
  • Significant reduction in proportion of ‘seconds’ produced
  • New union agreement approved by 80% of workforce, resulting in $1.8m annual saving
  • Lease renegotiations delivered $1.2m annual saving
  • Major new retail accounts won
  • Sales performance stabilised and profitability increased
Kraus Flooring Image