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 when it was announced last week 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.
“They 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, and subject to bankruptcy court approval, the deal includes Littlejohn refinancing or paying on the effective date: the $15 million in Debtor in Possession funds currently outstanding; roughly $8 million pre-petition unsecured creditor claims; and the assumption of post-petition accounts payable, and investment of working capital.
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."
Handy management intends to explain the changes to current Handy dealers at a series of town hall meetings in the coming weeks.