The Second Cup Case Solution And Analysis, HBR Case Study Solution & Analysis of Harvard Case Studies

Introduction

Second Cup, the largest network of Specialty chain stores, was about to launch its IPO (Initial Public Offering) in order to raise the amount to pay off its long term debt, which was used to purchase the company. Moreover, the funds raised will be used to bring expansion and acquisitions to the business. This debt, which was used to buy the company, was raised at a higher interest rate.

Problem Statement

Currently,the investment banker of the company is facing an issue that it will have to ascertain the true worth of the company. The company initially plans to raise $10 million, which is enough to pay off the long term debt of $6.812 million and related party loans of about $0.818 million. The remaining amount can be used for future expansion. On the insistence of investment banker associate, the company agreed to raise $14 million. Now the issue is what should be the timing of the issue. The timing needs to be perfect, so that the issue is well received by the investors and the company is able to receive the funds at a good price. Another issue is that it needs to be ascertained regarding what should be the voting rights patterns of the investors. The company also needs to ascertain at what price the IPO should be priced.

Case Analysis

In order to efficiently analyze the case, it is imperative to perform a SWOT analysis of the company. SWOT analysis helps to analyze the company with respect to internal as well as external factors affecting the company.

SWOT analysis

Strengths:

The company has a lot of strengths which make it a strong prospect for investors to invest in the business like

The company is able to retain its number one position in the specialty coffee market in Canada.
The company has strong growth prospects, which is evident from the financial statements of the company.
The company was able to serve the niche market, which has a strong growth prospect.
The company has been able to achieve diversity in the suppliers of the business which is a good prospect. If one supplier faces some problem, then the company can resort to other suppliers in order to meet its demand.
The company was able to secure supplies of high quality coffee beans, which is a strong reason for investors to consider this company for making investments into it. As the supplies are secured, there fore the company will be able to continue its operations with ease without worrying about the supplies and the effects of change in prices of them.
The company can predict its future cost structure through securing supplies as it will enable the company to predict its future performance and will help it to make realistic future plans.
The company has a customized system of processing and distribution of the products. This customized service contract is with a multinational firm. The company has a control over this processing and distribution arrangement, which helps it to maintain the quality and costs of the products so that customers get top notch products that have been manufactured at reduced costs of production.
In order to better serve its customers and have stronger in-store management, the company gives its franchises to full time owner cum operators who can operate the setup with full attention.
The company has a robust training program for the franchisees in the form of two week training period in which they are given the training of operating the franchisees at the world class standards.
The company has ten company operated stores, which provide the company to arrange taste trial of new initiatives before introducing them at the system wide level. The company saves costs as it does not have to do testing in external environments of the new initiatives as it has the in house testing facilities.
The company’s stores are situated in highly densely populated areas of the Canadian market. This choice of location is one of the main strengths of the company.

The Second Cup Case Solution

Weaknesses

The company has some weaknesses, which should be the concern for the prospective investors while making the investment decisions about the company. Following are the weaknesses identified about the company:

The company is banking on the current customers for profits and not seeking new customers, however due to the rising competition, it should pay attention towards acquiring new customer loyalty.
About 62% of the total stores of the company are concentrated in two geographical locations in Canada and any economic challenges to these places pose serious risk to the company’s profitability.

The company has failed to diversify its business away from the Canadian market...........................

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