Financial terms of the agreement were not revealed, but the deal occurred as part of Newton's Chapter 11 filing that took place in U.S. Bankruptcy Court in Des Moines, IA, on May 31. Also, HALO provided debtor-in-possession financing to Newton to fund the Chapter 11 proceeding.
"We are thrilled to be joining forces with the Newton sales professionals," said Marc Simon, CEO of HALO, in a statement. "And, we are pleased that we were able to retain key, experienced Newton staff in our new Newton, IA, permanent office to help HALO grow our new account executives' businesses for many years to come."
The deal marks the end of a difficult period for Newton, a former Top 40 distributor. Mancil Laidig, the company's president, said last month in a letter to suppliers that Newton struggled to recover from a computer system conversion that began last year. As falling revenues and layoffs followed, the company decided that its best course of action was to file for Chapter 11 bankruptcy protection. "We have struggled to sustain our financial commitments and have been searching for the best possible outcome for our sales force and for suppliers," Laidig said in the letter. "We have explored several options to resolve the difficult financial environment we have operated under for several months. It became clear that our greatest assets – the Newton sales force and the loyal team that supports them – would be best served with a Chapter 11 filing."
Now, Newton's business is transferring over to HALO, which also announced this week a new program designed to help industry suppliers – who are named as unsecured creditors in Newton's bankruptcy filing – recoup some of the money that Newton had owed them. Called the Newton Supplier Recovery Program, HALO told suppliers on a conference call and in a letter yesterday that it intends to voluntarily give suppliers a portion of the revenue it realizes from Newton's business.
"HALO needs to realize at least $12 million of annual Newton revenue to justify the cost of acquiring Newton's business," wrote Simon in the letter to suppliers. "To the extent HALO realizes more than $12 million in Newton revenue during these first twelve months (July 1, 2015 through June 30, 2016), HALO will distribute an amount equal to 10% of that excess to Newton's trade suppliers, proportionate to the Chapter 11 losses suffered by each Newton trade supplier, up to $1 million."
In the letter, which was obtained by Counselor, Simon explained that Newton had been an approximately $28 million business the past couple of years but that its revenue dropped by 30% at the beginning of 2015 and declined even further through March. In analyzing Newton's business, HALO concluded that weekly and monthly billings through 2015 suggest that the operation is approximately a $16 million-$17 million going-forward business.
HALO said that a portion of that revenue will be returned to suppliers that are creditors in Newton's bankruptcy case. "HALO greatly values our trade supplier relationships, which is the principal reason for this proactive initiative," said Simon. "The purpose of the program is to align the interests of Newton's account executives, Newton's suppliers and HALO."
HALO ranked as the sixth-largest distributor on last year's Counselor Top 40, and the company reported to Counselor that it had 2014 North American ad specialty revenues of $218.1 million, an 11.3% increase over 2013.