Based on the information presented in the Cain and Able case we believe Candance Leak should pursue merging specifically with Happy Tails or company with similar products. This is the best opportunity because it will allow Leak to spend more time with her family allow Cain and Able the chance to grow and be sold for a worthwhile amount. The merge will allow Leak to spend less time working because merging with a similar company allows business activities to be shared (ie. Only one business partner will have to attend a sales call or trade show for both product lines).
The merge with Happy Tails (or a similar company) will align company synergies and core competencies due to similar products, distribution networks, and ultimate interests they both possess. This will allow the newly formed company to create a more valuable brand and reach higher sales volume. Once the company reaches $5-10 million in revenue Leak can come out with much more than a outright sale on her own. We believe this is the best option for Leak 1. Bumps up revenue making it an appealing buy 2. PetCo 40% experience with sales with larger firms know they won’t run into the ground 3.
Many opportunities but inability to reach a competitive volume 4. Penetrate other large retailers like PetSmart 5. Too soon to get out- industry is booming while her growth is stagnant a merger could help get back on track Prize= gaining a partner, improving volume and brand presence… gaining more market share. Therefore, potentially receiving a higher valuation when sale occurs. With a merger her workload would be decreased because of the help of her business partners and she will have less personal stress because the eventual sale of the company.
Context Despite having surprising and exponential growth at the beginning, Cain & Able’s growth has become stagnant over the last two years. Candance Leak, founder of Cain & Able, faces a dilemma- she no longer wants to spend the majority of her time trying to overcome the obstacles of growing a stagnant business with her ultimate goal of a family in mind. Leak started the company out of her one-bedroom apartment and no one believed in her. She had no guidance and made many mistakes along the way.
Despite these challenges in an 8-year span Cain and Able grew sales from 100,000 in Y1 to around 900,000 in Y8. The products landed shelf space in PetCo, TJMaxx, Whole Foods, and many mom and pop retailers. However, many competing products have entered the market (Pet Head by Bed Head and Martha Stewart Pet) taking away from her specialty pet shampoo market share. Due to the size of these competitors, a small firm like Cain & Able may be left in the dust because of the lack of resources to grow and expand distribution.
Due to the recession many small business owners shut down and Leak has managed to stay afloat. However, she knows that Cain and Able could become susceptible to similar failures because many mom and pop stores closed (hurting sales volume) and she cannot alone reach economies of scale (sales numbers are likely to mimic economic trends even though the pet industry is booming). Leak does not want to simply give-up all hope for Cain & Able because of all the sweat equity she has put into it and cares about the brand she created.
She definitely wants to spend less time working keeping this in mind she foresees four options regarding the future of the company: (1) hire a CEO (MBA from Texas) (2) sell the company (3) merge with a pet product company or (4) raise venture capital funding to expand the business. Problems: recession- personally affected, small businesses that sold her brand disappeared competition- other speciality shampoos (Pet Head by Bed Hed and Martha Stewart Pets) No growth since 2008, small businesses have failed and she wants to be successful she hasn’t done all of this for nothing.. but she is at high risk so she needs to do something
Initial business plan revolved around small businesses- but her profitability went down so she shifted towards to larger chains Customization for small businesses narrowed the margins Analysis *Hire- will have to give up equity, CEO may not be effective right away, CEO will not have specific experience in the industry because it is so new… risky, CEO will be determined and may work for lower equity— how far will that take a company *Sell- does not have the revenue to sell and the projected earnings after she pays everything off would only be $150,000 after 8 years of work… not worth it. tagnant growth… However, she would be out right away *Raise VC- want her to stay around, added responsibility because its not just her money at that point, work full time— doesn’t align with her life goals. Give up equity. Merger – best route because it allows a bit more time to grow the company and reap more benefits if and when a sale occurs. It is worth her while because she has spent 8 years building the company and if she merges it could leverage the companies capabilities and improve volume. Happytails wants to eventually sell. Help her reach her intial goal — petsmart and petco
Merger may know business better- synergies Implementation We think that by having similar products they can focus on similar business models and products… same core competencies— could use same manufacturer and distribution networks…. Organization would have good fit decently easy to blend the two company’s employees. Acquired biscuit company that failed= drained her a bit, disappointing— merging with a dissimilar product is not a good idea focus on HAPPY TAILS Sign agreement saying that after x years or x revenue they must buy her out if she wants to be bought out