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Thinking ahead about restructuring before you need it

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Restructuring is typically not on the tip of the tongues of CEO’s that are running profitable companies.

However, we can take a page from restructuring to address the current market and position many companies find themselves in today.

“Sometimes the best offense is a good defense.”

Many companies have taken advantage of lower debt rates historically, more liberal covenants required by lenders and the ubiquity of available capital in recent years. They are now starting to feel the effects of rising rates, slower growth and tighter oan covenants.

These changing conditions especially in combination can be extremely challenging and even the kiss of death for many companies. Reviewing your options and seeking counsel and even a new playbook may be imperative before it’s too late to act.

Why Now?

Consider the current environment:

1. Interest rates have risen, making debt and debt service more expensive for companies.

2. Deductibility of interest expenses per the 2017 tax law changes further restrict interest deductibility for highly leveraged companies, thus increasing tax liabilities and potentially reducing available cash.

3. Inflation across various costs: labor, commodity pricing, etc. Costs in many industries are outpacing price increases.

4. Potentially slower growth due to recession.

5. Technological or other changes in market conditions pressure gross margins or causing higher use of cash (cap-ex).

It’s no wonder many otherwise great companies’ profits are under pressure in the current landscape.

Smart CEO’s and CFO’s are thinking about their capital stack and overall corporate finance in the face of rising costs, and potentially lower cash flows. Add to this the prospect of a general slowdown over the coming 12 months, this review is becoming more critical.

While the more drastic aspects of corporate restructuring (bankruptcy or 363 sales for example) are not appropriate for healthy companies, we can craft a strategy to refinance debt and consider bringing in new investment (minority recapitalization). Many should consider selling a majority or all of the company to the highest bidder while the going is still good for the ultimate de-risking or diversification play.

Which Levers to Pull

Refinance Debt – While there is little we can do to affect interest rates in the current environment when it comes to corporate debt we can think about “term” and “structure” more than rate. Should your existing loans be refinanced to create more cash and lower debt service? Will that additional cash flow allow you to invest in technology to be more competitive or efficient? Can we turn the dials a bit to help overall corporate objectives?

Other Creative tactical considerations:

· Interest-only payments

· PIK the interest to the end of the note.

· Consider a Cash Flow loan with flexible payments.

· Cash Flow leasing vs. fixed-term PP&E Loans.

Minority Recapitalization – Many company owners (Boomers in particular) are reaching a stage in their life where de-risking and diversifying are more desirable than leveraging their balance sheet for growth. These CEOs are considering selling a portion of their company to reduce debt by taking in outside equity. Even those without much debt are finding this strategy a great way to reinvest in a particular area of their company to be more competitive or catapult into a new product line. Some are using outside equity to fund M&A and “buy” advantages in the market.

Potential Benefits:

· Replace debt with equity to de-risk

· Still maintain operating/voting control

· Minority stake valuations are lower than control investment reducing dilution for sellers

· Can provide cash to support growth

· Cash for M&A (Inorganic Growth)

· Helps seller diversify by “Taking chips off the table”

Majority Recapitalization or 100% sale – Practically speaking, sometimes “you gotta know when to hold ‘em and know when to fold them”. For those who do not have the desire to ride out or make the changes necessary to weather the next recession, lack long-term passion for their legacy business, or are ready for an encore career – now may be the time to sell.

Consider these market factors:

· Still plenty of Dry Powder on corporate balance sheets and Private Equity funds.

· Relatively low growth environment pushing more companies to buy vs build.

· Little margin / multiple compression for A+ companies.

If you are a middle Market CEO or CFO now is a great time for a thoughtful strategic review of your capital stack and corporate finance objectives in coordination with your evolving exit planning work. For those holding significant debt or are underperforming their peers, we suggest you heed this advice now before you find your choices limited in a tightening credit market and rising rate environment.

The most frequent mistake of high-growth CEOs focused on taking advantage of the current market climate is failing to protect their backside.

M&A Axiom: Value is created and measured not only in current earnings but to the degree the future earnings (and cash-flows) are de-risked.

Merit Investment Bank, a leading middle market investment bank, with a specialization in building products, is honored to have served as exclusive advisor to VaproShield (“VaproShield”) in its sale to (Muncaster Capital.)

by: Merit Investment Bank

SEATTLE – October 31, 2025 – PR.com – Merit Investment Bank (“Merit”), a leading middle-market investment bank with deep expertise in the building products and construction materials sector, is pleased to announce that it served as the exclusive financial advisor to VaproShield, a premier manufacturer of high-performance air and water barrier systems, in its sale to Muncaster Capital, a privately held investment company based in Texas.

This strategic transaction represents a significant milestone for VaproShield, a recognized innovator in the building-envelope industry. For more than two decades, the company has pioneered the design and manufacture of high-performance, vapor-permeable air barrier (AB) and water-resistive barrier (WRB) membranes and accessories. Through its commitment to research, sustainability, and customer-focused innovation, VaproShield has become a trusted partner to architects, builders, and developers seeking to enhance energy efficiency, moisture control, and long-term building performance.

“The sale of VaproShield shows what’s possible when visionary founders create real value and plan strategically for an exceptional exit,” said Craig Dickens, Chairman of Merit Investment Bank. “We were honored to help align the company with the right partner, culture, and capital for its next stage of growth. This milestone reflects years of innovation, discipline, and thoughtful preparation leading to an outstanding outcome.”

The acquisition by Muncaster Capital, am ESOP, will provide VaproShield with additional resources and strategic backing to expand operations, accelerate innovation, and strengthen its presence in both domestic and international markets. Muncaster’s long-term investment philosophy aligns closely with Vaproshield’s mission to deliver environmentally responsible, high-performance solutions to the construction industry.

“VaproShield has built an exceptional brand through innovation, sustainability, and performance,” added Chris Barnes, Managing Director at Merit Investment Bank. “It was a privilege to advise such a forward-thinking team whose commitment to excellence andcustomer trust has made them industry leaders. This transaction delivers a strong outcome for shareholders and positions VaproShield for its next phase of growth.”

Legal counsel for the company was provided by Holland & Knight LLP. Merit extends its appreciation to Stephen McKay and the firm’s M&A team for their seasoned legal guidance and support throughout the transaction, ensuring a smooth and efficient closing process.

The company was also advised by Baker Tilly US, LLP. Merit acknowledges Preston Smith, Director – Transaction Advisory, and Michael Hurst, Partner – Tax, for their expert guidance and transactional support. Their technical insight and professionalism were instrumental in achieving a successful closing.

About the Buyer

Muncaster Capital of Texas, Inc. is a privately held holding company based in Ennis, Texas, primarily associated with the building materials and protective coatings industry. Established in 1986, it serves as the parent company for Polyguard Products, a leading manufacturer of high-performance barrier systems, air and moisture membranes, and protective coatings used in construction and infrastructure projects.

Muncaster Capital oversees operations focused on innovation, sustainability, and long-term business growth within the building-envelope sector. As a mid-sized, family-owned enterprise, it plays a strategic role in managing assets, guiding corporate development, and supporting Polyguard’s mission to deliver durable, energy-efficient solutions to the construction industry.

About Merit Investment Bank

Merit Investment Bank is a leading boutique investment bank focused on serving founder/family-owned middle-market, technology-forward companies. The firm principally executes sell-side M&A, as well transactions with specific emphasis on the building products technology, infrstructure, consumer, and manufacturing/distribution/industry 4.0 sectors.

In addition, Merit offers services including buy-side M&A debt and equity capital raises, restructuring advisory, business valuations, and project financing.

Securities offered through Finalis Securities LLC, Member FINRA/SIPC. Merit Investment Bank and Finalis Securities LLC are separate, unaffiliated entities

Contact:

Craig Dickens, Chairman

Merit Investment Bank

Craig.Dickens@MeritInvestmentBank.com

253-370-8893

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