Shiloh Industries, Inc. – Cancels Auction and Designates MiddleGround Capital Affiliate as Successful Bidder with $218mn Cash Bid; Sale Hearing Set for November 10th

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October 28, 2020 – Further to a September 25th bidding procedures order [Docket No. 206], and absent any further qualified bids, the Debtors notified the Court that (i) the auction scheduled for October 29th had been canceled and (ii) Grouper Holdings, LLC (the “Stalking Horse Bidder,” an affiliate of MiddleGround Capital) had been designated the successful bidder with a cash bid of $218.0mn [Docket No. 387]. The August 30th asset purchase agreement (the "APA") is attached to the Debtors' bidding procedures motion [Docket No. 77] as Exhibit C.

Although other bids were received, none of them were determined to have met the Debtors' "qualified bid" requirements.

In a press release announcing the development, the Debtors note that they are: "moving forward under the previously announced asset purchase agreement with Grouper Holdings, LLC, a subsidiary of MiddleGround Capital LLC ('MiddleGround'). MiddleGround is expected to acquire substantially all of the Company’s assets, including the equity interests of certain of the Company’s direct and indirect subsidiaries.

On August 30, 2020, MiddleGround was named the 'stalking horse bidder' in a court-supervised auction and sale process. Pursuant to the bid procedures approved by the Court, qualified bidders were required to submit competing bids before 4:00 p.m. Eastern Time on Monday, October 26, 2020. While Shiloh received other bids, none were higher or better than MiddleGround’s stalking horse bid. Accordingly, a hearing to seek required Court approval for the MiddleGround transaction is scheduled for November 10, 2020. The transaction is also subject to certain other closing conditions. Shiloh anticipates the closing of the sale will occur no later than December 15, 2020."

Further Background

The Debtors' bidding procedures motion states, “On August 30, 2020, the Debtors entered into the Stalking Horse Agreement with the Stalking Horse Bidder for the sale of substantially all of the Debtors’ Assets (including the purchase of the Debtors’ interests in their non-debtor affiliates) (the ‘Stalking Horse Agreement’). The Stalking Horse Agreement is the product of extensive, arm’s-length negotiations, which all parties conducted in good faith. The Stalking Horse Agreement confers several substantial benefits on the Debtors’ estates, and the Debtors believe it provides an excellent baseline to what they believe will be a competitive auction process. Pursuant to the Stalking Horse Agreement, the Stalking Horse Bidder seeks to purchase substantially all of the Debtors’ Assets for an aggregate purchase price of approximately $218 million, as adjusted pursuant to the Stalking Horse Agreement (the ‘Purchase Price’). Importantly, the Stalking Horse Bidder intends to continue operation of the Debtors’ business as a going concern and, as a key part of the Stalking Horse Agreement, has agreed to offer employment to all or substantially all the Sellers’ existing employees.

The Stalking Horse Agreement includes a working capital adjustment that ties to the Debtors’ post-petition financing budget and provides for a purchase price adjustment only if the target number is either greater or less than $3.5 million. As noted above, the Stalking Horse Agreement requires that the Purchaser offer employment to all or substantially all of the Sellers’ employees immediately upon closing and, for a six-month period following closing, that the Purchaser provide employees with compensation and benefits comparable to that provided by the Debtors. In addition, the Stalking Horse Agreement requires the assumption of the Debtors’ collective bargaining agreements. Lastly, the Debtors believe that, when combined with the wind-down amounts contemplated as part of the Debtors’ post-petition financing, the liabilities that the Stalking Horse Bidder will assume under the Stalking Horse Agreement will ensure the Debtors are able to satisfy all ordinary course administrative expenses incurred in connection with the filing of these cases that are not already paid in the ordinary course.”

Key Terms of the Stalking Horse Agreement:

  • Seller: Shiloh Industries, Inc.
  • Purchaser: Grouper Holdings, LLC
  • Purchase Price: $218.0mn cash
  • Break-Up Fee and Expense Reimbursement: (a) An expense reimbursement, in an amount not to exceed $1.5mn, equal to the reasonable and documented costs, fees and expenses incurred by the Stalking Horse Bidder in connection with the Stalking Horse Agreement and any proposed Sale (the “Expense Reimbursement”), and (b) a “break-up” fee in an amount equal to $7.085mn (the “Break-Up Fee” and, together with the Expense Reimbursement, the “Termination Payment”).

Prepetition Marketing Efforts

As detailed in the First Day Declaration and the Snellenbarger Declaration [Docket Nos. 15 and 78, respectively]: "In May 2020, the Debtors engaged Houlihan Lokey Capital Inc. ('Houlihan') as their investment banker.

Beginning in June 2020, Houlihan spearheaded an all-inclusive marketing process, which began with Houlihan soliciting interest from over 125 potential financial and strategic investors for both (a) financing proposals that would enable the Debtors to execute on their business plan and potentially pay down all or a portion of the Revolving Credit Facility and (b) bids for the sale of all or a portion of the Debtors’ business. Sixty-four of the parties signed non-disclosure agreements and became actively involved in the process. In response to this initial outreach, on or around June 29, 2020, Houlihan received 17 non-binding indications of interest representing a broad range of transaction structures and terms. Because no competitive financing proposals were received, the process transitioned to focus exclusively on the bids received by the Company for a sale of substantially all of the Debtors’ assets.

During July, the Debtors, together with their advisors, continued to engage with the five parties that had submitted the strongest indications of interest, as those parties conducted additional diligence and further developed their bids. The Debtors granted these parties access to additional diligence materials and resources, including management meetings and facility tours. Ultimately, four of the parties provided the Debtors with letters of intent and draft asset purchase agreements and related documents in late July. In early August, the Debtors moved three parties forward in the process based on the quality of their bids. After further discussions and negotiations with these parties that helped increase value and execution certainty, the Debtors, in their business judgment, selected the revised and final bid submitted by an affiliate of MiddleGround as the stalking horse bid for the sale of the Debtors’ assets in these Chapter 11 Cases."

In a press release announcing their Chapter 11 filings filing, Shiloh advised that: “it has entered into a stalking horse stock and asset purchase agreement with Grouper Holdings, LLC (“Grouper”), a subsidiary of MiddleGround Capital LLC ('MiddleGround') pursuant to which Grouper will acquire substantially all of the Company’s assets, including the equity interests of certain of the Company’s direct and indirect subsidiaries for an aggregate consideration of $218 million in cash, subject to working capital and net debt adjustments, and assumption of certain liabilities of the Company. 

MiddleGround, via Grouper, will serve as the “stalking horse bidder” in a court-supervised auction and sale process. Accordingly, the proposed transaction with MiddleGround is subject to higher or otherwise better offers, Court approval and other customary conditions. The Company’s operating entities outside the U.S., while included in the agreement with MiddleGround, are not part of the court-supervised process, and its operations in Asia, Europe and Mexico are expected to continue as normal. ”

Cloyd J. Abruzzo, the Debtors’ Interim CEO, added: “The decision to enter this agreement with MiddleGround follows a thorough review of the options available to us, and we believe this transaction is the best path forward for Shiloh and all of our stakeholders. We look forward to building on our unique strengths as part of MiddleGround, while improving Shiloh’s financial position for the long term.” 

About the Debtors

According to the Debtors: "Shiloh Industries, Inc. (NASDAQ: SHLO) is a global innovative solutions provider focusing on lightweighting technologies that provide environmental and safety benefits to the mobility market. Shiloh designs and manufactures products within body structure, chassis and propulsion systems. Shiloh’s multicomponent, multi-material solutions are comprised of a variety of alloys in aluminum, magnesium and steel grades, along with its proprietary line of noise and vibration reducing ShilohCore® acoustic laminate products. The strategic BlankLight®, CastLight® and StampLight® brands combine to maximize lightweighting solutions without compromising safety or performance. Shiloh has approximately 3,450 dedicated employees with operations, sales and technical centers throughout Asia, Europe and North America.

The Debtors' customers are primarily in the automotive and commercial vehicle markets.  The Debtors work closely with the world's leading OEM and Tier 1 suppliers and have over 200 customers globally, including Bayerische Motoren Werke AG, Daimler, Faurecia, Fiat Chrysler Automobiles, Ford Motor Company, General Motors Company, Hendrickson International, Honda Motor Company, Jaguar Land Rover, SAIC Motor, Scania, Tesla Inc., Volvo AB, Volvo Car Corporation, and ZF Friedrichshafen AG.  Of the Debtors' customers, General Motors and Fiat Chrysler Automobiles each account for more than 10% of the Debtors' gross revenues in the last three fiscal years and in the current year.

About MiddleGround Capital

MiddleGround Capital is a private equity firm that makes control equity investments in lower middle market North American companies in the B2B industrial and specialty distribution sectors. MiddleGround works with its portfolio companies to create value through a hands-on operational approach and partners with its management teams to support long-term growth strategies. MiddleGround is currently investing out of its first fund and headquartered in Lexington, KY with a second office in New York City. 

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