Envest, founded in 2006, is a non-profit micro-finance loan fund dedicated to the alleviation of poverty and financial empowerment of the poor in developing countries. Envest raises capital in the form of loans from social investors in the U.S. and uses the funds to make loans to micro-finance institutions (MFIs) in developing countries. The MFIs, in turn, make loans to the poor so that they can start or improve a business so that the poor can work their own way out of poverty. Envest proposes to be part of the movement to bridge the estimated $500 billion gap between supply and demand for capital for the poor of developing countries. To date, Envest has disbursed five loans totaling $500,000 to four partner MFIs (3 in Nicaragua and 1 in Ecuador) and is close to disbursing its sixth loan to a new MFI partner in Peru.
Recently, Envest began a relationship with a commercial lending institution that will allow Envest to leverage its social retail investor loans by a ratio of four dollars of debt to one day of equity. Utilizing this new commercial lending relationship in addition to further capital raising, Envest should begin to scale up its portfolio and become fully sustainable. Envest has approached the Nicholas Center to advise on the following issues: (1) advise on the necessary cost required for additional capital raising, (2) recommend an optimal capital structure and portfolio size for Envest to reach short term sustainability, and (3) provide an outline of steps needed to complete, the expenses associated with, and the potential profitability of a private placement offering.
In approaching these deliverables, the student team contacted multiple investment banking and financial services professionals to gain an understanding of the capital raising aspect associated with social investing. Conversations with these professionals in addition to conducting research on other social mutual funds and micro-finance funds returns assisted in the conclusion that Envest was currently offering a debt return greater than the necessary hurdle rate for social debt retail investors. However the student team advised that if Envest pursued equity investors, Envest would need to offer higher targeted returns in order to compete for available capital. Additionally, the student team built a sophisticated financial model in order to recommend a portfolio size that would be sustainable in both the short and long term. Additionally, optimal capital structures were recommended based on various portfolio sizes.
Overture Center for the Arts is a state-of-the-art cultural facility located in downtown Madison, Wisconsin. The result of a $205 million gift from a single donor, Jerome Frautschi, Overture holds multiple performance venues and function spaces programmed both by the facility’s internal organization, and by a constellation of resident companies, community organizations, and commercial entertainment agencies. The Overture Center complex also includes several spaces dedicated to specific organizations – such as the Madison Museum of Contemporary Art, and the Wisconsin Academy of Sciences, Arts & Letters.
Currently, Overture Center has approximately $28 million in term debt (maturing Dec. 2011) remaining from its initial construction costs. Failure of the original financing structure and current operating performance is causing financial stress for Overture Center. The boards have requested a presentation from Nicholas Center students addressing the following: (1) reducing and restructuring existing debt, (2) analyze financial operations including cost and revenue centers, facility utilization and how cash flows are being used, and (3) identify modifications to operating strategies that would allow Overture Center to be more efficient in its operations over the next 10 years.
Teaming up with students from the Bolz Center for Arts Administration, the Nicholas Center students were able to provide clear and concise recommendations to Overture Center’s overseeing boards in regards to improving operational efficiencies and working with creditors and city administration.
Heineken N.V., founded in 1864, is a brewer and distributor of beverages including beer, wine, spirits and soft drinks. Heineken N.V. is truly a global organization as it markets over 170 products in approximately 65 countries. One of Heineken N.V.’s subsidiaries, Heineken Caribbean & Central America, Inc (Heineken CCA) is exploring restructuring its business to reduce costs and improve efficiency. Heineken CCA covers 40 markets speaking four languages and believes a restructuring will help Heineken CCA maintain its competitiveness in such a challenging market. Currently the restructuring is moving in a consolidation direction where they intend to centralize order management services, accounts payable, accounts receivable and other business functions in its 40 markets to its main office located in Puerto Rico. Currently many of Heineken CCA’s business functions are decentralized throughout the 40 markets.
Heineken CCA has asked the Nicholas Center students to provide specific recommendations in how to approach this type of restructuring including identifying potential pitfalls and challenges during the process. Additionally, the student team has been asked to research best practices in the industry (including competitor benchmarking) to assist in the development of the restructuring plan.
Nicholas Center students performed a competitive and internal benchmark of Heineken CCA operation and identified opportunities for cost reduction, knowledge sharing and working capital management. Additionally, using best practices in the beverage industry, the students recommended a blueprint for Heineken to consolidate its finance, production, distribution, and purchasing functions.
As an international manufacturer and marketer, Brady Corporation sells hundreds of thousands SKU’s into a wide variety of geographic and fragmented niche customer markets. Each of the markets may have different factors which influence the growth of Brady’s products in the market. As a result, finding predictive indicators that can be used in forecasting Brady’s business has been a challenge. Currently and in the past, Brady has relied on managerial intuition to assist in the revenue forecasting process.
Brady Corporation has asked the Nicholas Center student group to research metrics and indicators which can be used to assist in the company’s revenue forecasting process. Additionally, Brady would like to see how different metrics and indicators impact the revenue forecasts for Brady’s America, Europe and Asia business regions.
The student group approached this consulting engagement by brainstorming over 50 variables (metrics and indicators) that could explain various revenue levels. Armed with over 50 explanatory variables, the student group conducted over 300 regressions using monthly, quarterly and regional revenue data sets. Based on this work, the students were able to develop and deliver to Brady a comprehensive proprietary forecasting model which includes regular updating regressions with the input of historical, current and future data. The student group concluded that using their proprietary model in a stable economic environment, they believe Brady’s revenue becomes very predictable with a 7% error margin. However, in an unstable economic environment, forecasting methods lose predictability due to factors that influence the economy changing dramatically.
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