Undercapitalized and in need of a bailout, ADS Electronics Inc. is shopping for an equity investor or joint venture partner.
Faced with a loss of nearly $1.5 million because of the cancellation of an order in midstream and the failure of another customer, an EMS company, to pay for work performed, ADS considers finding an investor or partner the best solution to its financial difficulties.
"When the company was first acquired, it was undercapitalized by several hundred thousand dollars," said Ken Mann, a partner at Equity Partners Inc., a Baltimore firm that specializes in helping financially distressed companies.
But what sent a shock wave through the privately held Melbourne, Fla., company was the failure of one of its customers -- a large datacom OEM -- and the EMS provider for which ADS was doing some work to pay on outstanding invoices.
So now, ADS, which has been owned the past two years by Chicago-based Cresp Industrial LLC, is trying to keep its 90-employee operation afloat.
"The datacom company originally had an order for $2 million, but they canceled it [after we began the work]," said Vijay Raichura, Cresp's co-owner.
ADS has managed to recover $500,000 for materials from the datacom client, but is still owed another $500,000 for the work that was in progress as well as inventory. And ADS has also been unable to get the EMS company to pay the $1 million it owes. Raichura and his partner, Bob Patel, both declined to identify the contractor.
ADS makes printed-circuit boards and assemblies for OEMs in the computer, industrial controls, and data-com and telecom markets.
"The EMS company that didn't pay is still in business," Raichura said. "I think they didn't pay because they want to throw us out of business."
ADS, according to Equity Partners' Mann, has grown rapidly since its inception in 1993. The company's sales grew from $250,000 in 1994 to $9.8 million in 1999. Sales, however, leveled off in 2000 and are projected at $11.9 million for 2001.
Mann believes ADS has run into trouble because it didn't purchase its raw materials efficiently in better times.
"They bought everything cash-on-delivery and in small quantities," he said. "Deliveries from UPS were $5 a box, whether you had three parts or 30 parts in that box. Your freight costs go through the roof that way."
But production has not been halted at the 30,000-sq.-ft. Melbourne plant.
"We have four good customers that are very happy with the service we provide," Patel said. "They want to place [additional] orders of $3 million to $5 million with us as soon as we prove we're financially sound."
The fact that ADS' owners are motivated to look for financial backing is a major plus for the people who ultimately decide to invest in the EMS provider, according to Mann.
"The owners will be very reasonable in negotiating a deal because they're in trouble," he said. "That's attractive to people looking to acquire contract manufacturers with excess capacity."