Avadim, once poised for Black Mountain expansion, files for Chapter 11 bankruptcy
Avadim Health Inc., the Asheville skin care products company that in 2016 announced ambitious plans to build a $20.4 million facility and hire 551 workers in Black Mountain, has filed for Chapter 11 bankruptcy.
The company also has agreed to sell "substantially all of its assets," according to a company news release. But Avadim is not going out of business, filing documents state.
"These developments represent part of a plan to significantly strengthen the company and best position it for a long and prosperous future," the release states.
The company has estimated assets of $10 million-$50 million, but its estimated liabilities run from $100 million-$500 million. The Chapter 11 filing states Avadim has between 200-299 creditors who are owed money.
Avadim owes its primary lenders more than $79.6 million, according to bankruptcy court documents.
The filing lists the 35 creditors with the largest outstanding claims, ranging from $5.3 million owed to a Georgia company to $21,677 in debt to a Nashua, New Hampshire firm.
The filing also lists hundreds of "equity security holders" — those who bought common stock in Avadim — that will be affected by the bankruptcy. Those include Asheville area investors, according to the bankruptcy filing.
While Avadim is privately held, starting in 2017 the company sold common stock in "several private placement transactions," according to the bankruptcy filing
As of Sept. 30, 2019, Avadim had 16,940,379 shares of common stock outstanding, held by about 1,300 stockholders. In Feb. 2020, Avadim dropped its plan for an IPO of 5 million shares of common stock.
A 'stalking horse' agreement
The release states Avadim's existing lender, Hayfin Capital Management, has entered into a binding "stalking horse" purchase agreement and committed to "debtor-in-possession financing," that if approved by the bankruptcy court, will allow Avadim to meet its obligations during the sale process. A "stalking horse bid" is an initial bid on the assets of a bankrupt company, which "sets the low-end bidding bar so that other bidders cannot underbid the purchase price," according to Investopedia.
Avadim, based in Asheville, also announced it retained the investment bank SSG Capital Advisors, LLC "to initiate a comprehensive marketing of its assets to other potential buyers to ensure it receives the highest and best price."
"Our goal is to pursue a transaction that maximizes the value of the company and ensures we have the necessary resources and flexibility to invest in, and grow the business," Keith Daniels, Avadim's chief restructuring officer, said in the release. "We will continue to create and market world-class products, including our Theraworx line, that our customers have come to love."
Avadim, founded in 2007, plans to continue normal business operations through the restructuring.
"We are confident this action provides us with the most efficient and effective way to pursue a transaction while at the same time allowing us to address financial challenges and best position the company going forward," Daniels said in the release. "To be clear, the action has no impact on our day-to-day business or our ability to continue serving our customers."
Avadim made the filing in the U.S. Bankruptcy Court for the District of Delaware, as it was incorporated there.
Black Mountain Mayor Larry Harris said June 10 he has not spoken directly with Avadim company officials but had been alerted to the bankruptcy filing.
"I don’t know that it surprised me greatly," said Harris, a certified public accountant and financial planner. "In prior communication from Avadim, it was known they were seeking an IPO (Initial Public Offering on the stock market), and the reason you do that is for financing, to further your business objectives and so forth."
The IPO market has been pretty strong, but Avadim's didn't progress, Harris noted.
In December 2020, Avadim's Chief Financial Officer, Joe McQuire, said the expansion plans in Black Mountain were tied to the IPO.
"Our initial plans for the facility centered around funding received from the proceeds of an Initial Public Offering of our stock in early 2020," McGuire said via email on Dec. 21, 2020. "Those plans were thwarted by the volatility in the stock market caused by COVID-19."
McGuire said the company was assessing its alternatives and would get "the news out to the public when a plan is solidified." The bankruptcy filing came May 31 of this year.
Late last year, McGuire said Avadim had about 180 employees, and sales remained strong, with third quarter 2020 net revenue — approximately $12 million — representing the "second best quarter in our history."
The bankruptcy filing says Avadim now employs 100 workers, almost all full-time.
Before the pandemic, the company was seeing strong growth. The bankruptcy filing states that in mid-2016, Avadim had not yet established a retail presence, but their products were used in about 60 acute care hospitals, as well as 100 nursing homes and other long-term care facilities.
By the first quarter of 2020, Avadim was in 250 acute care hospitals, more than 750 nursing homes, and it had products in over 47,000 pharmacies. Also, between 2017-2019, Avadim’s net revenues increased from $10.8 million to $45.8 million.
But the company has carried a heavy debt load and had trouble making payments. The court documents note that since Sept. 26, 2019, "numerous events of default have occurred by the company," and the involved parties entered into numerous forbearance agreements, extensions and reinstatements.
Site is ready
Mayor Harris said Avadim has "always been very gracious" and kept the town abreast of its situation. Harris noted that Chapter 11 bankruptcy allows for reorganization and continued operations of a company, "not dismantling."
The town spearheaded efforts to prepare the Black Mountain Commerce Park site, which included water and sewer installations, for Avadim. The project received a federal economic development grant and a state Golden Leaf Foundation grant, totaling $1.8 million, evenly split, Harris said.
It was "a pretty extensive project" to bring water in and a pump station, Harris said, noting that it benefitted the town, too, though, with better water pressure.
He remains optimistic that Avadim will still locate in the park. About six months ago, Harris noted, Avadim CEO Steve Woody updated the Board of Alderman and told them the company hoped to have a few good quarters of sales that would lead them to a successful path.
"So, when I saw they were doing a reorg, I'll be very honest with you, I think it could probably be a good thing, because it allows them to restructure to get in a position where they could move forward," Harris said. "It was probably the best thing they could do."
Avadim describes itself as "a high-growth healthcare and wellness company that sells topical products to improve immune health, neuromuscular health and skin barrier health."
Avadim said previously its expansion would create 551 new jobs. In 2016, Buncombe County approved $881,960 in incentives for the company, with grants coming over a five-year period beginning in May 2022.
In 2017, Avadim said it would build the new facility and create the jobs by the end of 2021, including 100 jobs with average annual salaries of $89,440, 161 jobs paying $64,480 and 290 jobs at $30,160.
The county incentives were contingent on building and hiring.
Clark Duncan, executive director of the Economic Development Coalition for Asheville & Buncombe County, said, "No Buncombe County incentives whatsoever have been extended, so there’s no complication there."
He also said it's "too early to conduct a postmortem" on Avadim.
“Unfortunately, it continues to be a wait and see (proposition),” Duncan said. “If an investor comes in, recognizes the opportunity, brings an infusion of cash and keeps them on a path of growth, that could be a great thing.
The delay of the IPO has prevented that badly needed capital infusion from happening, he added.