Question :
The scenario of this report is based on Spyder Active Sports for which an analysis takes in consideration in order to provide a strategic direction to Jacob who is the founder of the company. The Financing Business Initiative is based on an options that Jacob can use for the exit purpose.
- Discuss the stating option which are available for management to introduce an event as well as discuss how these options will be funded.
- Critically discuss lowest and highest price options for Spyder Active Sports.
- Provide a clear application of Mullins’s 7 Domains framework as well as state recommendations for best suitable option for Jacobs.
- Clearly discuss valuation of the company as well as determine adjusting valuation on the basis of potential buyers.
- By getting results from 2004 report, discuss recommending valuation for the Spyder Active Sports and provide clear application of Exhibit 9.
- Provide recommendation to Spyder Active Sports for evaluating total enterprise value.
- Clearly analyze UK’s private equality sector.
Answer :
INTRODUCTION
In the context of business unit, manager has accountability to develop suitable strategic and policy framework which in turn contributes in the attainment of organizational goals. With the motive to attain success firm takes several initiatives regarding expansion and investment opportunities. In this, manager is required to take strategic measure for financing such initiatives which in turn places positive impact on both financial aspects and shareholders’ value. Moreover, inappropriate decision making highly impacts overall functioning and growth of business unit. The present report is based on the case scenario of Spyder Active Sports which will provide deeper insight about the options which Jacob can use for exit purpose. Further, report also presents the manner in which Jacob can finance the selected exit options. It also entails how varied exit option has an impact on pricing aspects. Report will develop understanding about the aspects of Mullin’s 7 Domains framework. In this, report also presents how valuation methods aid in decision making aspect.
QUESTION 1
a. Stating option which management team can use to produce the required event for CHB
On the basis of cited case situation, Jacob wants to or has desire for a liquidity event. For this purpose, Jacob and CHB is agreed to involve an investment bank for the partial sale of business unit namely Financo and Wachovia. The rationale behind the selection of Financo bank as it has expertise in the field of retail sector. Further, Wachovia have good knowledge and experience about consumer products or services. As per the given case scenario specifically two options are available either sell or not to sell. Under the selling criteria, Jacob can sell majority stake to either strategic or financial buyer. On the other side, in the context of not selling there is an option to sell minority stake (CHB) to financial buyer. By analyzing case study, it has assessed that Jacobs do not want to exit from business currently and wishes to maintain ownership stake in the operations. Hence, by taking into account all the aspects mentioned in the case scenario it can be depicted that alternative option or strategy pertaining to selling minority stake to the financial buyer should be employed. This in turn helps in managing goals or motives of both CHB and Jacob. Thus, emphasis should be placed on the adoption of not selling of business yet.
b. Presenting the manner in which selected option will be funded
Financial buyers include private equity as well as venture capitalists firm which offer monetary assistance and thereby help in executing project. Venture capitalists or financial buyers are highly interested in company’s return on equity, investment, burden on management and cash flow (Financial Buyer, 2018). Financial buyers are usually ready to invest money in the company whose operational performance will be improved over the time frame. Such source of finance provides business units with financial assistance which wants to remain involved in the business. Hence, venture capitalists prefer to invest money where succession opportunities and growth scenarios exist. Income statement of Spyder clearly shows that sales revenue of the firm inclined from 27303 to 133223 at the end of 2007. This aspect clearly exhibits that company was growing significantly over the time frame. Hence, referring current sales and profitability trend Syder ltd can convince financial buyers to a great extent. Thus, through taking monetary assistance from financial buyer’s liquidity event for CHB will be executed. In return of offering financial assistance, shares will be issued to venture capitalists. In other words, by issuing shares selected option pertaining to selling minority stake to the financial buyers will be funded.
QUESTION 2
Assessing option which most likely produce the lowest and highest price for Jacobs
As per the figure depicted below, three options are available to Jacobs in relation to selling majority of the business to either strategic or financial buyer. Along with this, Jacobs also have opportunity in relation to selling minority stake to financial buyer. In terms of pricing, all the options have varied impact which should be considered by the business entity at the time of decision making. Hence, influence of such concerned options can be understood in the following way:
- Selling majority of stake to strategic and financial buyer: In the case of selling majority stake to financial and strategic buyer business entity namely Jacob will lose control from management as well as operations (Strategic and financial Buyer, 2018).
- Selling of minority stake to the financial buyer: This is one of the most effectual options which in turn impose less cost in front of Jacob. Mainly opportunity cost will be incurred by Jacob in this option. Moreover, venture capitalists take part in the decision making and do interference in operations. Unlike strategic, financial buyers also give some valuable guidance or suggestions to the business unit which in turn aid in organizational growth.
Hence, referring overall evaluation it can be depicted that selection option regarding selling of minority stake to the shareholders will most likely produce lower cost for Jacobs. Thus, it can be mentioned that selected option will prove to be more fruitful for Jacob.
QUESTION 3
a. Applying Mullins’s 7 Domains framework to Spyder in 2004, from the perspective of a potential buyer
Mullins’s 7 domains framework is highly prominent which in turn provides high level of assistance in assessing or evaluating the impact of key factors on the planned venture. This helps in ascertaining whether proposed business idea is viable or not. In the context of potential financial buyer, venture capitalists, suitability and benefits can be presented in the following way:
- Target segment benefits and attractiveness: Case study presents that customer base of Spyder Ltd is highly wide.
- Market attractiveness: The below mentioned graph clearly presents that sales of Spyder is relatively too higher over the rival firms. Sypder has secured second position after Rossignol. Further, profitability statement of the company clearly exhibits that both sales and gross profit of the company was increased over the time frame. In 2001, sales revenue of Spyder was 27303, whereas at the end of 2007 it reached on 133223 respectively. In addition to this, net profit of the company also moved from 83 to 13019 respectively. Referring this, it can be entailed that growing market trend exist in the sports equipment sector under which Spyder exists.
- Industry attractiveness: Porters five force analysis is highly significant which in turn assists in evaluating the attractiveness of industry prominently.
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Bargaining power of buyers: moderate From assessment, it has identified that customer less prefers to switch due to the availability of moderate substitutes or force. However, size pertaining to the individual buyers is weak or small. |
Bargaining power of suppliers (weak) By doing assessment of industry, it has found that large number of suppliers is available in the market who supplies raw material. Thus, it can be mentioned that supplier’s actions have lower impact on the functioning and strategies of Spyder. |
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Threat from new entrants: weak It has assessed that high cost of brand development imposes high threat in front of new entrants. Along with this, a high economy of scale which is enjoyed by the existing large firms also creates threat for new entrants (Porter five force analysis, 2018). |
Threat from substitutes: Moderate In the context of sports equipment sector, threat from substitute products can say to be moderate. In other words, neither large nor too small substitutes are available in such sector. Hence, low switching cost of customers presents lower level of threat from substitute products or services. |
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Competitive rivalry: High Low market growth rate takes place in such sector due to the occurrence of high market penetration and saturation. Further, increasing aggressiveness of firm in relation to gaining high market share presents intense competitive rivalry among the firms. |
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- Sustainable advantage: For building and sustaining competitive edge over others Spyder focuses on undertaking technological advancement or support. In addition to this, for achieving competitive position Spyder provides customers with wide range of collections include high-end collection for men & women, ski pants, skiwear, official race suits and accessories, sweaters, gloves etc.
- Mission, aspirations and propensity for risk: The main motive of Spyder is to attain leading position in the sports equipment sector by offering quality products or services to the customers. Further, exhibits clearly present that acquisition strategy has been undertaken by Spyder. This in turn shows that for attaining success business unit lays high level of emphasis on taking risk to the moderate level and exploring business operations or functions.
- Ability to execute CSFs: Sales, profit, market share etc are the main key critical success factors which in turn furnishes information about the extent to which company operating in a well manner (Mullins’ Seven Domains Model, 2018). From assessment, it has identified that sales and profit margin of the company was good and enhanced over the time frame. Increasing sales as well as profit level shows that current position and performance of the company was good during the period of 2001 to 2007.
- Connectedness up, down across the value chain: Case situation of Spyder clearly presents that it has maintained prominent relationship with the suppliers. At the stage of early design, concerned business unit lays emphasis on taking feedbacks or suggestions from customers, partners and suppliers or distributors.
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b. Presenting option which should be recommended to Jacobs
Jacob is advised to select second option regarding the selling of minority stake to the financial buyer. Given case scenario presents that Jacob wants to maintain ownership status pertaining to such business. Jacob decided in relation to not exit from the operations now. By keeping all such aspects in mind strategy regarding minority stake selling is recommended to Jacobs. On the basis of such strategy, ownership stake held (minority level: CHB) should be offered to the financial buyer. Venture capitalists also act as a shareholder and take part in company’s decision making. Along with this, dividend is offered to the venture capitalists whenever firm generates enough profit. Further, minority stake selling also assists firm in controlling the interference of such private investors to the significant level. By taking into account all such aspects it can be stated that selected option is highly viable and profitable for Jacob.
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