1. Based on the 2022 fact pattern below, what is the Net Revenue Churn and Net Revenue Retention Rate for this subscription-based target company in 2022?

• Existing recurring revenue contracts of $75 million as of January 1, 2022
• Canceled recurring revenue contracts equal to $15 million
• Revenue generated from upselling existing clients equal to $3.5 million
• Revenue generated from price increases equal to $1.5 million
• Revenue generated from increased license sales equal to $3 million

A) Net Revenue Churn: 9%; Net Revenue Retention Rate: 91%

B) Net Revenue Churn: 9%; Net Revenue Retention Rate: 109%

C) Net Revenue Churn: 91%; Net Revenue Retention Rate: 9%

D) None of the above

2. A private equity firm has recently acquired a manufacturing company, ManufactCo, aiming to drive value through operational improvements. The firm has analyzed industry benchmarks and identified that ManufactCos Cost of Goods Sold (COGS) as a percentage of revenue is 5% higher than the industry average, and its Selling, General, and Administrative Expenses (SG&A) are 3% above the industry norm.

However, due to ManufactCos commitment to using high-quality materials and maintaining a strong customer service team, achieving the exact industry benchmark margins might be challenging.

Given this scenario, which of the following statements best demonstrates how a private equity analyst should use the industry and company-specific data to make logical assumptions, draw conclusions, and develop a nuanced strategy for operational improvements and value creation in ManufactCo?

A) The analyst should disregard the industry benchmarks due to ManufactCo's unique business model and conclude that no significant operational improvements or value creation are possible.

B) The analyst should aim for ManufactCo to meet the industry benchmarks exactly, disregarding the company-specific factors, assuming that this alignment will maximize profit margins and the overall valuation of ManufactCo.

C) The analyst should recognize ManufactCo's commitment to quality and customer service, and accordingly, adjust the target reductions in COGS and SG&A.

D) The analyst should conclude that ManufactCos higher expenses are justified due to its commitment to quality and customer service, and therefore, any attempt to reduce expenses will compromise the company's market position and value.