Spatial Technologies Inc Case Solution And Analysis, HBR Case Study Solution & Analysis of Harvard Case Studies

Spatial Technologies Inc Case Solution

Success or otherwise of Spatial’s strategy to penetrate the market;

Simply put, the company has put major emphasizes on incorporating the technology in its business model in terms of cash flows, profits and revenues. The company has opened the new product i.e. 3D Building Bl ox for the purpose of leveraging its AC IS compatible 3D modeling technology, expanding to the new market arenas, broadening the use of the AC IS based applications as well. Initially, the company has penetrated various markets such as animation, virtual reality, filmmaking, entertainment and internet application.

In addition to this, the company has offered a series of the optional component extension that have significantly increased the functionality of the AC IS compatible 3D Toolkit. The introduction of new component extension have allowed the company to market the improved product to existing and new customers. Not only this, the open architecture of the AC IS compatible 3D modelling Technology have allowed the licensees for integrating the additional and improved functionality through developing AC IS compatible component extension. The company has priced optional component extensions separately from the AC IS 3D toolkit. The company has recently released the component extensions which includes mesh surfaces, deform able surfaces, advanced blending and shelling as well.

It is to notify that the company has adopted a strategy of forward funding by obtaining the large amount of prepaid royalties. In initial period of time, the company had two primary revenue generating areas which includes licenses and royalties. More recently, much of revenues has been generating from the maintenance and training. In addition to this, the marketing strategy of the company has been revised which includes historical efforts or attempts to sell to the retail market.

Significantly, the marketing strategy of the company is to primarily selling to software vendors who tend to incorporate the technology of Spatial in their own shipped products. During the first two development years, the machine tool industry for the company has targeted the application software went to the crises. It has clear to the company that the original strategy would not going to work in future due to the fact that the machine tool industry has been declining and has not been investing in anything. The company has decided to abandon the original target end user market and put its major emphasizes on licensing the 3D modeling technology as its core business strategy.

In addition to this, the company has licensed its 3D modeling engine to other CAD/ CAM software developers, thus generating revenues in 3 ways which includes; royalty fees on units of end user software incorporate AC IS, Software Company pays initial license fees and revenues from the customer support for users of AC IS.

The impact of Spatial’s management team on the IPO process;

It would be no exaggerate to state that there is an inevitable impact of the company’s management team on the IPO process as a whole. It is not an easy decision to take the company to public. Going through the process of the initial public offerings (IPO) includes significant benefits and costs. The IPOs that the company has planned for the end of the year 1992 has called off, however, the company has found that the investment bankers have several reasons to back out.The management team at Spatial has founder that is well known with the previous successful experience and the operations and financing members of the team have been subject to the turnover.The team as a whole seems to be stronger on the technical expertise. But it is believed by the investors that the management team at Spatial is not broad enough. Rowley, who has been appointed as CEO at Spatial, he has been perceived to control the overall business side. Even though he had made extra efforts in selling the AC IS promise, his aggressive style of leadership has created several problems for the investors and customers as well.

In addition to this, due to the management decision of announcing the new product called Personal AC IS at the lower end PC market, the customer relationship has become strained. Not only this, the customer have complaint that the AC IS product has not been stable enough so that they face problem in shipping their AC IS bases applications. Since, the customer complaints has been increasing, product has not stable enough, customer responding in negative manner, customer questioning John as a CEO at Spatial, the investment bankers has ended up and stated that it is too early for initial public offerings (IPOs). The investment bankers also doubted that the company has right technology and right management team.

In addition to this, the management team has failed to convince its existing or current investors for putting another round of capital. As a result of the feedback from the investment bankers, the company has contemplated to fill out the management team of the Spatial. In opposition of the CEO, the new management team has decided to drop personal AC IS for the purpose of revitalizing the positive relationship with potential customers. Since, the style of management and opinions has been diverging on continuous basis, the company failed to reap the benefits or advantages of going public or issuing IPOs.

It is to state that the weak management team has made investment bankers unwilling to accept the offer, hence it posit threat to company in losing the market opportunity of taking the company public. It is to stipulate that the right and strong management team and business model is core factor of winning in the highly competitive market arena, it would likely ease the growth and development of the company and result in long term success. Also, the management team should have strategic in its approach of going public by issuing initial public offerings (IPOs) and should have opportunistic in its strategy, the management team should always be on the lookout for opportunities to exploit and grasp the market share.

Three Valuation Model

There have been three valuation methods used which named Valuation A, B and C. In valuation A, we have to manipulate the net earnings after tax for the year 1996 and 1997 and for remaining years from 1998 to 2002, we have to assume the growth rate which will lead to the final pre money valuation of 60 million dollars which will give the price per share of dollar 10. The manipulated amount of net earnings after tax are 1.7 million dollars and 5.4 million dollars for the year 1996 and 1997. For the purpose to simplify the assumptions, the growth rate for the terminal year 2002 is 6 percent while the tax rate is 25 percent and weighted average cost of capital (WACC) is 20 percent. The cost of equity is 23.5 percent and the total outstanding common shares are 5,937,223. For meeting the target of final pre money valuation of 60 million dollars to limit the price per share of dollar 10, the targeted growth rate for net earnings after tax is 25 percent which helps to meet the targeted values of creditors Nazem and Company Ltd.

In valuation B, we have to adjust the growth rate up to that level where we will reach to the final pre money valuation of 30 million dollars which will give the price per share of dollar 5. For this purpose, the targeted growth rate for net earnings after tax is 3 percent which helps to meet the targeted values of creditors Nazem and Company Ltd. This growth rate is below than the terminal year growth rate which is 6 percent. This means after manipulating the net earnings after tax for the year 1996 and 1997, the creditors can easily meet the targeted pre money valuation of company...........

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Spatial Technologies Inc Harvard Case Solution & Analysis