North Pole Distributing Case Study



North Pole Distributing Case Study

Major Issues faced by North Pole Distributing

The major issue faced by the company occurred due to down turn of economy and financial crisis in February 2010. It was the time when company's president Claus was considering selling the company for $36 million to one of its US suppliers. The price had been determined on the basis of a Price/EBITDA ratio of 5.5, and the acquirer used a rule of thumb in evaluating the value of the company. It did not include the value of a wholly owned, real estate company called Claus Properties, which was unaffected by the financial crises. On the other hand Price to earning ratio was significantly affected by the recent economy down turn situation. Therefore, it was not portraying the complete evaluation of the company.

Overview of the economic environment, the industry, competition and NPD

The SWOT analysis of the company is explained below that answers the aforementioned query.

Strengths

The market for the industrial equipment was $500 million per year for the whole industry, of which NPD had 20% market share.

The largest five competitors including NPD held 90% market share.

The industry had a 3% growth rate each year for the last few decades.

NPD has the most profitable distribution method to deal directly with large regional dealers such as the marketing and sales benefit of having presence in a given territory or province and also assumed a share of the finance.ial risk by assuming ownership of inventory.

The centralized decision making allowed the company to reduce level of management and harmonized decisions.

NPD offered customers the opportunity to purchase, rent or lease equipment. It also offered many different payment options to meet customer needs.

Weaknesses

NPD also operated Claus properties, whose income and expenses was not shown as consolidated financial statement along with its core business despite of the increased profitability that the properties were appraised at $15.8 million.

The company realized lower margins because the company needed to offer larger discounts to larger customers than smaller ones.

Opportunity

The company had exclusive distribution agreements with three large US and Japanese original equipment manufacturers (OEMs) plus several smaller manufactures.

NPD' key products were used in a wide range of industries to enhance efficiency. Apart from the sale of the equipment, NPD provided parts, maintenance and service for their products lines and for a range of competitive equipment.

NPD had an opportunity to provide Baring equipment to ...