Hotel Ivory Case Solution And Analysis, HBR Case Study Solution & Analysis of Harvard Case Studies

Hotel Ivory Case Solution

Introduction:

The key players in the case are, Sanankaou who work as an agent; Fabrice and Annette Papin, who want to sell the area and Asdar Capital; a private equity dealer.

The agent faced difficulties since its founders had already sold their property because they wanted to retire. He has to recognize the value and opportunity so that he can make negotiate and convince them to purchase the property by structuring due diligence and identifying the macroeconomics and timing to make and invest in the property.

The objective of the case is to identify the issues in investing on the property and to provide valid recommendations. It also involves qualitative analysis that would help agent to identify whether he should raise funds by equity or debt along with the price at which the deal should be made.

Identification of the key issues

The Hotel Ivory was facing various issues such as: significant food losses and theft of food in hotel. Which is why they used to keep little inventory; and to end this issue, the founders used local contractors to come on site in case of emergencies.

The most important issue was of fundraising for the investment, Sanankaou needed to find co-investors, especially for private equities that have high significant growth. He planned to hold the property by acquiring all of its shares and then issuing 80% of preferred stocks that give 30,000 returns as a preferred dividend. The total loan one million was required of which,250,000 were collected from friends, 50,000 from the Kouassi (European development Organization) and remaining were issued by the local bank.

By issuing debt form local banks, he faced the problem of loan being expensive due to over leverage and he had to share the transaction structure of the company. Finally, he lined up the contract with Asdar Capital and raised around 0.5 million for the funding. That means that the company issued 47.9% as outside debt or funding.

Strategies to deal with issues:

Sanankaou has utilized 0.25 million pounds that is 12% from his own contributions in raising funds and external funding is about 1,000,000 pounds that makes 47.9%. A total of 2,088,415 pounds is required in order to meet the basic criteria that is: purchase of equity of 1,676,829 pounds. To upgrade the capital expenditure, development, and transaction fees.

The management should make the fund profile in a manner that would help the company to liquid in the next year. It must include the option of buying out the hotel concerning their wish to exit and liquid its position. The planning should involve managing the liquid position for coming four years. Firstly, there should be a variety of private equity dealers who are willing to invest and if there are no acquirers, then the other option of putting the preferred stock at a fair market value. This will lead to a payment of 10% annual preferred dividend over the next four years. This would be the best way to cover the debt within two years of liquidity and prevent them from illiquidity problems by offering the put option at a fair market price that guarantees the exit and the potential dilution of return to the investors.

In four months of negotiation with the founders of the hotel, Fabrice and Annette Papin, he made the structure of the deal with due diligence to conduct operations ahead. The agent needed to prepare the contract, which is as important as the review of receipts and payments from the negotiation. The contract should consist of all necessary information such as deadline, details, dates, and amounts...........

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