One of Nigeria’s largest fast-food chains, Tantalizers, is once again close to technical insolvency. In 2018, Nairametrics published an article about an impending insolvency if the company does not immediately inject new capital into the business. The article triggered a response from the company and since then they have steadied the ship.

Unfortunately, the company is back where it was three years ago, facing technical insolvency. Its latest 2021 9-months result reveal a year-to-date loss after tax of N180 million compounding the woes it has experienced since Covid-19 struck the economy last year. The compounding losses have now drastically reduced its net assets to N88.3 million, a quarter away from a possible technical insolvency, except something radically happens before the end of the year.

Tantalizers is not new to this situation and has a litany of lessons it can share on how to survive from the brink of insolvency. One of the strategies it seems to have developed over the years is relying on supplies from its trade creditors to manage its cash flow and remain in business. It has also relied on short-term loans from brave creditors to finance its operations. However, these support systems are fast eroding.

This year, it received N1.5 billion in cash sales out of which it paid out N1.49 billion to suppliers and employees. It spent the rest on taxes and interest, leaving it with a negative cash flow from operations of N27 million. Staring at a possible cash flow problem, the company sold off some of its assets (mostly land and building) raising N358.3 million. This is why it has been able to survive this year.

Going forward, they will need a lot more than that to stay afloat except it wants to sell off all its property and equipment. Tantalizers need a strategic investor if it is to not just survive but rebrand, invest and remain competitive. The fast-food sector has changed drastically over the years from the model pioneered by Tantalizers and the likes of Sweet Sensation and Mr. Biggs. With population expansion and housing development springing up across the country, the market is no longer dominated by one big major player.

Foodies need more than just the variety of foods being served. They want to visit a restaurant that is modern, with the right seating ambience and customer service. Covid-19 has also disrupted how fast food is being served across the country. Online deliveries have gone mainstream affecting everything from the recipes to how quickly the food is delivered. Ease of payment, reward schemes and allowing consumers rate which service is good or bad. All these require huge investment in technology, skill acquisition and equipment, all of which cost money.

The company currently has a market capitalization of N642 million which is about 3.2x its net assets suggesting it is either overvalued or that investors are valuing its fixed assets based on current realities. To survive, the company will need to inject massive capital and our initial estimates suggest Tantalizers will need over N5 billion ($12.1 million) in fresh equity over the next three years.

About N4 billion will repair its balance sheet, plugging the hole created by losses. Another one billion will support working capital requirements. The amount required could be less, depending on how much profits it is able to squeeze out or what other assets it sells, but it needs cash.

The challenge is that raising this capital could wipe out the equity of the majority shareholders and we know how this goes in Nigeria. This may also require that the company goes private, taking its affairs away from the eyes of prying investors looking for short term returns. Whatever decision it takes to survive this new round of challenges all boils down to liquidity. How quickly it does this is what will make the difference.