CASE STUDY

MCS Technologies, LLC

Financial Restructuring and Operational Turnaround of MCS Technologies, LLC

MCS Technologies logo symbolizing the company's operational turnaround and strategic restructuring.

Special Situations Advisory

Industry: IT/Business Services

This case study details the acquisition, diagnosis, and restructuring of MCS Technologies, a distressed Mid-Atlantic security integration firm. Following a leveraged buyout in 2020, hidden structural deficiencies were discovered, requiring immediate financial and operational intervention. Despite significant improvements in liquidity management, cost optimization, and revenue model transformation, rising debt service obligations and market headwinds ultimately led to an exit through an Assignment for the Benefit of Creditors (ABC) in 2025, preserving value and enabling an orderly wind-down.

Key Points

  • 94%

    Increase in debt service successfully navigated

  • 26%

    Reduction in monthly burn rate through operational improvements

  • 5 years

    Managed distressed turnaround from acquisition to ABC transaction

  • 12.4% → 25%

    Gross margin improvement after pricing and project re-estimation

  • $8.5M+

    Qualified revenue pipeline developed through recurring revenue model

Initial Transaction and Situational Assessment

Acquisition Context (July 2020)

  • Purchase Price: $5.0 million (4.5x TEV/EBITDA)

  • Historical Performance: $4.5M average revenue (2016-2019), $1.1M adjusted EBITDA

  • Initial Projections: Modest growth with $600K free cash flow in Year 1

  • Financing: $3.57M SBA 7(a) loan at 9.25% and $335K revolver at 9.5%

Post-Acquisition Discoveries

  • Mismanagement of active projects producing negative gross margins

  • No formal accounting or job costing systems

  • High customer concentration: ~60% of revenue from one federal contract

  • Mischaracterized non-recurring revenue as recurring base business

  • $1.3M in operational losses by 2022 versus projected profitability

Crisis Stabilization and Capital Management

Immediate Liquidity Actions

  • Secured $2M+ in shareholder capital infusions

  • Prioritized payroll and critical payables

  • Negotiated temporary interest-only payments with senior lender

Escalating Debt Service Burden

  • Interest expense increased 94% from 2022 to 2024

  • Federal Reserve tightening pushed borrowing costs above 11%

  • Rising debt service consumed a growing share of cash flow

Cash Flow Engineering

  • Transitioned to deposit-funded project model

  • Eliminated negative cash conversion cycle

  • Reduced monthly burn rate by 26% (2024 vs. 2025)

  • Introduced 13-week rolling cash flow forecasting

Operational Restructuring Initiative

Margin Recovery Program

  • Reset labor rate to $85/hour from underpriced levels

  • Implemented accurate overhead allocation

  • Improved gross margins from 12.4% (2022) to 25% (2025)

  • Re-estimated and repriced all active projects

Cost Structure Optimization

  • Reduced SG&A by 15% through vendor renegotiations and organizational rightsizing

  • Eliminated non-essential discretionary spending

Strategic Repositioning and Revenue Transformation

Business Model Pivot

  • Shifted from project-based revenue to managed services platform

  • Introduced offerings: video monitoring, access control management, managed IT

  • Built $8.5M+ qualified opportunity pipeline within 100-mile radius

Go-to-Market Realignment

  • Recruited senior sales and operations leadership (60+ years combined experience)

  • Added two new sales executives with territory focus

  • Launched KPI-driven performance management system

  • Developed break-even revenue model at $8.3M with path to 30% margins by 2027

Debt Restructuring and Strategic Alternatives

Final Resolution

  • After thorough evaluation, executed ABC in 2025 as the most viable path given market conditions and debt service constraints.

Scenario Planning

  • Modeled five restructuring paths: SBA offer-in-compromise, equity infusion, Article 9 sale, ABC, or Chapter 11/7

Conclusion

The restructuring of MCS Technologies demonstrates disciplined execution in crisis stabilization, operational turnaround, and strategic repositioning. Despite meaningful margin and operational improvements, unsustainable debt obligations required an ABC to preserve value for stakeholders. This case underscores the importance of rapid intervention, disciplined cash management, and maintaining flexibility in distressed situations.

This case study represents actual restructuring experience from July 2020 to July 2025, with all financial and operational figures based on actual results. The ABC transaction closed in 2025 after extensive evaluation of strategic alternatives.