Technology, Media, & Telecommunications
MERU CASE STUDY
Stress business plan, liquidity need and working capital assumptions
COMPANY OVERVIEW
- The client, a telecom equipment manufacturer was experiencing consistent declines in its core business due to an industry wide shift to next generation products
- To recapture spend, the company had acquired a new product portfolio they were expecting to immediately offset their core product declines
- The company had become significantly leveraged and negotiations between participants in the capital structure had reached an impasse
- MERU was engaged by the mezzanine debt holders to evaluate the feasibility of the management forecast, identify liquidity need, and provide strategic options for the lenders to “take the keys”
OUR APPROACH
- Conducted interviews with industry experts from both the peer and customer level to synthesize an industry view
- Stress tested revenue expectations by reviewing backlog and go-get revenue across channels and products
- Identified pricing and volume trends in the core and next generation products over the historical period
- Stress tested liquidity expectations based on management assumptions across working capital accounts and expected supplier concessions
- Refined insights on 2021 business plan with company management team including CEO, CFO and business unit leads
OUR IMPACT
The Company’s product portfolio was in line with assessed near-to-medium term industry demand and with a favorable long-term outlook in next-generation products, however, MERU’s assessment indicated ~$22M of revenues could be at risk of being delayed into the next fiscal year given ongoing supply chain concerns.
Concluded ~$6M of forecasted in-year EBITDA could be at risk due to timing of pipeline orders and ability to realize cost reductions on concessions from key supplier.
Identified a cash need which could reach $17M on revenue delays and ~$6M of risks to working capital assumptions due to expected reduction in inventory levels.