Background

Tibet is a franchisee for a fast-food retailer. Management had requested funding to acquire additional franchises which would double the size of the Group but lead to a material increase in debt and a highly leveraged position. Management provided a financial forecast; however, it lacked accounting rigour and could not easily run different scenarios. FRP’s Financial Advisory team were instructed to prepare a financial model to provide clarity on the combined Groups’ performance to support the application for additional funding.

Action

FRP’s team, led by Partner Richard Sanfourche and Associate Director, Mark Thomasson, prepared a financial model which clearly set out the underlying assumptions on a store-by-store basis and provided the ability to run sensitivities to assess the impact of different scenarios and covenant headroom. The outputs presented the information in an easy to understand format, providing clarity to the bank allowing them to better assess the transaction.

Outcome

The model helped the bank appreciate the drivers of growth in the combined Group and to flex these drivers to assess the impact of different events. This enabled them to support the deal, lending more than initially requested to fund the acquisition and provide additional working capital headroom immediately post-transaction. The process helped management understand the increased reporting requirements that accompany a higher leveraged position. It demonstrated how best to provide information to the bank and to develop the relationship with a key stakeholder.