EncryptarCo develops world class, robust encryption technology for Pay TV companies on satellite and cable platforms, selling largely to NewsCorp companies. At 25% of revenue, its R&D is much higher than comparable companies. A private equity firm was considering purchasing a stake in NDS, and required support in analysing and assessing the cost base to identify possible cost savings opportunities and upside/ downside risks to the baseline business plan, particularly in R&D and engineering spend.
David was responsible for leading a team to undertake the analysis and benchmarking required, and engage with the management team to glean insights into cost drivers, risks and opportunities. The team prepared a detailed datapack, using time sheet data on customer and investment projects to understand what was driving expenditure on a large team of engineers, benchmarking costs and forecasts for components such as smartcards and chips to assess COGS projections, and assessing the impacts of planned migrations for work from UK and Israeli resource pools, to offshore locations. David used selected exhibits in the plan to structure and focus discussions with the management team on key issues and opportunities.
David’s team identified that the need for R&D was directly driven by sales, as a new encryption platform from the R&D pipeline would be allocated to a single company (occasionally two companies), limiting leverage of R&D across multiple customers and generating a need for R&D to create the next platform to be sold. This indicated that only a major change in the ‘one platform per platform’ strategy would enable massive reductions in R&D. David also identified that a ‘long tail’ of development projects existed with either unclear or weak benefit cases, providing scope for helpful cost reductions, These and other potential initiatives were summarised under twelve potential cost saving initiatives for a potential upside equity case for the investment.