Case Study Mile High Tree Farm Company
After our discussion, we recommend that John and Mark should not sell the Mile High Tree Farm Company now. And our conclusion is based on the following reasons.
1) First and foremost, Mile High Tree Farm has great potential development room if it continues to operate. And Tree Farm Company has already did a good job on building its value such as revenue growth, sustainable cash flow, reputation, customer concentration, and employee quality. The company’s primary market focus was the Denver metropolitan area where it had five major competitors. Both John and Mark believed the company compare favorably to these five competitors on price, number of locations, quality, complementary products, and customer service. Besides, relying on growing its …show more content…
own products, Mile High has maintained its reputation for high quality and also generated additional pricing flexibility. In addition, Mile High trained its employees to learn their customers’ businesses, and this practice encouraged customer loyalty. Due to its seasonal business nature, Mile High provided snowplowing services for several customers. Management had not yet focused its efforts on consultation and design services or provided installation services for its wholesale customers. Management estimated that such installation services would provide revenues in excess of $1 million annually with a gross margin of 50 percent. These factors would increase Mile High business value. Therefore, we think Mile High should continue to operate instead of selling now.
2) Secondly, we can see that John and Mark started Mile High in 1985, which means they already accumulated adequate experience on running a nurseries and garden enterprise. If Mile High keeps operating, it can cope with different unexpected situations and reap profits.
3) From a numerical perspective, the NPV of expanding a new location is $3,884,892, which is a positive number. Therefore, the proposal of opening a new location is practical and the company can earn profits to strength its financial performance.
4) In addition, the prospect of Mile High is very promising.
Mile High has received a recent offer from U.S. Home to provide its new homebuyers personalized landscaping packages. Successful companies in the future would be large multi-location nurseries that also grew some for their own products for sale. If this relationship worked in Denver, then Mile High could expand it to U.S. Home’s other Colorado building locations if Mile High had nearby locations. John and Mark estimated that each such homeowner package could generate EBITDA of $3,300, projected incremental EBITDA of $1 million per year for each new location from the U.S. Home contract. U.S. Home did not like working with many vendors, and if Mile High continued to do a good job on the custom packages, U.S. Home agreed to use the company as it built new homes in other cities. This offer would also bring a lot of profits to Mile High. Although Mile High has its own products, but its locations for nurseries are …show more content…
limited.
5) As noted in article, Nurseries and Garden Centers industry has two changes: increasing numbers of larger nurseries and garden center, and “Big Box” stores like stores like Home Depot which sold nursery and garden products.
If Mile High does some changes such as add design and consultation services and establish a landscaping division, it can adapt to new competition environment, which brings about future earnings.
6) Right now, John and Mark didn’t figure out a workable exit strategy. If they sell Mile High now, potential buyers might think there are some problems in this company and won’t give a high price.
7) Based on our suggestion, the business value for the possible auction is $8,324,026 which is the median number of all our business valuation number. The total assets for the company is above $4.8 million and the company doesn’t have much liability. We believe that based on the company’s good performance these years, the company can develop more business value and sell for better price.
Other Alternatives:
1) Hire suitable people to manage this
company
1) First and foremost, Mile High Tree Farm has great potential development room if it continues to operate. And Tree Farm Company has already did a good job on building its value such as revenue growth, sustainable cash flow, reputation, customer concentration, and employee quality. The company’s primary market focus was the Denver metropolitan area where it had five major competitors. Both John and Mark believed the company compare favorably to these five competitors on price, number of locations, quality, complementary products, and customer service. Besides, relying on growing its …show more content…
own products, Mile High has maintained its reputation for high quality and also generated additional pricing flexibility. In addition, Mile High trained its employees to learn their customers’ businesses, and this practice encouraged customer loyalty. Due to its seasonal business nature, Mile High provided snowplowing services for several customers. Management had not yet focused its efforts on consultation and design services or provided installation services for its wholesale customers. Management estimated that such installation services would provide revenues in excess of $1 million annually with a gross margin of 50 percent. These factors would increase Mile High business value. Therefore, we think Mile High should continue to operate instead of selling now.
2) Secondly, we can see that John and Mark started Mile High in 1985, which means they already accumulated adequate experience on running a nurseries and garden enterprise. If Mile High keeps operating, it can cope with different unexpected situations and reap profits.
3) From a numerical perspective, the NPV of expanding a new location is $3,884,892, which is a positive number. Therefore, the proposal of opening a new location is practical and the company can earn profits to strength its financial performance.
4) In addition, the prospect of Mile High is very promising.
Mile High has received a recent offer from U.S. Home to provide its new homebuyers personalized landscaping packages. Successful companies in the future would be large multi-location nurseries that also grew some for their own products for sale. If this relationship worked in Denver, then Mile High could expand it to U.S. Home’s other Colorado building locations if Mile High had nearby locations. John and Mark estimated that each such homeowner package could generate EBITDA of $3,300, projected incremental EBITDA of $1 million per year for each new location from the U.S. Home contract. U.S. Home did not like working with many vendors, and if Mile High continued to do a good job on the custom packages, U.S. Home agreed to use the company as it built new homes in other cities. This offer would also bring a lot of profits to Mile High. Although Mile High has its own products, but its locations for nurseries are …show more content…
limited.
5) As noted in article, Nurseries and Garden Centers industry has two changes: increasing numbers of larger nurseries and garden center, and “Big Box” stores like stores like Home Depot which sold nursery and garden products.
If Mile High does some changes such as add design and consultation services and establish a landscaping division, it can adapt to new competition environment, which brings about future earnings.
6) Right now, John and Mark didn’t figure out a workable exit strategy. If they sell Mile High now, potential buyers might think there are some problems in this company and won’t give a high price.
7) Based on our suggestion, the business value for the possible auction is $8,324,026 which is the median number of all our business valuation number. The total assets for the company is above $4.8 million and the company doesn’t have much liability. We believe that based on the company’s good performance these years, the company can develop more business value and sell for better price.
Other Alternatives:
1) Hire suitable people to manage this
company