Turnaround Firm Sees Value in IWT Tesoro

By Brian Hamilton

IWT Tesoro Corp. plans to grow significantly through acquisitions once it emerges from Chapter 11 bankruptcy early next year.

Orlando-based KMA Capital Partners Inc., a turnaround firm, will make an unspecified equity investment in the company and is helping management reorganize. When IWT filed for bankruptcy September 6, it listed assets of $39.8 million and debts of $47.9 million. Its main operating subsidiary is International Wholesale Tile Inc.

The company reported a net loss in the second quarter of $2.2 million, compared to a loss of $1.5 million in the same period last year.

“We are going to use IWT as a platform company, aggregating other companies,” said KMA CEO Doug Callaway. “We’re already talking to entities.”

The planned two- to three-year acquisition strategy will give IWT Tesoro a national presence and put it in good position when the housing market turns around, Callaway said. With the housing market in a downturn, it’s also a good time to look for acquisition targets.

By bringing more companies into the fold, IWT Tesoro can benefit from economies of scale, Callaway said.

“We saw some real value here for all of us,” Callaway said, who noted that KMA is not being paid for its current efforts. “It’s our nickel we’re spending to fix this.”

CEO Henry Boucher said IWT had roughly a 2% market share last year.

IWT Tesoro, based in Palm City, Florida, distributes tile, about 85% of it imported, primarily in the Southeast, with limited distribution in Texas, Ohio and California. The 14 year old company, which went public in 2002 as a bulletin board stock, had $62 million in sales last year but has seen sales drop to $40 million this year. It is conducting business as usual during the reorganization, said CEO Henry Boucher, although at a slower pace.

IWT’s senior lender, Bank of America, has extended its $26.5 million revolving credit line, which it said IWT defaulted on in October 2006.

The company’s reorganization plan is scheduled to be presented to the U.S. Bankruptcy Court by November 19.

(Note: The first version of this story should have said that IWT Tesoro is located in Palm City, Florida.)