Nantucket Nectars Exit Study

The company, Nantucket Nectars has a variety of options available that will help determine their future. The information in the case study directs focus on the decision to either sell, go public, or remain independent. The managers appear comfortable with any option listed. Still, in order to make the best decision, pros and cons for each must be made.
Should the company go public, they must go through the process of having an initial public hearing. This could lead to numerous benefits. One of which is a new source of capital that can be used to invest in the company. Instant capital funding allows Nantucket Nectars to grow and settle some past and future debts. If the company plans to grow, they will need more liquid capital to do so.
An IPO by going public would allow the current management to remain (Acharya & Xu, 2017). Scott for example, would continue with the strategies designed for the company and allow for increased brand awareness than going public offers. The memorable and quirky aspect of Nantucket Nectars may increase positivity for the company and continue to allow it to successfully market to a new audience.
The cons however, lie in the potential new investors the company will be responsible for as the company begins selling stock. These investors must be clued in on the direction of the company periodically each year (Triarc for example, may replace staff should they buy). They must also allow for additional input from major investors and deal with governing bodies related to stocks and bonds. Such effort could prove to be stressful for current management and may impede progress in accomplishing certain goals (Acharya & Xu, 2017). This lends into the other question of identifying and dealing with potential buyers of Nantucket Nectars. For example, if the potential buyers become investors, how will that play into their strategies? Mike Egan invested $600,000 for 50% of the company. But he did not supervise them and let them grow in their own way.
The pros and cons for remaining independent are simple. Nantucket Nectars will remain able to control its direction regarding company goals if it remains independent. The growth will not be triggered by investors and management will be better able to craft and solidify Nantucket Nectars (NN) through its own methods and timeline. However, a big con for remaining independent is lack of funding and liquid capital. Liquid capital remains the most important aspect of any business success (Ang & Oliva, 2004). Without enough liquid capital, NN will not be able to grow as quickly nor promote any solutions that require additional funding.
Should NN be sold, there will be a possible change in management. However, sometimes new leaders can bring fresh ideas, allowing for the company to gain a new foothold. There have been times when companies are sold and become huge. A good example of that is PayPal. There are other times the opposite happens. The biggest problem with selling the company comes from potentially changing what the brand is and allowing someone else to operate it under their vision (Ang & Oliva, 2004).
When it comes to owners identifying and dealing with potential buyers, the problem lies in asserting what the outcome should be. If the owners want investment in the company rather than complete sell-off, then it must be communicated. If they see the profitability is decreasing or not keeping up with costs, then they must identify buyers willing to merge ideas rather than outright replace them. Ultimately, the idea of collaboration should lead to better identification of beneficial buyers. Tropicana and Ocean Spray for example, were interested in buying a portion of the company. They may be good investors because their products are similar and may have a similar vision to NN. Triarc, a company rumored to have wanted to buy NN, tried to contact as well and appeared to be a poor fit, especially how they went about seeking to buy or in the very least, see the company’s overall market value.
Regarding NN’s worth, one must look at why people would be interested in buying in the first place. Triarc, Pepsi, and Ocean Spray, among a few others want to buy NN or at least buy a portion. This is because of NN’s broad appeal to the 18-34 market. The company also has a stabilizing cost structure and enable a buyer to expand into the juice cocktail grouping with little risk on brand equity (Lassiter III, Sahlman, & Wasserman, 2014). Because NN has at least 100 employees and is on its way to becoming more successful, more profitable, buyers may see the company as one that has little to work on and can expand their own brand. Brands like Ocean Spray would be a great match due to the nature of their products.
Regarding selling, they should sell a portion of the company like they did with Egan. The ability of the company to allow for expansion for another company and access to a desirable demographic should enable NN to sell according to their needs. Especially since multiple buyers remain interested. They can sell some ownership stake to a buyer interested in allowing NN to pursue its goals like it did in its initial phase of investment and remain as advisors.
The revenue for NN from 1994 to 1996 almost doubled each year. Going from $8,345 to $29,493. The gross profit almost tripled from 1994 to 1995 and doubled from 1995 to 1996. The EBITDA for 1996 was 969 (Lassiter III, Sahlman, & Wasserman, 2014). If NN sees sales in supermarkets, which the company has seen no to low expansion, its sales could increase dramatically, adding further value to the company. As a standalone company, NN may be worth $65,226 (valuation in $000s). The company’s market value will grow at least three times much (assumptions), if it is sold to another company and investments are made for growth.
References
Acharya, V., & Xu, Z. (2017). Financial dependence and innovation: The case of public versus private firms. Journal of Financial Economics, 124(2). doi:10.3386/w19708
Ang, S., & Oliva, A. (2004). Superior Customer Value in the New Economy: Concepts and Cases, Second Edition. Boca Raton, FL: CRC Press.
Lassiter III, J. B., Sahlman, W. A., & Wasserman, N. (2014, February). Nantucket Nectars: The Exit - Case. Retrieved from https://www.hbs.edu/faculty/pages/item.aspx?num=37865