Mackinac Partners

Case Studies

Restructuring and Strategic Sale Drives Growth in the Compressed Natural Gas Segment

CRO/Restructuring/Chapter 11/Financial Advisory/Transaction Advisory

Quantum Fuel Systems Technologies Worldwide Inc. (formerly Quantum Technologies) is a leader in the innovative design, manufacturing and sale of compressed natural gas (CNG) fuel storage tanks and packaged fuel storage systems and trailers for heavy, medium and light-duty trucks, passenger vehicles, trains, cargo ships and stations. Quantum also develops powertrain and industrial systems, software and embedded controls.

Based in Lake Forest, California, one of Quantum’s first big projects was working on hydrogen fuel cell vehicles for General Motors. Since 2013, Quantum had experienced rapid growth, earning a market share in excess of 40% for over-the-road CNG heavy duty vehicles in North America. This was accomplished through a portfolio of CNG storage system products that includes Q-Cab™ back-of-cab storage modules and the Q-Rail™ storage modules that are installed horizontally on the rails of heavy-duty trucks. These product lines are extremely weight efficient and provide the highest storage capacity available in the industry.

However, following a multi-year environment of depressed oil prices, the company was not adequately capitalized to withstand lower sales levels for its systems and was also unable to tap into the public markets for equity financing as it had previously. In lieu of its debt defaults, the company retained Mackinac Partners as Chief Restructuring Officer and financial and strategic advisors to help evaluate and implement strategic and tactical options throughout the liquidity crisis.

Quantum filed for Chapter 11 on March 22, 2016, and Mackinac Partners was responsible for managing the debtor through the bankruptcy process, including assisting with lender negotiations, managing liquidity, budgeting/financial reporting, preparing long term financial projections, and negotiating with key suppliers with the ultimate objective of efficiently pursuing an asset sale or a reorganization of the business.

At the time of the bankruptcy filing, Quantum had recently secured a contract with a major customer that required a significant production ramp up. In addition, Quantum was on a strict development schedule for a new, transformational product line and had its first customer contract already in-hand. These circumstances precipitated a substantial working capital requirement over the duration of the case, which necessitated a fast track sale process under very tight deadlines and efficient utilization of constrained corporate resources.

The company was ultimately able to meet all of these deadlines, and Mackinac Partners administered a §363 sale of substantially all company assets, with a stalking horse bid of approximately $25 million provided by prepetition convertible noteholder Douglas Acquisitions LLC, a $1B private equity firm in Northern California. The transaction closed July 12th, 2016.

The transaction allowed Quantum to restructure its debt obligations, and through new ownership, to provide the financial foundation for continuity and enhancement of the business. It also enabled a 100% recovery to all secured first and second lien lenders. From an employee standpoint, the transaction assured the retention of approximately 115 high paying jobs. Nearly 100% of the company’s staff were offered employment at the new Company with the ability to continue their existing medical benefits and 401(k) plan.

The Quantum acquisition expanded Douglas’ portfolio of automotive investments. Since 1976, Douglas has owned KSR International, Inc., an industry leader in the design, engineering and manufacture of an array of products for the transportation industry (autos, light trucks, ATVs), including automotive sensors, electronic throttle controls, adjustable and fixed pedals, electric steering control units and power modules.

Post Acquisition:

By October 2016, the new management team implemented further cost controls, realigned future expectations and achieved a zero-debt balance sheet. The company also added in-field service technicians complementing the existing service organization based at corporate headquarters in Southern California.

As a company now wholly owned by Douglas Acquisitions, LLC, Quantum is augmenting its operations for high volume manufacturing of virtual pipeline trailers, heavy-duty CNG truck modules and single tank sales. “2016 will be looked on as a turning point for the company,” said Steve Toelke, a company spokesperson. “The new ownership has committed to this space and accelerated growth as oil prices increase.”

With a growing customer base, Quantum has now expanded its service presence throughout the US. There are now 110 service locations that provide service and warranty activity for customer fleets. Throughout this expansion, Quantum’s internal service organization has increased its efficiency by providing same-day response and when required, overnight shipment of parts to customer locations.