In 2016, Blue Wolf, a private equity firm headquartered in New York City, confronted a number of options when it came to its lumber business. They could put their holdings in the Suwanee Lumber Company (SLC), a sawmill they had purchased in 2013, up for sale. Or they could continue to hold onto SLC and run it as a standalone business. Or they could double down on the lumber business by buying an idle mill in Arkansas to run along with SLC.
As a rule, Blue Wolf did not do restarts – the company’s expertise was in solving operational problems in ongoing enterprises. However, purchasing the mill would allow Blue Wolf to leverage the knowledge and the personnel that it had gained running SLC. The existing owners of Caddo were offering Blue Wolf a 65% equity interest in the mill for $21 million. The funding would get the mill back into operation and retire existing indebtedness. Blue Wolf estimated that they would be on the hook for another $3.7 million in expenses, before the mill would be operational.
Restarting any mill that had been inactive for a time was of concern – operational data was nonexistent, and supplier and customer contracts had lapsed. Of additional concern was the fact that Blue Wolf would be increasing its exposure to the lumber market. The previous four years had seen steady increases in the price lumber fetched on the market. But the events of 2008 showed that trend could reverse quickly, leaving Blue Wolf with a pair of assets that were no longer performing. Some within Blue Wolf believed the best course of action would be to harvest their success with SLC and move on to other targets.
Publication Date: May 22, 2020
Citation: Jaan Elias, Adam Blumenthal, James Shovlin, and Heather E. Tookes, "Suwanee Lumber Company," Yale SOM Case 20-010. May 22, 2020.
Key Words: Private Equity