Back from the brink

Strong leadership and dedicated employees give Sanders Tools and Supplies a new lease on life.

by

Even though sales at Sanders Tools and Supplies are down about 30 percent from two years ago, company owners smile about their success. To understand the source of their happiness, it helps to know how far the Peoria, Ill., company has come since the dark days of early 2002.

The trouble began even before Integra Integrated Procurement Solutions, which acquired Sanders the year before, filed for bankruptcy protection March 12, 2002. Rumors spread that Integra was about to close its doors. The rumors picked up following the closing of the Sanders Itasca branch, especially when some of the employees chose to go to work for other distributors.

As Integra’s financial situation grew bleaker, the company demanded more favorable credit terms from vendors. Many refused. Some put Integra on hold and refused to ship new orders. As the vendor base eroded, it became difficult for Integra divisions to fill customer orders. Salespeople struggled to explain to customers why their orders couldn’t be filled on time and some customers stopped doing business with Integra.

Nearing their darkest hour, Sanders managers huddled together to devise a plan of action. The management team, including long-time employees Sue Koehler, Brad Wentz and Patrick Hughes, hoped to put together an investment group to re-acquire the company from Integra.

Company president Hunt Taylor would remain, but acting on the advice of their attorney, would not participate in the ownership group. Legal advisers suggested that because Taylor was a vice president of Integra and general manager of the Sanders division, including him in the buyout could delay approval from the bankruptcy court.

The management group formed Sanders Acquisition Corporation to put together a bid to re-acquire the business. John Spinoso, an outside investor who also owns Calo Corporation, a manufacturer of pressure sensitive mats in Batavia, Ill., would become chief executive officer.

The group needed to act quickly. Customers grew increasingly worried that Sanders would not survive and started looking for alternate sources of supply. Some suppliers cut off credit terms to Sanders because Integra owed them money. For example, court records show that Integra owed suppliers such as Norton, Greenfield Industries and Sandvik hundreds of thousands of dollars.

Sanders employees worried about the future of their jobs. When Integra informed employees that the company would no longer offer health insurance, employees scrambled to purchase temporary insurance coverage. Some paid monthly premiums between $200 and $800.

The management team worked at a breakneck pace, writing a letter of intent, establishing a new bank relationship to secure financing and petitioning the bankruptcy court for an emergency hearing. Meanwhile, employees made sure business proceeded as smoothly as possible during such a hectic business environment.

The U.S. Bankruptcy Court for the Northern District of Illinois approved the sale April 18. But even after the acquisition was final, there was little time to celebrate. Sanders employees soon learned the hard work had only just begun.

Patching holes in the lifeboat
Buying a company out of bankruptcy proved even harder than building a business from scratch. The company wasn’t building new relationships; it needed to mend broken relationships. It took time and hard work to restore trust among customers and vendors.

“If people were not getting calls returned from Integra, we made sure that we called them and talked to them to explain what we were trying to do,” says Taylor.

“When things got tough, the one thing we made sure we did was return phone calls. One of our big focuses in the first year was to regain trust,” says vice president and general manager Koehler. “We lost some customers. We lost some integrated supply accounts. But our core customers, including Caterpillar, stuck with us. They have supported us and continued to give us business. We went out of our way to get them the products they needed in a timely fashion.”

Fortunately, after acquiring the company in January 2001, Integra never integrated Sanders into its computer system. Instead, Sanders continued to operate as an isolated unit using Prophet 21 Acclaim software. That enabled Sanders to hit the ground running after the court approved the sale of the company.

Several things happened almost simultaneously. Within 30 days of losing health insurance coverage, the company established a new health plan for employees and reimbursed them for the lion’s share of their out-of-pocket interim insurance premium payments. Sanders re-opened an office in the Chicago market, in the far west suburb of St. Charles.

“The management team stepped up to the plate and made a lot of things happen very fast,” says inside sales manager Duane Dishman. “The transition went as smoothly as could be expected. We kept customers aware of what was happening.”

Employees did whatever it took to order products for customers, even when suppliers insisted on cash terms and c.o.d. orders.

“Sometimes we’d send a check and they would wait until it cleared the bank before they’d send us what we ordered,” says office manager Lori Pryor.

UPS drivers required cashiers checks before they’d deliver packages. Bookkeeping was a nightmare, because the company essentially operated on a cash basis for several weeks. Accounting department employees often worked late into the night balancing the books.

It took 90 days to bring vendors back to a standard operating procedure. Progress came slowly. For example, suppliers that initially demanded cash payments or c.o.d. terms eventually accepted more generous terms.

“We promised to cut them a check every Friday. Then we’d ask them to give us a credit limit of $2,000 and we’d stay within it. Gradually, as they became more trusting, seven days became 14 and so on,” Koehler says.

Employees continued to work hard, despite uncertainty about the future.

“Our employees basically worked around the clock,” says sales manager Wentz. “Quite frankly, we didn’t even know if we were going to have a paycheck.”

Some employees purchased products using their own credit cards to make sure customers got what they ordered. Others offered to help pay health insurance premiums for employees who couldn’t afford them.

“A lot of people stepped forward and did what needed to be done to keep things moving forward,” says Dishman. “Sure, it was risky. But everybody had faith in the company and the management team.”

People power
Despite the turmoil, employees continued reporting to work. No employee left the Peoria office during the difficult transition period.

“We all wondered what was going to happen. But everybody did what they could,” Pryor says.

“We all just pulled together and did what we had to do,” adds expeditor Michelle Kelly. “I took a laptop home and worked four hours a night for free. We just did what needed to be done because we wanted the company to succeed. There was tension and we were all worried about losing our jobs. But this is a very good place to work. They’re very supportive.”

The new owners are grateful for the hardworking employees who helped the company weather the storm.

“It’s amazing how many people stayed with us. Their insurance was gone, their security was gone, yet this group of people held together,” says Spinoso.

To build team spirit and reward employees, Sanders provides monthly bonuses when it meets sales goals and buys lunch for employees one day a week. Recently, the company took employees and their families to dinner at a popular Peoria steak house to celebrate reaching a monthly sales target.

In 2001, Sanders employed 52 people and had annual sales of $39 million. Today, with a revenue run rate of about $27 million and 38 employees, it generates an impressive $710,000 in sales per employee.

“I give a tremendous amount of credit to our employees. People could have left and found someplace else to work, but they like working here. They stuck together and worked hard to make this happen,” says Hughes.

Facing the future
In the 18 months since re-acquiring Sanders, the company returned to its roots as a specialty distributor of cutting tools, gages, work-holding equipment and abrasives. It serves a diverse group of 320 active customers in the agricultural equipment, implement manufacturing and automotive industries, plus small job shops.

With business returning to normal, Sanders continues to invest in the future. It spent more than $200,000 on software upgrades, computer hardware, personal computers, an intranet, and a new phone and voice mail system. It recently purchased a new Walter CNC grinding machine for custom grinding jobs.

The company also invests in ongoing training, sending employees for application training, computer skills and management classes. It plans to achieve ISO certification by July 2004. In order to provide a more diverse product line to customers, it expanded its supplier base, recently adding new vendors to its line card. A new succession plan is in place and the company is making good strides at regaining market share in the highly competitive Chicago market.

“Morale is good today. We’ve come a long way since the bankruptcy. We’re getting back to being more productive, which makes everybody less tense,” says Kelly.

Coming back from the brink of bankruptcy transformed Sanders Tools and Supplies into a leaner, stronger organization. It’s a valuable learning experience that Spinoso hopes he’ll never have to live through again.

This article originally appeared in the November/December 2003 issue of Progressive Distributor. Copyright 2003.

back to top                                   back to cover story archives