The Challenge
A mid-tier advisory firm approached Evalueserve for a comprehensive assessment of its client, a retail company with stores across Spain, looking to increase its offerings and scale up and renovate its existing stores. The retail client’s key challenges include:
Increased competition: large superstores/e-commerce retail players were capturing the market, making it difficult for small-format store players with limited offerings to survive and retain market share.
Liquidity issues: the retail company’s declining revenue and market share created barriers to generating adequate liquidity for smooth operations.
High debt: the retail company was finding it difficult to service its debt obligations. Its accrued interest was piling up and increasing its outstanding amount payable.
Our Solution
Our team hosted a kick-off call with the advisory firm to understand their retail client’s challenges and end objectives. Our client shared information regarding the retail company’s revenues, costs, debt obligations, Capex requirements, working capital, EBITDA, and other relevant details. After undertaking a comprehensive assessment, as detailed below, our team created a comprehensive plan that the retail firm could use to unlock the maximum value of its business.
Our team recommended that the retail company re-organize its business by closing stores that entail high rental expenses and fixed costs and focus on company-owned stores. We also suggested that the retail company refinance its current debt through other lenders to cut costs.
We created a detailed research plan for the advisory firm to perform a deep-dive analysis of the market, and assess the retail company’s current debt covenants, costs, future cash flows, and creditworthiness. The comprehensive assessment plan included:
Market Assessment
We conducted a market sizing exercise to analyze key trends, drivers, and challenges. The retail company was benchmarked against the competition on various KPIs such as revenue growth, margins, employee strength, and business segments. We also curated industry reports from reputed research houses, industry associations, and market databases. Additionally, we used out interviews with industry participants to develop a comprehensive understanding of the retail company’s market.
Covenant Analysis
We created a comprehensive model to analyze the retail company’s current financial position and capital structure with in-depth schedules and future cash flow models and analyzed the gap between cash requirements and existing debt covenants. We used the market value of debt from filings and credible databases, covenants inputs from previous indentures, and repayment schedules to source model inputs.
Business Impact
Our insights from our comprehensive assessment enabled the advisory firm to guide their retail company in the direction of restructuring its business since sustaining its existing business model would require substantial capital outlay and increased debt obligations. Our independent analysis helped our client identify the problem areas and methods needed to cut costs. We also helped the client formulate a strategy that would allow the retail company to efficiently utilize the money raised by factoring in future cash flows and costs, as well as establish a sound debt repayment schedule.
Identified problem areas
along with the methods needed to cut costs
Formulated a custom strategy
that efficiently utilized current cash flows and costs
Established a sound repayment schedule
that the retail client is capable of keeping up with
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