Tom Scott and Tom First started Allserve, a floating convenience store serving boats in the Nantucket Harbour during their summer holidays in college. After graduation, during the winter of 1990, First recreated a peach fruit juice drink that he came across in Spain and started a side business selling fresh juice. Everyone loved the product and they went on to open the Allserve General Store on Nantucket's Straight Wharf. They named the fruit juice "Nantucket Nectars".
Scott and First invested their collective life savings of about $17,000 to contract a bottler and finance inventory in the first two years. The next two years saw them operating in an undercapitalized state on a small bank loan. Subsequently, in order to raise funds to improve distribution and increase inventory, they sold 50% of the company to Mike Egan. Nantucket Nectars achieved its first year of profitability in fiscal year 1995. Nantucket Nectars continued to grow and in 2000, they were approached by five companies that were interested in acquiring a portion of the company. Scott and First had to decide if they should: 1)sell a part of or all of the company;
2)undergo an initial public offering (IPO); or
3)operate under status quo.
They had several questions that they would like answered. If they do proceed with the sale, how should they negotiate for a maximum price? How could they hold the meetings with the prospective buyers and not let the employees find out about the transaction prematurely? Should they organize an auction to sell the company? Will it generate adverse publicity if they decided not to sell after the auction?
As there were a lot of questions to be answered, First and Scott wondered if they should hire an adviser. And if so, should they hire a local investment broker from Boston or a large investment bank from New York?
Nantucket Nectars' numerous strengths have led to their success. They produce all natural products that have a great taste, have a very strong management team as well as a strong branding, guerilla marketing skills, possess the ability to exploit small, rapidly changing market opportunities, last good access to single-serve distribution in the New Age beverage market, and is the best vehicle for juice companies to expand into the juice cocktail category without risking their own brand equity. In addition, Nantucket Nectars' management team has the required knowledge and experience with the single-serve business and thus has the ability to add value to large player who wants to roll out new single-serve products.
As a company with limited financial resources, Nantucket Nectars have been disadvantaged in their channels of distribution. They have not been able to distribute their products in the supermarket on a large scale. As can be seen from tables D and E, although most of the New Age beverages were sold in the supermarkets (55%), the proportion of Nantucket Nectars supermarket sales was only 1%. Nantucket Nectars distributed their products mainly through other channels like delis and educational institutions and is thus missing out on a large portion of the consumers pie This inevitably means that the company would be able to increase their revenue substantially if they were able to distribute their products in the supermarkets.
In addition, Nantucket Nectars has one of the lowest profit margins in the New Age beverage category. They relied heavily on the harvest of fruits due to the high proportion of fruit juice in their products as well as their limited futures contracts in commodity procurement.
Lastly, Nantucket Nectars had problems finding quality bottlers at affordable price.
Four companies have approached Nantucket Nectars and expressed their interest in buying part of the company. They include Tropicana (Seagram), Ocean Spray, Triarc and Pepsi. This present an opportunity for Nantucket Nectars to form...