Tod Nestor, CFO and senior vice president of finance at The Penn Traffic Co., a Syracuse, N.Y.-based regional grocery retailer, says his $1 billion company decided last year it needed to undergo a strategic consolidation, focusing on "what we do best." A decision was made to divest its wholesale and bakery operations, leaving just the retail unit, which operates supermarkets in the northeastern U.S. Instead of hiring an investment bank to work out the pricing, Nestor turned to Oracle Corp.'s Hyperion Strategic Finance application.
"HSF allowed us to easily value our wholesale business so we could make sure it made sense to sell it, to determine the right price, and to see how we could use the proceeds," he says. In the end, with the help of HSF, "we successfully executed a sale of the unit after the market crashed, at the price we had established before the market crashed," he says.
Penn Traffic was using the last generation of HSF. Nestor is excited about the upgrade Oracle released recently, HSF R11, which he says will significantly enhance the modeling capability.
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Ivo Bauermann, senior director of performance management applications at Oracle, says the latest HSF release offers clients pre-built financial modeling capability, simulation capabilities allowing corporate finance and treasury departments to manage risk and uncertainty, and automated data integration, even from other platforms such as SAP. "Most companies," he says, "look at a handful of scenarios–usually best and worst. But they have no idea of the probabilities of those scenarios occurring. With simulation capability, you can find out that probability, and then develop strategies for mitigating risk."
Typically, says Bauermann, finance departments involved in activities like M&A or divestments will hire outside consultants, from an investment bank for example, who may charge hundreds of thousands of dollars to develop a model. Then finance staffers have to spend hours checking the model and correcting errors. None of that is necessary with HSF R11, he says. "The return on investment can be tremendous," he argues. "You don't need the external consultants, plus your own people can spend their time working on more valuable things."
Bauermann says even with HSF, a certain amount of customization is necessary, and Penn Traffic CFO Nestor agrees. "The ROI is going to be specific for each company, depending on how you're using the tool," he says, "but frankly, I don't know why anybody would use an investment banking model when you have something like this."
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