Growing 3X in 3 Years (Part 3): Bankruptcy and a Bank Backout

In 2015, Dane Manufacturing CEO and president Troy Berg and COO Mike Lisle set the audacious goal of growing the company 3x in 3 years, from $10 to $30 million. Read Part 1 and Part 2 before diving into this installment. As a quick recap, in Part 1 we covered how Troy originally got financing to buy Dane, why he brought on a COO for the business, and his audacious goal of 3Xing the business in as many years. In Part 2 we covered why Troy and Mike began using Axial to source an acquisition, and what happened when they found a deal on the platform that checked all their boxes.

“The Days of 20 Suitors Are Over”

Right before Labor Day, Troy and Mike got word from Dantherm. The other buyer had backed out.

Mike and Troy jumped at the second chance — but were also shrewd enough to know that the balance of power had shifted in their favor.

At this point, not only had Dantherm been through two failed closes, but Troy and Mike had also learned that Dantherm’s parent company in Denmark was bankrupt. Dantherm was now being managed by a Danish bankruptcy trustee. “They weren’t paying very close attention to the business nor were they investing in growth. They were just focused on getting a buyer. We knew that our leverage was growing. The time for 20 suitors was six months ago,” says Mike.

Dane was able to negotiate a lengthy exclusivity period — one of the rewards of staying in the game — and Mike, Troy, and Dane’s finance team set out to secure financing.

“Nope, Not Us”  

2017 had been a great year for Dane and 2018 was poised to be even better. In November, they signed their largest contract ever for a three-year deal. Even without the Dantherm acquisition, Dane was poised to grow 50-60 percent year over year. But Dane’s long-time bank took one look at the Dantherm deal and said they weren’t interested.

“It was genuinely shocking,” Mike says. The bank had previously helped the company simplify their financial structure and prepare for growth, including redeeming Troy’s mother’s preferred stock, streamlining real estate structure and loans, and converting from a subchapter C to a subchapter S organization. “They knew we were doing all these things to do a deal, to do multiple deals,” says Mike. “However, not only was Dantherm not repeating its 2016 performance, but they were really nosediving. The bank looked at the Dantherm financials and was worried about its impact on Dane. And they said, ‘Nope, not us.’”

Though Dane had a huge contract spinning up in 2018, “the bank was only interested in the historical angle,” says Mike. The sheet metal business is inherently capital-intensive. “Each of our machine tools is north of a million dollars. And you have to have a lot of them to be running the volume we are. So, it’s a very high fixed-cost business,” says Mike. “Our bank had concerns about Dantherm’s cash flow and how much of Dane’s cash we would have to bring into the company.”

Their hesitation didn’t erode Mike’s confidence in the deal. “It just depended on your perspective. I’ve spent 15 years in the financial side of organizations. I’m used to saying ‘No’ to deals and being risk-averse. But in this case, I was appalled that the bank couldn’t see our vision, the track record we had. It just didn’t add up to say no to this deal.”

“I was appalled that the bank couldn’t see our vision.”

Mike emphasizes that he didn’t make the decision to keep going lightly. “Troy and his wife Michelle are godparents to my daughter. I’m the trustee of his estate. The last thing I’m going to do as a financial manager to my friend is to put his family and livelihood in a high-risk place.”

The Fight for Financing   

Troy and Mike set out to find a new bank. They secured some SBA financing, but needed more. “It was more challenging to find the right deal financing than it had been the right target. When it came to deal sourcing, things were a more binary — it had to meet our criteria. But with financing, we had a lot more people saying, ‘Well, we could…’ We did our elevator pitch ad nauseum,” says Mike.

Given Dantherm’s current state, it quickly became clear that asset-based lenders would be the best fit for the deal. “In May 2018, on one of our famous Thursday afternoon meetings, we pulled up Axial, ran a search, and found Crestmark Bank,” says Troy. Crestmark was an asset-based lender with a strong presence in Chicago, just a few hours away from Dane’s headquarters.

Mike had also met Scott Frederick, a vice president from Concord, previously at Axial’s Concord event in Chicago, but at time Dane was still planning on using their existing bank for the Dantherm deal. Now, though, they reached out to Scott immediately.

The next day, Friday, Scott drove to Dane’s headquarters and met with Mike and Troy for six hours. “It was nine hours in the car from Chicago. But I cancelled everything for the next day and drove there because I sensed Troy and Mike needed help and I knew that time was not on anyone’s side in this acquisition. In the current lending environment, time kills deals. I came away from the meeting thoroughly impressed with their vision for the company,” says Scott.

“In the current lending environment, time kills deals.”

Within two weeks, Dane had closed with Crestmark. “It was lightning speed for a $3 million line of credit facility,” says Troy.

“At the end of the day you had a motivated team in Dane Manufacturing and a motivated bank in Crestmark, and Axial brought us together,” says Scott.

Meanwhile, in Denmark

The financing wasn’t the only thing tying up the deal. Because Dantherm was being managed by its bankruptcy trustee in Denmark, Dane kept hitting walls when it came to deal terms. “We couldn’t hold money in escrow or do an earnout, or do an asset purchase. He wasn’t a manager staying on or an owner with skin in the game. He needed a clean, quick deal that we could take to his creditors. He couldn’t give us the typical reps and warranties that you would normally get if your seller was going to be out for good. Whether that was Danish law or posturing, I still don’t know — but he said he couldn’t go there,” says Mike.

As the process stretched on, Mike and Troy worried more and more about keeping the trustee on board. “He was worried about our financing. So, we knew we had to keep him engaged. We proactively shared our financial prospect pipeline on a weekly call. I don’t know that many sellers would get that level of engagement with the buyer, but we offered it because we didn’t want to lose the company.” Given Dane’s growth and its capital-intensive business model, “we knew that we couldn’t write the biggest check,” says Mike. “We didn’t want someone else with our same vision but without our capital tie-ups to come in and offer more.”

The team at Dantherm had been through a rollercoaster of failed deals over the past few years.  “One transaction after another had fallen through for us,” says Rick Schmidt, current chief technology officer at Dantherm (and at the time the company’s chief operating officer).  “It was hard to keep employees motivated. If an employee left it was hard to find a replacement employee. You’re trying to keep your customer base happy and do all the things you should be doing from a business standpoint to grow and improve, but you have this big distraction looming over your head.”

Mike and Troy were concerned with keeping the Dantherm employees invested in the business.  “We knew the longer the deal took, the more depleted and less engaged the team would be,” says Mike. “We bought a lot of potential; we didn’t buy financial performance. We really needed their people to stick with us, so we made visits on site and also invited members of their team to our headquarters in Wisconsin. We really tried hard to get them excited for what was ahead.”

Rick picked up on the cultural similarities between Dane and Dantherm during the deal process. “Mike’s high-energy, Troy’s high-energy, and that’s very similar to how myself and the other managers here operate. We’re both companies that have gone through a lot of challenges and grown over the years. Both are the type of place where you pull together when you have to. There’s not that, ‘That’s not my job’ mentality. It was clear that Dane was coming in to help us move forward and continue to create a good foundation for the business.”

Coming in Under the Wire

Troy and Mike had challenged themselves with the 3X goal on July 9, 2015. The Dantherm deal finally closed on June 28, 2018.

“We made it by a week,” says Troy. “Almost three years to the day we set that goal, we closed Dantherm giving Dane Manufacturing consolidated annual sales of $32 million — with Dantherm making up the last third of that number.”

“We made it by a week.”

Needless to say, “It was a great July 4th,” says Troy. “Shortly after we received a bottle of champagne from the Axial team. It was awesome, because the deal wouldn’t have happened without Axial.”

Says Axial CEO and founder Peter Lehrman, “As a CEO I know how risky it is to publicly put yourself on the line for a stretch goal like Troy and Mike did with their team at Dane. It’s easier to set the bar low, but it’s not nearly as gratifying when you clear it. The Axial team was watching this Dane deal from the sidelines, and we were so completely elated when Troy and Mike let us know that they’d closed it. At Axial, we really live for these moments where we know we’ve helped move the needle for one of our members.”

Now that the deal is done, Dane has plenty of work to do to integrate Dantherm and continue to grow both teams. Dane replaced Dantherm’s previous president with Greg Kaye, who they connected with through Vistage, and Dane and Kaye have been working together to help Dantherm overcome its financial struggles.

But Troy and Mike have also given themselves permission to celebrate their success. “Sometimes you have to take your nose off the grindstone,” says Troy. “You have to let yourself enjoy the feeling of accomplishing the BHAG and reliving the story. You’ve got to remind yourself that you just went up another level. Three years ago we had 60 people. Now we have 125. As an owner, you have to take time to celebrate and smell the roses, because there’s always a lot to do. Work never goes away.” He adds, “Shawn Achor, who wrote The Happiness Advantage, sums it up best when he says, ‘One of the challenges we have in America is we don’t ever slow down long enough to be happy.’ We achieve the goal and then immediately move the goalposts.”

The financial goal of 3Xing the company kept Mike and Troy going, and ultimately pushed Dane to the next level. “But I have to be careful not to define myself around the sales or the money,” says Troy. “The most important thing is people, and how many people can we bring with it. I’ve always tried to measure my success by jobs. If I’m making jobs and sustaining jobs and seeing the same people day after day, year after year, then I know I’ve made an impact. Otherwise we’re not doing it right.”