Academic journal article Journal of the International Academy for Case Studies

Valuing a Turnaround Plan for a Company in the Restaurant Equipment Business

Academic journal article Journal of the International Academy for Case Studies

Valuing a Turnaround Plan for a Company in the Restaurant Equipment Business

Article excerpt

CASE DESCRIPTION

The primary subject matter of this case concerns the valuation of a proposed turnaround plan using a discounted cash flow approach. Secondary issues examined include Spreadsheet modeling, sensitivity analysis and indentifying the fundamental drivers of value. The case has a difficulty level four, appropriate for senior level. The case is designed to be taught in one class hour and is expected to require four hours of outside preparation by students.

CASE SYNOPSIS

How could the company that virtually invented the frozen margarita dispenser find itself on the verge of ruin? Throughout its history, TastySlush frozen desert and beverage equipment was known for quality, durability and ease of use. Clients include many high-profile restaurants and fast-food chains. However, competition and a failure to maintain the high quality standard on which the company built its reputation have lead to stagnant sales growth and a steady decline in market share.

Frustrated and seeking new ideas, the management team hired an outside consultant. The consultant is currently working with management to put together a multi-stage plan to ensure TastySlush's long-term viability and restore the company's reputation as an innovator that produces high quality equipment. A critical aspect of the first stage of the consultant's turnaround strategy is the identification of potential undeveloped markets and the key factors that will drive value and growth. In order to realize the strategy's full potential, TastySlush needs to purchase new equipment and expand warehouse capacity. Management is hesitant to commit scarce funds to the project and requires a quick return if the project is accepted.

TASTYSLUSH

Following several years of stagnant sales and declining market share, the TastySlush management team concluded that efforts to improve company performance needed reevaluation. TastySlush began as a family owned and operated business but was sold in the early 1990's to a management group headed by Margarita F. Rozen. Ms. Rozen's goal was to gradually increase TastySlush market share by capturing a large fraction of annual industry sales growth. Ultimately, she hoped to turn TastySlush into an industry sales leader. Prior to becoming principal owner, Ms. Rozen worked as president of TastySlush. Her seat-of-the-pants style of management matched that of the owners and when they decided to sell the business and retire, Ms Rozen jumped at the opportunity.

Ms. Rozen and her new team initially relied on a plan that would use debt to fund growth. However, Gorilla Freeze, a competitor in the industry with scale-driven cost advantages, saw the change in ownership at TastySlush as an opportunity and made a grab for market share. Prior to that time, TastySlush had enjoyed a stable customer base and enjoyed modest pricing power. The unexpected change in the competitive landscape caught Ms. Rozen and her management team by surprise. Gorilla Freeze cut the prices they charged customers for their equipment and made aggressive offers to current TastySlush customers. As a result, sales slowed at TastySlush until the possibility of default became a frightening possibility.

Frustrated and seeking new ideas, the management team hired a consultant. The consultant is currently working with management to put together a multi-stage plan to ensure TastySlush's long-term viability and restore the company's reputation as an innovator that produces high quality equipment. A critical aspect of the first stage of the consultant's turnaround strategy is the development of a sales and marketing plan. In order to realize the plan's full potential, TastySlush needs to purchase new equipment and expand warehouse capacity. Management is hesitant to commit scarce funds to the project.

Background

TastySlush began manufacturing frozen dessert and beverage machines from its Kokomo, Indiana location in 1951. …

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