Professional Documents
Culture Documents
ENTREPRENEURIAL FINANCE
Maria Chekulaeva Corina Fendrihan Chris Kleijne Rodica Timotin Lionel Uijttenhove
SUMMARY OF FACTS
TRANSACTION
Fenchel Family Fenchel Lampshade Company Steve & Michele Rogers
Emotional deal from both the seller and the buyer sides
Fenchel family (Ken, his uncle and aunt) Founded by Kens uncle in 1926 Operated by Ken alone for the past 5 years Desire to retire but no real pressure
Discussion starts
SELLER
BUYER
Successful HBS MBA graduates Dream of owning a business Experienced a couple of unsuccessful attempts in acquiring a company
Black Monday
Deal breaks
Negotiations restore
S&P 500
Feb 6, 1987
Dec 7, 1987
May 5, 1987
Oct 2, 1987
May 6, 1988
Mar 2, 1987
Jul 9, 1987
Mar 3, 1988
SUMMARY OF FACTS
Low competition
34 manufacturers in USA competition is regional (NY/New Jersey) due to high transportation costs
DEBT FINANCING Principal SBA Loan (government agency) City of Chicago State of Illinois Fenchel Family (note) Fenchel Trade Debt TOTAL DEBT EQUITY FINANCING Amount MESBIC/SBIC (Preferred Stock) Steve and Michele Rogers TOTAL EQUITY $115 000 $50 000 $165 000 Redemption Dividend Rate period after 3 years 9.00% Annual Dividend $10 350 $300 000 $100 000 $50 000 $75 000 $105 000 $630 000 Interest Rate Annual Interest 10.33% 6.25% 5.00% 10.00% $30 990 $6 248 $2 500 $7 500 $47 238
$10 350
-45%
-54% 27% 55% 41%
13%
16%
12%
14%
13%
14%
73%
76%
42%
43%
Steven and Michele as an Afro-American married couple can be seen as the owners of a minority small businness.
Section 8a nowadays: small businesses owned and controlled by individuals certified as socially and economically disadvantadged
Q2. CONDITIONS
Pros:
The loan has the highest interest rate (10.33%) The loan is classified as senior debt, while other loans are subordinated Up to 85% of the loan is guaranteed by the state, so the risk is significantly diminished Fenchel family stays committed to the company due to their loan of $75,000 to the company. This loan is classified as lowest subordinated loan to the company The City of Chicago and the State of Illinois provide a subordinated loan with interest rates below the prime rate Collateral: Assets of Fenchel Lampshade Company and personal guarantee of companys new owners, Steven and Michele Rogers
Cons:
No maturity known or principal repayment scheme (website: once certified, a firm is approved for program participation for nine years following notificationof approval) Leverage of the company is very high! Equity is only 17% of total assets (See leverage) Collateral: Companys assets suitable as collateral are lower than loan. Projected fixed assets + merchandise inventories = $155,000. while there is no information available regarding the personal capital of Steven and Michele The projections realized by the buyers are highly optimistic
Cons are not extraordinary for people who start having their own business
38% 13% 3%
32% 12% 2%
37% 13% 4%
27% 3% 16%
37% 13% 4%
27% 5% 14%
Increasing demand
(current and anticipated expansion of their biggest client -Marshall Fields department store)
Types
contracts with high end hotels, colleges, hospitals, the government, interior design companies, mail order catalogs
Hiring and training more manufacturing representatives=> in independent lamp and lampshade retail stores and lighting showrooms(2 groups of customers with high growth in wealthy suburbs)
Strategy
collaboration with premium lamp manufactures (industry with sales > $2 billion, only 2 lamp manufacturers make their own lampshades)
minority supplier programs: sell to corporations that are looking to buy from minority-owned businesses the Set Aside Program: sell to local, state and government agencies
minority vendor programs: sell to more department stores (with the help of the Black Retailers Action Group)
Family business
Employees
Competition
Information risk
Customers
GF Corp
Knoll International Newell Companies Shelby Williams INDS Hillenbrand Industries Interlake Group Tab Products Virco Manufacturing
0.64
1.88 1.56 3.33 3.14 1.78 2.20 1.25
58.33
20.95 12.44 18.89 18.27 14.36 17.50 10.04
33.38%
42.86% 18.98% 26.13% 24.05% 22.75% 1.37% 39.81%
1984
1985
1986
1987
220000
128%
10% -1%
111%
11% -0.02%
83%
14% 3%
46%
21% 13%
170000
Fenchel
Industry average
Profit margin (Manufacturing Barry Wright Bush Industries GF Corp Knoll International Newell Companies Shelby Williams INDS Hillenbrand Industries Interlake Group Tab Products Virco Manufacturing Industry average
Industry) 5% 4% 0.3% 6% 5% 7% 6% 3% 5% 2% 5%
4% 4% 1% -3% 6% 7% 8% 4% 6% 2% 3.8%
120000
6%
4% 2% 0% 1984 -2% 1985 1986 1987 -30000 70000
20000