PowerPoint Presentation
Accessing resources for growth from external sources By:Riddhi
ShroffSoham Sathe Harsh HedaPrabudh Bansal Saumya Mishra1Flow of
the presentation Franchising
Joint Ventures
Acquisitions
Mergers
Leveraged Buyouts
Overcoming Constraints by Negotiating for more Resources
FRANCHISING
Right to use a firms business model and brand for a
prescribedperiod of time.A Franchisee gets exclusive rights for
local distributionto independent retailersA Franchisor gets their
payment of royalties andconformance to standard operating
procedures
FranchiseeFranchisorProduct AcceptanceExpansion RiskManagement
ExpertiseCost AdvantagesCapital RequirementsOperating and
Structural ControlsDisadvantages
Other franchisees could give the brand abad reputation
Allprofits(a percentage of sales) are usually shared with the
franchisor.
Theinflexiblenature of a franchise may restrict your ability to
introduce changes to the business to respond to the market or make
the business grow.Types of FranchisesDealership or Product
Franchises: Common in cases of automobile manufacturers.Method of
doing business or business format franchises: Includes large fast
food chains like Mcdonalds, KFC, etc.Services Franchises: When a
company is already operating a same business and then becomes a
part of a large franchiseBusiness format includes name and
image.Source: Boundless. Types of Franchises.Boundless Business.
Boundless, 21 Jul. 2015. Retrieved 03 Nov. 2015
fromhttps://www.boundless.com/business/textbooks/boundless-business-textbook/types-of-business-ownership-6/franchising-52/types-of-franchises-257-1725/
7Franchising Opportunities due to environmental changeGood
HealthTime Saving or ConvenienceEnvironmental consciousnessThe
second baby boomInvesting in a FranchiseFactors involved in making
a decision:Unproven vs Proven FranchiseFinancial Stability of the
franchisePotential Market for new franchiseProfit potential for a
new franchise
Federal Trade Commissions Franchise Rule1. The Franchisor and
any Parents, Predecessors, and Affiliates2. Business Experience3.
Litigation4. Bankruptcy5. Initial Fees6. Other Fees7. Estimated
Initial Investment8. Restrictions on Sources of Products and
Services9. Franchisee's Obligations10. Financing11. Franchisor's
Assistance, Advertising, Computer Systems, and TrainingFederal
Trade Commissions Franchise Rule12. Territory13. Trademarks14.
Patents, Copyrights, and Proprietary Information15. Obligation to
Participate in the Actual Operation of the Franchise Business16.
Restrictions on What the Franchisee May Sell17. Renewal,
Termination, Transfer, and Dispute Resolution18. Public Figures19.
Financial Performance Representations20. Outlets and Franchisee
Information21. Financial Statements22. Contracts23. Receipts
JOINT VENTUREA Separate Entity in which two or more parties pool
their resources to perform a specific task.A partnership between
two or more parties.Generally, for a finite time.Partners involved
Businesses, public sector, universities.
TYPES OF JOINT VENTUREBetween Two or more private sector
companies:-
Technology & Asset SharingNew Market AccessCost
Cutting(Financial burden)InnovationStrategic Move Against
CompetitorsDiversification
Industry-University Agreement :-
Research basedIndustry aims at obtaining the patents and the
proprietary rights from its research investmentsInstitutions share
the patents for the financial returnsWhereas, researchers want to
make the knowledge available through publishing the research
paperInternational Joint Ventures:-Access to new international
marketResource SavingsTechnology SharingInnovation
Drawbacks:Different Objectives of JV partnersCultural
DifferencesGovernment Policies
Eg. Maruti-Suzuki, Hero Honda
Factors In Joint VentureChemistry Between the managers
Degree of Symmetry between the partners on the objectives and
the level of resources being provided
Realistic Expectations from the JV
Proper Timing for JV is must. ACQUISITIONSA strategy through
which one firm buys a controlling, or 100% interest in another firm
with the intent of making the acquired firm a subsidiary business
within its portfolio
Reasons:Increased Market PowerOvercoming Entry BarriersLower
risks compared to developing new
productsInnovationDiversificationType Of AcquisitionsHorizontal
AcquisitionFlipkart acquired Myntra
Vertical AcquisitionLuxottica acquired RayBan, Sunglass Hut.
Conglomerate AcquisitionHUL with different product lines and
different customer base for each product.Disadvantage of
AcquisitionMarginal success record
Overconfidence in ability
Key employee often lose
OvervaluedStructuring the DealCommon means of acquisition
Direct purchase of firms entire stockBootstrap purchase
Locating acquisition candidate
AccountantsBankersBusiness AssociateBrokers
MergersFig: Merger MotivationsPros and Cons ProsEconomies of
scaleR&DAvoid duplicationSpeed to marketConsHigh cost
involvedIntegration issuesUnrelated diversification
Leveraged Buyouts (LBO)Borrowed fund to purchase an existing
venture for cash
Great amount of external funding required
Long term debt financing
High financial riskCharacteristics of a Good LBO Candidate
Strong, predictable operating cash flows with which the
leveraged company can service and pay down acquisition
debtWell-established business and products and leading industry
positionModerate CapEx and product development (R&D)
requirements so that cash flows are not diverted from the principle
goal of debt repaymentLimited working capital requirementsStrong
tangible asset coverageSeller is motivated to cash out of his/her
investment or divest non-core subsidiaries, perhaps under pressure
to maximize shareholder valueStrong management teamViable exit
strategy
Pros and ConsInterest payments on debt are tax deductible, while
dividend payments on equity are not. Thus, tax shields are created
and they have significant value.Large principal and interest
payments can force management to improve performance and operating
efficiency. Increase in fixed costs from higher interest payments
can reduce a leveraged firms ability to weather downturns in the
business cycle.Large principal and interest payments can force
management to improve performance and operating efficiency. Debt
discipline may force management to take strict measures for cost
cutting, downsizing which leads to overall shareholder
return.Interest payments on debt are tax deductible, while dividend
payments on equity are not. Thus, tax shields are created and they
have significant value.The most obvious risk associated with LBO is
that of financial distress. Recession, drastic change in
environmental variables, change in regulatory environment can lead
to difficulties in interest payments which may lead to debt default
resulting in equity holders losing their entire investment.Increase
in fixed costs from higher interest payments can reduce a leveraged
firms ability to weather downturns in the business cycle.
26Overcoming Constraints by Negotiating for More
ResourcesNegotiation with Other PartyTwo primary tasks Assessments
made by an EntrepreneurAssessment 1: What will you do if an
agreement is not reached
Best alternative to negotiated agreementHelps in determining
reservation price
Reservation price is the price (bundle of resources from the
agreement) at which entrepreneur is indifferent about whether to
accept the agreement or choose the alternative 29Assessment 2: What
will the other party to the negotiation do if an agreement is not
reached?
Difficult to assess the reservation price
Provides good idea of bargaining zone
Focuses on distributive stage but not integrative stage
Consideration of the bargaining zone encourages the entrepreneur
not to focus prematurely on settlement price but rather to consider
the range of possible outcomes within bargaining zone, if
bargaining zone can be determined by the entrepreneur while keeping
his or her reservation price hidden from other party then the
entrepreneur is in position to negotiate an outcome that is highly
beneficial to other party
30Assessment 3: What are underlying issues of this negotiation?
How important is each issues to you?
Achieving relationship that is most desirable for the
entrepreneur by trading off aspects of less importance for those of
greater importance.
Example: Benefits of Joint Venture
Assessment 4: What are the underlying issues of this
negotiation? How important is each issue to other party?
Greater opportunity to achieve integration- make size of pie
bigger
Information is known to both parties, then it is likely that the
outcome will be mutually beneficial
Strategies for NegotiationBuild Trust and Share information
Requires both parties to have information about each other
underlying issues
Building trust is an important aspect as it may impact the long
tem performance of the firm
Ask Lots of Questions
Opportunity to learn and find trade offs necessary for
integrative agreements.
No answer itself provide answer to lots of questionsMake
multiple offers simultaneously
Numerous possible offers based on different levels on different
dimensions.
Send signal to other party that the entrepreneur is
flexible.
Use differences to create trade offs that are source of mutually
beneficial outcomes
Differences in terms of expectations, risk preferences and time
preferences.
Example: Difference in expectations
The entrepreneur expects the introduction of the licensed
technology into the other party product to increase sales more
substantially than other party expects. This difference in
expectation could be the basis for the integrative agreement.For eg
both parties would prefer to have lower upfront fee for technology
and greater royalty percentage, both parties percieve that they doo
better basd on their expectations of
sales37Referenceshttps://www.youtube.com/watch?v=kmYqlFgrgF8http://www.i-soldit.com/how-it-works/http://www.newlifeauctions.com/dropoff.htmlhttp://www.cfo-connect.comhttps://en.wikipedia.org
