Symptoms
Arch company, found in 1986 was one of the fastest growing paging providers seeking growth through a blend of strategic acquisitions and internal additions. Arch’s core objective of the company was to keep prices low and concentrate on predictable and consistent technologies and reliable delivery service. Over past years Arch had shown a decline in monthly ARPU. This was because the number of subscribers or resellers owned pagers for which Arch received no recurring rental fee had increased more than 25% over last few years. Secondly, over same period, the percentage of new pagers had increased. And thirdly it was visible that the company was forced to decrease its prices because of increased competition and growth. These symptoms lead to more serious problems.
Problem Statement
As Arch company was continuing to acquire other companies related to that industry it was also increasing its spending on interest and debt incurred to finance growth, and the large depreciation and amortization charges related to assets. Arch required considerable funds to service debt, finance acquisitions, fund expansion and upkeep of existing operations, and cover pager and paging system expenditures. The company’s capital expenditures had increased from $10.5 mil. in 1992 to over $60.6 mil. and were about to reach the $100 mil. mark. Due to that reason, company’s share price was sliding down dramatically from the price of $29.62 to $12.50 almost in half a year time. Comparing Arch operations in year 1995 to the industry average it may be stated that company has almost higher EBITDA margin but it also had very high depreciation and amortization marking, which is 20% above the industry average. In addition company has highest net debt to subscriber ration, which means that n current situation company may not finance its debt with current number of subscribers and current ARPU, plus low current ratio, meaning that the company is short on working capital. From the factual...