Speed Sim-made to exit Case Study Solution
Introduction of SpeedSim:
This case study is mainly dealing with a hardware and a software company named as Quickturn and SpeedSim respectively. They were facing challenges in the start whereas, SmartSim was well established due to the hard work and dedication of the owner Kevin Ladd who was by profession an engineer. He had a firm belief on him as his father was also an entrepreneur so he had the enough courage to take risk of start a small scale business with few more engineers. It was incorporated as east coast Company following the style of family oriented entrepreneur style which has different culture and sales force for marketing its products.
He had a pretty good experience of developing the software for third parties and with his tools, third parties become successful and promoted as well whereas he was frustrated as he was not getting rewards according to his performance and he was not given any royalty or copyright for his work or software.
He started his business from small scale and he was able to make his business recognizable with the brand name of company SpeedSim which become successful very quickly and soon it received the offers for selling his company to other venture capitalist for million dollars which he rejected because he was of the opinion that the company has a great potential to grow substantially.
In the starting days he had to face difficulties when he was unable to earn anything rather had to cover his expenses of health insurance of around 600 dollars per month and he was selling his investments and relying totally on debt and credit limits however he was given money by his father amounting to 40000 dollars. He was motivated enough to expand his company that he also hired trustworthy people on board such as McInnis and for running business operations smoothly.
Introduction of Quickturn Company:
This company is dealing in hardware kind of business which is operating at a very large scale using mass targeting strategy. It was incorporated in USA which is west coast Company competing with the major brands of that time. They were able to use differentiation strategy for reducing its costs and improving the product’s quality so as to attract more and more customers.
CEO of the company was enthusiastic and he was having a participative leadership style as he used to take the advice of his marketing president Mr. Zafar in taking the decisions for expanding and improving the strategies followed by sales force and marketing team to target its customers.
They were growing very well in generating their revenues whereas they wanted to expand themselves by diversifying their product line in two main categories of hardware and software. They were the market leader and pioneer in providing high quality hardware products whereas, they lack in software. So, their main focus was to acquire a company which is specialized in Software and they came up with a company SpeedSim which denied their offer of around 20 million dollars because they had greater growth potential.
Acquisition Offers:
SpeedSim was given offer of around 20 million dollars in beginning which was rejected by the company because they were having good growth potential and they thought that they can bring more customers and enhance its value. They were receiving funds from venture capitalists and angel investors which they invested in their business and converted into enhancing their sales revenue and growth potentials.
After the success of SpeedSim, they were approached again by the Quick turn for acquiring them as they had strategic alliance with Intel which was competitor of Quick turn. They gave a deal value price of around 52.5 million dollars and for acquiring their equity interests, they were provided in exchange issuance of around 2.8 million shares.
After taken into consideration all the assumptions and case related information it seems to be the over payment to SpeedSim by Quick turn as its value of firm is more than around 40 million dollars whereas, it has been provided with a deal amount of 52.5 million dollars which is quite high.
As per discounted cash flows method and valuation multiples, it can be concluded that the SpeedSim has received a relatively better deal by maximizing its position and demanded a very good amount as their post value money was around 16 million dollars and enterprise or fair value of company has been calculated around 40 million dollars which is less than 52.5 million dollars deal amount so it shows that it was overpriced for the Quick turn as they were unable to get maximum benefit from their subsidiary....................
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