Illustrating MERU's Value Proposition

We launched MERU because we saw a need in the market that wasn't being met. The middle-market private company ownership landscape has shifted, with private equity sponsors replacing family- and founder-owned businesses as the norm. When their portfolio companies run into trouble, these sponsors and their lenders demand specialized services from their advisors. In our experience, sponsors and their lenders look for three things in a partner:

• Deep restructuring experience - "You've been there before."
• Relevant expertise - "You have experts that understand my business."
• Aligned fees - "You add value for the money we pay."

While many professional service firms play in this market, they each have their strengths and limitations. The global strategy consulting firms like McKinsey, BCG, and Bain have deep benches of experts around the world, but charge high fees to support their high overhead structure and have limited restructuring experience. Large restructuring firms have added many other standalone practice areas and have shifted their restructuring service lines to focus on bankruptcy administration. Small or single-shingle firms win on price but often lack depth and expertise to identify hidden value.

Middle-market companies (and their stakeholders), in need of a partner to help develop a turnaround plan, identify and implement tangible improvement initiatives, and navigate the restructuring process, are looking for a better solution. MERU sits at the intersection of their needs (see Exhibit 1).

We focus on value creation for our clients in three ways. First, we use subject matter experts with deep relevant experience to unlock value-creating ideas. Second, we align our fees around successful outcomes so that our incentives are the same as our clients. Finally, we provide a superior value for money, both in terms of the efficiency of our work and in our rate structure. To illustrate this, consider two assignments we recently completed.

Assignment A - Distributor

MERU was recently hired by the financial sponsor for a large distributor whose business needed help. EBITDA had fallen 30% year-over-year, and the mid-year forecast of the current year budget showed a further drop that worried the company's lenders.

MERU hit the ground with a team of restructuring experts, a warehouse expert, and a transportation expert to assess the company's business and come up with a plan. Site visits and data analysis indicated a significant opportunity to reduce the use of warehouse space, lower transportation routes, optimize truck routing, and align corporate overhead with the business' needs. In five short weeks, MERU completed an assessment of the company's business and identified performance improvement opportunities amounting to a 70% upside on current year forecasted EBITDA.

Once the initial assessment had been completed, we offered our client a menu of fee options, including at-risk components, to let them choose the model that worked best for them. We also helped institute a cadence of performance improvement check-ins that continue to this day, despite the end of our on-site involvement.

Assignment B - Retailer

High hourly rates are a reality of the market for turnaround advisory. A recent survey of public fee statements and retention applications reveals that the average billing rates for major restructuring firms have never been higher (see Exhibit 3). Also, the compensation models these firms typically employ encourage employees to work many hours regardless of what value they add.

A MERU team replaced a team from a major restructuring firm on an assignment due to a frayed working relationship with the DIP Lender. The assignment, for a distressed retailer, included a scope of services of (1) providing a Chief Restructuring Officer to the company; and (2) managing a Section 363 sale process of the company’s business to a large strategic buyer. An analysis of the invoices of MERU and the previous firm show two stark differences that allow MERU to be more cost-effective.

1. Efficiency

MERU teams are smaller and more nimble than our competitors. We supplement a small core team of analytical restructuring and turnaround professionals with a roster of industry veterans available as they are needed. We don’t put people in roles they aren’t suited to play and we don't 'train on the job.' In this assignment, we completed similar work in two-thirds the number of billable hours as our competitor.

2. Cost

With our low overhead structure, we can charge lower hourly rates than our competitors – usually 20-30% less. In this case, our average billable rate was almost $200 per hour slower than the firm we replaced to do the same work.

When those factors are combined, our invoice for the month of work immediately following our competitor was 58% lower than the previous month, with the same or superior quality and client satisfaction.

Summary

Our approach is simple, and it works: we bring deep experience, true expertise, and a client-oriented fee model to each of our engagements. The results speak for themselves as more clients can experience our value proposition. We are highly confident that this approach will continue to win in the market for restructuring services.