Corporate finance schultz

CORPORATE FINANCE REPORT Prepared by

7 ELEMENTS consulting group
(Team 4)

* Scope of the Presentation * How did PRG-Schultz get to the position it found itself
in 2005?

* Is it economic or financial crisis? * Alternatives for PRG-Schultz * Recommendations for Mr. McCurry

* We base this presentation solely on the information

provided in the case study No 9-807-126, rev. Jan 16,2008 * We focused strictly on the questions posted by Prof. Ahmad Rahnema in the Corporate Finance newsgroup and the questions raised in the case * We focus on immediate short-term solutions for the company. We provided, where possible, some mid-term recommendations, that might not be full * Where relevant we suggested some strategic, operational, organizational and marketing solutions, that arecomplementary to the main finance issues and might not be exhaustive * We do not analyze external factors, market trends and overall behavior and cost of the money at US market at the time of the case and based our conclusion on the internal information about the company

*Overall industry decline *Extensive growth by acquisition financed by debt *Lack of focused strategy *Lack of synergies,missed cross-selling
opportunities

*Unreasonably high overheads *Unclear and unfair people's policy *Lack of liquidity control *Imbalanced capital structure

* Economic analysis (based on PL):
* Sales decline (may be industry trend) * Margin decline faster than Sales (probably due to inefficient
people policy and lack of focused strategy) * SGA expenses are higher then Gross Margin and twicehigher than industry average * Material impairment loss of prior years might evidence on some mistakes during acquisitions * Due to negative EBITDA all economic ratios (ROS, ROA, ROE) are negative

* Conclusion: Company is destroying value rather than

creating it and this is the key economic reason of the crisis. Profitability should be restored.

* Outdated Accounts Receivables is themain financial

reason of the crisis. On the other hand, huge receivables from the first class debtors (retail chains) could be considered as a financial asset and used accordingly. * Main asset of the Company is Goodwill, which is difficult to convert into money and difficult to value, that brings a risk of asset overstatement and increased capital requirements to finance it * Huge accumulateddeficit worsened Debt/Equity ratio and increased financial risk heavily, making the debt service unbearable * Huge value of the assets requires extra capital to finance it, that increases cost of capital for the firm and pushed the share’s price down

*Pros
* Opportunity to renegotiate/eliminate significant
expenses (rent, severance payment) * Reduce headcount without extra cost

*Cons
*Risk to lose reputation and clientele * Lots of other alternatives to optimize costs and
maximize sales without reputational risk

*Conclusion: not to file due to high reputational

risk and potential loss of business, but overcome the crisis through cash management and profitability restoration

*Extend the loan from the Bank of America
* Present the turnaround strategy to the bank andoffer
extra collateral for the loan

* Find another bank ready to refinance the loan * Replace the credit line with factoring * If Bank rejects prolongation , offer to settle the loan by
assignment of receivables

*Improve receivables collection
* Make cash collected as a KPI for bonuses and a condition
for commission payment * Offer discounts for early bill payments * For problematic debtsconsider settlement of receivables against the funds held for client’s obligations

*Postpone all payments that could be deferred
without penalties

* Renegotiate with Cook and Toma the time of severance

payment, by postponing it or at least payment in arrears * Reduce monthly advances paid to auditors before commissions are received (together with reductions of all payments to top and...