Innovation Essay Essay

turkey cock Scott and Tom First founded Nantucket bitterweeds in 1990 as a wasted side- course on Nantuckets Straight Wharf. A peach fruit succus drink that Tom First discovered while visiting Spain stimulate him and his partner to embark upon the journey of building their juice guild. After merely six years, the two entrepreneurs construct a worry that was generating $29,493,000 per year in revenue and $969,000 in EBITDA. With remarkable success came exciting opportunities, as advantageously as ch totallyenging decisions.Specifically, Tom and Tom were faced with the dilemma of winning the guild down one of three roads including taking the company exoteric via IPO, transmiting the business, or continuing to take and run the business unaffiliatedly. Tantamount to these decisions, the founders had additional questions on their minds How should the company be take accountd? How could they stop price maximization? How would the duologues be handled? Could they engage potential drop buyers without existing employees sire out? At the end of the day, the decision was more(prenominal) personal than any affaire.Its never easy for an Entrepreneur to rationalize selling out aft(prenominal) theyve spent so much time building and developing their baby. Nevertheless, its often the best decision. In this paper I go forth seek the Pros and Cons of selling Nantucket ambrosia, along with how to arrange an appropriate measure for the company. The first plectron to be explored was be nonparasitic. One of their concerns was management involvement of any potential strategic partner, or buyer. Tom and Tom wanted to run the company, if possible.If they remained individual then they would still be the autonomous owners of Nantucket Nectars and they wouldnt apply to nonplus about listening to anybody else telling them how to operate, or grow the company. Also, a expediency of remaining independent was the preservation of the companys brand which was s trengthened upon two entrepreneurs, Tom and Tom. They used their degree as part of the stigmatization and the commercialize enjoyed it. Selling out could create some interdict common relations. Remaining independent was an opportunity to remain in control of their populace image.Independence isnt broad(a)ly positive, though. A negative aspect of remaining independent would be the lack of statistical distribution rear their growth capabilities would be limited. In contract, if they were to sell to a larger organization with robust al-Qaida they could enlarge their footprint more rapidly. some other con of remaining independent would limit the founders from entering into upstart impales that might be more challenge to their sense of entrepreneurialism. Remaining with Nantucket Nectars, to some, could be stifling. Regardless, it would certainly limit their ability to grow from within.Capital was less readily forthcoming to Tom and Tom and the support of a larger scale r obeor could bring some immediate excitement. Another con of remaining independent is the insulation against catastrophic events, or litigation. As a small, independently owned business thither is typically more risk involved from a litigation standpoint. Although companies be insured, the sheer spending of seeking legal counsel has a greater negative contact upon smaller businesses than larger conglomerates like Tropicana, or Pepsi, who have large departments of in house counsels.The second option available to Nantucket Nectar is to sell the business. In reviewing their financial performance (see march 1), we notice that the business has had several years where they were profitable. Their EBTIDA was strong over the past two years (1995 & 1996), thus fashioning them more foodstuffable. From a sellers perspective, this might be n favorable time to sell. Also, a benefit of selling is the immediate influx of cash that would be available as a result of the buyout. Tom and Tom would have financial independence which, for an entrepreneur, can be the superlative state of universe.This would afford them both an opportunity to regroup, reenergize, and focus on new business ventures. Many entrepreneurs enjoy the early start-up phases of the business cycle. Of course, selling a business has its drawbacks, as well. First, the buyer often requires that the management team from the skill target stay on board for a specific finish of time and achieve certain key performance indicators before receiving the entire net profitout. Often, there is a lump sum delivered up front, and then additive payouts upon achieving KPIs. This could befrustrating to Tom and Tom, as they would relinquish all of their independent decision-making powers and have to take the back seat as employees. Typically, this is not a comfortable position for entrepreneurs to take. Also, Tom and Tom built up a loyal and talented staff of employees at Nantucket Nectar. Acquisitions are typically dic tated by synergies and, as a result, certain employees could be terminated in pursuit of live savings. Finally, Tom and Tom would have to deal with the feature that their company culture would be at risk. Often, the buyers culture engulfs that of the company beingness acquired.The third option available to Tom and Tom is taking the company public, or an IPO (Initial Public Offering). The most obvious advantage of spill public is that Nantucket Nectar would have an immediate influx of capital available collectible to the sale of its memory board. With excess capital available, they could purchase assets for distribution and manufacturing, invest in advertising and marketing, and continue to fuel the expansion of the business. Going public also creates a type of currency in the form of its stock that Nantucket Nectar can use to make acquisitions.In addition, they will promising have access to capital markets for hereafter financing needs. As is typically the case, Nantucket Ne ctars debt-to-equity ratio will improve after the IPO, allowing them to develop more favorable loan terms from lenders. Another benefit of acquittance public is that Tom and Tom may be able to remain a certain degree of control. If they opted to sell common stock to venture capitalists to raise money rather than doing an IPO, the purchasers would probably require some decision-making authority. As entrepreneurs, Tom and Tom would have a hard time free decision making authority.1 Initial public offerings have negative aspects, as well. First, difference public is not inexpensive. duplex areas of expertise are required to execute the process, including lawyers, accountants, and consultants. This could get expensive for Nantucket Nectar. Another disadvantage of going public is that public companies operate under close scrutiny. The prospectus reveals important information about the company including transactions with management, executive compensation and preliminary violations of securities laws.This may be information the company would prefer to keep private. In my opinion, the most difficult thing for Tom and Tom to deal with would be the decision-making process. From the case study, we see that they are informal, salt-of-the-earth individuals. Taking the company public would guess that they would have to become more formal and less flexible due to the partakeholders. They would no longer have complete control of the company. They would have to share in the decision making process2 VALUATIONAs an adviser to Nantucket Nectar, there are several approaches that can be taken toward determining the expenditure of the business. Ultimately, the think of of the business is whatever a buyer is willing to pay for it. From a negotiating standpoint, Tom and Tom need to determine what they believe is the range in order to set an expectation upon engaging in negotiations. Multiple companies are expressing interest due to the boom in the New board beverage mark et and Nantucket Nectars competitive advantages. The first thing to understand when determining the value of a business is their brand equity.Nantucket Nectar has a lot of value in the brand theyve created and the value drivers, as determined by Tom and Tom, are listed in Exhibit 2. Nantucket Nectar created a fun and memorable story the juice guys are unforgettable. The value drivers go beyond financial figures found on the P&L, equalizer sheet and cash flow statement. They are the non corporeal assets that management has built on their own also referred to as Goodwill. Goodwill is seen as an intangible asset on the balance sheet because it is not a physical asset like buildings or equipment.Goodwill typically reflects the value of intangible assets such as a strong brand name (ie Nantucket Nectars), dear customer relations, favorable employee relations and any patents or proprietary technology. 3 These intangible assets can be the most important valuation drivers to escort w hen placing a value upon a business. I used several methods to determine the value of Nantucket Nectar. First, I utilized the Market Approach. The Market Approach is a multi-step process. In the initial step, we compute the average Price-Earnings (P-E) dimension for as many another(prenominal) similar businesses as possible.Then, you multiply the average P-E Ratio by conterminous years forecasted lucre. I used 26. 9x (see Exhibit 3) as the P-E Ratio and multiplied it times $2,234 (see Exhibit 4), which is Nantuckets forecasted earnings for 1997. The value equals $60,094,600. This would be a good starting point for Tom and Tom to being their negotiations. The second method I used is the Capitalized Earnings Method which is the realise Earnings divided by the Rate of Return. However, I used the forecasted earnings for the upcoming year, $2,234,000.I used a discount rate of 12% based upon the rates utilized in the Discounted Future Earnings personate (see Exhibit 5). If we divide $2,234,000 by 12% it gives us a value of $18,616,667. More than likely, this is the number that an investment bank would place upon the business, as a starting point for negotiations. I also calculated the tidings value of Nantucket Nectar, and then integrated grace for the value drivers in Exhibit 2. The book value is $12,747,000, however I dont believe the goodwill is correctly accounted for. This need to be reevaluated.Nantucket Nectar would be selling their business, on a large part, due to their intangible brand value. This could justify a 2x or 3x multiple times book value, to arrive at an alter book value rate. My recommendation to Tom and Tom would be to sell their business and use the Market Rate approach towards determining the value. I think this is a fair way to view the business because it helps to spew the perspective in a similar light to other companies who have follow a similar course within the said(prenominal) business segment. I would not advocate an IPO du e to the scrutiny the shareholders will place upon the business.I believe selling the business presents an ideal scenario because they could negotiation the level of involvement they want in the future while, at the same time, they would have enough cash to pursue other entrepreneurial ventures. Exhibit 2 Value Drivers (determined by founders) Great product great tasting, all natural product Ability to exploit small, rapidly changing market opportunities Current Management Team A more appealing story than any other juice beverage company (great material for a company with a large marketing budget and more distribution power) Value of the brand quirky, eccentric and memorableA stabilizing cost structure Geographic expansion capabilities current sales base and future sales base Access to the 18-34 market Managements familiarity of and experience with the single-serve business ability to add value to large actor rolling out new single serve products Last good access to single-serve distribution in the New Age beverage market Guerrilla marketing skills Best vehicle for juice companies to expand into juice cocktail category without risking their own brand equity