Investing in Sponsor-Backed IPOs: The Case of Hertz SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
Finance & Accounting
Strategy / MBA Resources
Case Study SWOT Analysis Solution
Case Study Description of Investing in Sponsor-Backed IPOs: The Case of Hertz
In November 2006, Alec Berg, a successful hedge fund manager, must decide whether to invest in the initial public offering (IPO) of the Hertz Corporation. The IPO followed a leveraged buyout (LBO) of Hertz that was completed in December 2005 by three prominent private equity firms that had combined to purchase Hertz from the Ford Motor Company for $14.9 billion. The LBO sponsors had borrowed an additional $1 billion on top of the buyout financing to pay themselves a special dividend in June 2006. This loan would be repaid with the IPO proceeds and any remaining proceeds from the IPO would go to the sponsors. The IPO generated widespread criticism with respect to the speed with which the IPO was conducted and the payment of special dividends. In the face of this criticism, the demand for the Hertz IPO weakened, and the offer price was reduced from the initial file price range of $16-$18 to just $15. Berg must assess whether at $15 per share, Hertz offers an attractive investment for this fund. The case provides the necessary information for students to analyze the sponsors' returns on their investment in Hertz and the attractiveness of the $15 offer price to public shareholders. The case also offers an opportunity for students to discuss the controversy surrounding the payment of special dividends and the claim that private equity sponsors invest with a long-term perspective that creates value for the company.
Authors :: Susan Chaplinsky, Felicia C. Marston, Michael Pozzi
Swot Analysis of "Investing in Sponsor-Backed IPOs: The Case of Hertz" written by Susan Chaplinsky, Felicia C. Marston, Michael Pozzi includes – strengths weakness that are internal strategic factors of the organization, and opportunities and threats that Hertz Ipo facing as an external strategic factors. Some of the topics covered in Investing in Sponsor-Backed IPOs: The Case of Hertz case study are - Strategic Management Strategies, IPO, Mergers & acquisitions and Finance & Accounting.
Some of the macro environment factors that can be used to understand the Investing in Sponsor-Backed IPOs: The Case of Hertz casestudy better are - – there is increasing trade war between United States & China, there is backlash against globalization, central banks are concerned over increasing inflation, banking and financial system is disrupted by Bitcoin and other crypto currencies, customer relationship management is fast transforming because of increasing concerns over data privacy, supply chains are disrupted by pandemic , increasing inequality as vast percentage of new income is going to the top 1%,
increasing transportation and logistics costs, cloud computing is disrupting traditional business models, etc
Introduction to SWOT Analysis of Investing in Sponsor-Backed IPOs: The Case of Hertz
SWOT stands for an organization’s Strengths, Weaknesses, Opportunities and Threats . At Oak Spring University , we believe that protagonist in Investing in Sponsor-Backed IPOs: The Case of Hertz case study can use SWOT analysis as a strategic management tool to assess the current internal strengths and weaknesses of the Hertz Ipo, and to figure out the opportunities and threats in the macro environment – technological, environmental, political, economic, social, demographic, etc in which Hertz Ipo operates in.
According to Harvard Business Review, 75% of the managers use SWOT analysis for various purposes such as – evaluating current scenario, strategic planning, new venture feasibility, personal growth goals, new market entry, Go To market strategies, portfolio management and strategic trade-off assessment, organizational restructuring, etc.
SWOT Objectives / Importance of SWOT Analysis and SWOT Matrix
SWOT analysis of Investing in Sponsor-Backed IPOs: The Case of Hertz can be done for the following purposes –
1. Strategic planning using facts provided in Investing in Sponsor-Backed IPOs: The Case of Hertz case study
2. Improving business portfolio management of Hertz Ipo
3. Assessing feasibility of the new initiative in Finance & Accounting field.
4. Making a Finance & Accounting topic specific business decision
5. Set goals for the organization
6. Organizational restructuring of Hertz Ipo
Strengths Investing in Sponsor-Backed IPOs: The Case of Hertz | Internal Strategic Factors
What are Strengths in SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The strengths of Hertz Ipo in Investing in Sponsor-Backed IPOs: The Case of Hertz Harvard Business Review case study are -
Successful track record of launching new products
– Hertz Ipo has launched numerous new products in last few years, keeping in mind evolving customer preferences and competitive pressures. Hertz Ipo has effective processes in place that helps in exploring new product needs, doing quick pilot testing, and then launching the products quickly using its extensive distribution network.
Superior customer experience
– The customer experience strategy of Hertz Ipo in the segment is based on four key concepts – personalization, simplification of complex needs, prompt response, and continuous engagement.
Operational resilience
– The operational resilience strategy in the Investing in Sponsor-Backed IPOs: The Case of Hertz Harvard Business Review case study comprises – understanding the underlying the factors in the industry, building diversified operations across different geographies so that disruption in one part of the world doesn’t impact the overall performance of the firm, and integrating the various business operations and processes through its digital transformation drive.
Diverse revenue streams
– Hertz Ipo is present in almost all the verticals within the industry. This has provided firm in Investing in Sponsor-Backed IPOs: The Case of Hertz case study a diverse revenue stream that has helped it to survive disruptions such as global pandemic in Covid-19, financial disruption of 2008, and supply chain disruption of 2021.
Sustainable margins compare to other players in Finance & Accounting industry
– Investing in Sponsor-Backed IPOs: The Case of Hertz firm has clearly differentiated products in the market place. This has enabled Hertz Ipo to fetch slight price premium compare to the competitors in the Finance & Accounting industry. The sustainable margins have also helped Hertz Ipo to invest into research and development (R&D) and innovation.
Analytics focus
– Hertz Ipo is putting a lot of focus on utilizing the power of analytics in business decision making. This has put it among the leading players in the industry. The technology infrastructure suggested by Susan Chaplinsky, Felicia C. Marston, Michael Pozzi can also help it to harness the power of analytics for – marketing optimization, demand forecasting, customer relationship management, inventory management, information sharing across the value chain etc.
Cross disciplinary teams
– Horizontal connected teams at the Hertz Ipo are driving operational speed, building greater agility, and keeping the organization nimble to compete with new competitors. It helps are organization to ideate new ideas, and execute them swiftly in the marketplace.
Training and development
– Hertz Ipo has one of the best training and development program in the industry. The effectiveness of the training programs can be measured in Investing in Sponsor-Backed IPOs: The Case of Hertz Harvard Business Review case study by analyzing – employees retention, in-house promotion, loyalty, new venture initiation, lack of conflict, and high level of both employees and customer engagement.
Innovation driven organization
– Hertz Ipo is one of the most innovative firm in sector. Manager in Investing in Sponsor-Backed IPOs: The Case of Hertz Harvard Business Review case study can use Clayton Christensen Disruptive Innovation strategies to further increase the scale of innovtions in the organization.
Digital Transformation in Finance & Accounting segment
- digital transformation varies from industry to industry. For Hertz Ipo digital transformation journey comprises differing goals based on market maturity, customer technology acceptance, and organizational culture. Hertz Ipo has successfully integrated the four key components of digital transformation – digital integration in processes, digital integration in marketing and customer relationship management, digital integration into the value chain, and using technology to explore new products and market opportunities.
High switching costs
– The high switching costs that Hertz Ipo has built up over years in its products and services combo offer has resulted in high retention of customers, lower marketing costs, and greater ability of the firm to focus on its customers.
Effective Research and Development (R&D)
– Hertz Ipo has innovation driven culture where significant part of the revenues are spent on the research and development activities. This has resulted in, as mentioned in case study Investing in Sponsor-Backed IPOs: The Case of Hertz - staying ahead in the industry in terms of – new product launches, superior customer experience, highly competitive pricing strategies, and great returns to the shareholders.
Weaknesses Investing in Sponsor-Backed IPOs: The Case of Hertz | Internal Strategic Factors
What are Weaknesses in SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The weaknesses of Investing in Sponsor-Backed IPOs: The Case of Hertz are -
Low market penetration in new markets
– Outside its home market of Hertz Ipo, firm in the HBR case study Investing in Sponsor-Backed IPOs: The Case of Hertz needs to spend more promotional, marketing, and advertising efforts to penetrate international markets.
High dependence on existing supply chain
– The disruption in the global supply chains because of the Covid-19 pandemic and blockage of the Suez Canal illustrated the fragile nature of Hertz Ipo supply chain. Even after few cautionary changes mentioned in the HBR case study - Investing in Sponsor-Backed IPOs: The Case of Hertz, it is still heavily dependent upon the existing supply chain. The existing supply chain though brings in cost efficiencies but it has left Hertz Ipo vulnerable to further global disruptions in South East Asia.
Ability to respond to the competition
– As the decision making is very deliberative, highlighted in the case study Investing in Sponsor-Backed IPOs: The Case of Hertz, in the dynamic environment Hertz Ipo has struggled to respond to the nimble upstart competition. Hertz Ipo has reasonably good record with similar level competitors but it has struggled with new entrants taking away niches of its business.
Interest costs
– Compare to the competition, Hertz Ipo has borrowed money from the capital market at higher rates. It needs to restructure the interest payment and costs so that it can compete better and improve profitability.
High bargaining power of channel partners
– Because of the regulatory requirements, Susan Chaplinsky, Felicia C. Marston, Michael Pozzi suggests that, Hertz Ipo is facing high bargaining power of the channel partners. So far it has not able to streamline the operations to reduce the bargaining power of the value chain partners in the industry.
Products dominated business model
– Even though Hertz Ipo has some of the most successful products in the industry, this business model has made each new product launch extremely critical for continuous financial growth of the organization. firm in the HBR case study - Investing in Sponsor-Backed IPOs: The Case of Hertz should strive to include more intangible value offerings along with its core products and services.
High dependence on star products
– The top 2 products and services of the firm as mentioned in the Investing in Sponsor-Backed IPOs: The Case of Hertz HBR case study still accounts for major business revenue. This dependence on star products in has resulted into insufficient focus on developing new products, even though Hertz Ipo has relatively successful track record of launching new products.
Aligning sales with marketing
– It come across in the case study Investing in Sponsor-Backed IPOs: The Case of Hertz that the firm needs to have more collaboration between its sales team and marketing team. Sales professionals in the industry have deep experience in developing customer relationships. Marketing department in the case Investing in Sponsor-Backed IPOs: The Case of Hertz can leverage the sales team experience to cultivate customer relationships as Hertz Ipo is planning to shift buying processes online.
Workers concerns about automation
– As automation is fast increasing in the segment, Hertz Ipo needs to come up with a strategy to reduce the workers concern regarding automation. Without a clear strategy, it could lead to disruption and uncertainty within the organization.
Skills based hiring
– The stress on hiring functional specialists at Hertz Ipo has created an environment where the organization is dominated by functional specialists rather than management generalist. This has resulted into product oriented approach rather than marketing oriented approach or consumers oriented approach.
Need for greater diversity
– Hertz Ipo has taken concrete steps on diversity, equity, and inclusion. But the efforts so far has resulted in limited success. It needs to expand the recruitment and selection process to hire more people from the minorities and underprivileged background.
Opportunities Investing in Sponsor-Backed IPOs: The Case of Hertz | External Strategic Factors
What are Opportunities in the SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The opportunities highlighted in the Harvard Business Review case study Investing in Sponsor-Backed IPOs: The Case of Hertz are -
Buying journey improvements
– Hertz Ipo can improve the customer journey of consumers in the industry by using analytics and artificial intelligence. Investing in Sponsor-Backed IPOs: The Case of Hertz suggest that firm can provide automated chats to help consumers solve their own problems, provide online suggestions to get maximum out of the products and services, and help consumers to build a community where they can interact with each other to develop new features and uses.
Lowering marketing communication costs
– 5G expansion will open new opportunities for Hertz Ipo in the field of marketing communication. It will bring down the cost of doing business, provide technology platform to build new products in the Finance & Accounting segment, and it will provide faster access to the consumers.
Increase in government spending
– As the United States and other governments are increasing social spending and infrastructure spending to build economies post Covid-19, Hertz Ipo can use these opportunities to build new business models that can help the communities that Hertz Ipo operates in. Secondly it can use opportunities from government spending in Finance & Accounting sector.
Creating value in data economy
– The success of analytics program of Hertz Ipo has opened avenues for new revenue streams for the organization in the industry. This can help Hertz Ipo to build a more holistic ecosystem as suggested in the Investing in Sponsor-Backed IPOs: The Case of Hertz case study. Hertz Ipo can build new products and services such as - data insight services, data privacy related products, data based consulting services, etc.
Manufacturing automation
– Hertz Ipo can use the latest technology developments to improve its manufacturing and designing process in Finance & Accounting segment. It can use CAD and 3D printing to build a quick prototype and pilot testing products. It can leverage automation using machine learning and artificial intelligence to do faster production at lowers costs, and it can leverage the growth in satellite and tracking technologies to improve inventory management, transportation, and shipping.
Building a culture of innovation
– managers at Hertz Ipo can make experimentation a productive activity and build a culture of innovation using approaches such as – mining transaction data, A/B testing of websites and selling platforms, engaging potential customers over various needs, and building on small ideas in the Finance & Accounting segment.
Changes in consumer behavior post Covid-19
– Consumer behavior has changed in the Finance & Accounting industry because of Covid-19 restrictions. Some of this behavior will stay once things get back to normal. Hertz Ipo can take advantage of these changes in consumer behavior to build a far more efficient business model. For example consumer regular ordering of products can reduce both last mile delivery costs and market penetration costs. Hertz Ipo can further use this consumer data to build better customer loyalty, provide better products and service collection, and improve the value proposition in inflationary times.
Reconfiguring business model
– The expansion of digital payment system, the bringing down of international transactions costs using Bitcoin and other blockchain based currencies, etc can help Hertz Ipo to reconfigure its entire business model. For example it can used blockchain based technologies to reduce piracy of its products in the big markets such as China. Secondly it can use the popularity of e-commerce in various developing markets to build a Direct to Customer business model rather than the current Channel Heavy distribution network.
Using analytics as competitive advantage
– Hertz Ipo has spent a significant amount of money and effort to integrate analytics and machine learning into its operations in the sector. This continuous investment in analytics has enabled, as illustrated in the Harvard case study Investing in Sponsor-Backed IPOs: The Case of Hertz - to build a competitive advantage using analytics. The analytics driven competitive advantage can help Hertz Ipo to build faster Go To Market strategies, better consumer insights, developing relevant product features, and building a highly efficient supply chain.
Use of Bitcoin and other crypto currencies for transactions
– The popularity of Bitcoin and other crypto currencies as asset class and medium of transaction has opened new opportunities for Hertz Ipo in the consumer business. Now Hertz Ipo can target international markets with far fewer capital restrictions requirements than the existing system.
Better consumer reach
– The expansion of the 5G network will help Hertz Ipo to increase its market reach. Hertz Ipo will be able to reach out to new customers. Secondly 5G will also provide technology framework to build new tools and products that can help more immersive consumer experience and faster consumer journey.
Developing new processes and practices
– Hertz Ipo can develop new processes and procedures in Finance & Accounting industry using technology such as automation using artificial intelligence, real time transportation and products tracking, 3D modeling for concept development and new products pilot testing etc.
Finding new ways to collaborate
– Covid-19 has not only transformed business models of companies in Finance & Accounting industry, but it has also influenced the consumer preferences. Hertz Ipo can tie-up with other value chain partners to explore new opportunities regarding meeting customer demands and building a rewarding and engaging relationship.
Threats Investing in Sponsor-Backed IPOs: The Case of Hertz External Strategic Factors
What are Threats in the SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The threats mentioned in the HBR case study Investing in Sponsor-Backed IPOs: The Case of Hertz are -
New competition
– After the dotcom bust of 2001, financial crisis of 2008-09, the business formation in US economy had declined. But in 2020 alone, there are more than 1.5 million new business applications in United States. This can lead to greater competition for Hertz Ipo in the Finance & Accounting sector and impact the bottomline of the organization.
Shortening product life cycle
– it is one of the major threat that Hertz Ipo is facing in Finance & Accounting sector. It can lead to higher research and development costs, higher marketing expenses, lower customer loyalty, etc.
Barriers of entry lowering
– As technology is more democratized, the barriers to entry in the industry are lowering. It can presents Hertz Ipo with greater competitive threats in the near to medium future. Secondly it will also put downward pressure on pricing throughout the sector.
High dependence on third party suppliers
– Hertz Ipo high dependence on third party suppliers can disrupt its processes and delivery mechanism. For example -the current troubles of car makers because of chip shortage is because the chip companies started producing chips for electronic companies rather than car manufacturers.
Regulatory challenges
– Hertz Ipo needs to prepare for regulatory challenges as consumer protection groups and other pressure groups are vigorously advocating for more regulations on big business - to reduce inequality, to create a level playing field, to product data privacy and consumer privacy, to reduce the influence of big money on democratic institutions, etc. This can lead to significant changes in the Finance & Accounting industry regulations.
High level of anxiety and lack of motivation
– the Great Resignation in United States is the sign of broader dissatisfaction among the workforce in United States. Hertz Ipo needs to understand the core reasons impacting the Finance & Accounting industry. This will help it in building a better workplace.
Aging population
– As the populations of most advanced economies are aging, it will lead to high social security costs, higher savings among population, and lower demand for goods and services in the economy. The household savings in US, France, UK, Germany, and Japan are growing faster than predicted because of uncertainty caused by pandemic.
Trade war between China and United States
– The trade war between two of the biggest economies can hugely impact the opportunities for Hertz Ipo in the Finance & Accounting industry. The Finance & Accounting industry is already at various protected from local competition in China, with the rise of trade war the protection levels may go up. This presents a clear threat of current business model in Chinese market.
Technology acceleration in Forth Industrial Revolution
– Hertz Ipo has witnessed rapid integration of technology during Covid-19 in the Finance & Accounting industry. As one of the leading players in the industry, Hertz Ipo needs to keep up with the evolution of technology in the Finance & Accounting sector. According to Mckinsey study top managers believe that the adoption of technology in operations, communications is 20-25 times faster than what they planned in the beginning of 2019.
Increasing wage structure of Hertz Ipo
– Post Covid-19 there is a sharp increase in the wages especially in the jobs that require interaction with people. The increasing wages can put downward pressure on the margins of Hertz Ipo.
Technology disruption because of hacks, piracy etc
– The colonial pipeline illustrated, how vulnerable modern organization are to international hackers, miscreants, and disruptors. The cyber security interruption, data leaks, etc can seriously jeopardize the future growth of the organization.
Easy access to finance
– Easy access to finance in Finance & Accounting field will also reduce the barriers to entry in the industry, thus putting downward pressure on the prices because of increasing competition. Hertz Ipo can utilize it by borrowing at lower rates and invest it into research and development, capital expenditure to fortify its core competitive advantage.
Learning curve for new practices
– As the technology based on artificial intelligence and machine learning platform is getting complex, as highlighted in case study Investing in Sponsor-Backed IPOs: The Case of Hertz, Hertz Ipo may face longer learning curve for training and development of existing employees. This can open space for more nimble competitors in the field of Finance & Accounting .
Weighted SWOT Analysis of Investing in Sponsor-Backed IPOs: The Case of Hertz Template, Example
Not all factors mentioned under the Strengths, Weakness, Opportunities, and Threats quadrants in the SWOT Analysis are equal. Managers in the HBR case study Investing in Sponsor-Backed IPOs: The Case of Hertz needs to zero down on the relative importance of each factor mentioned in the Strengths, Weakness, Opportunities, and Threats quadrants.
We can provide the relative importance to each factor by assigning relative weights. Weighted SWOT analysis process is a three stage process –
First stage for doing weighted SWOT analysis of the case study Investing in Sponsor-Backed IPOs: The Case of Hertz is to rank the strengths and weaknesses of the organization. This will help you to assess the most important strengths and weaknesses of the firm and which one of the strengths and weaknesses mentioned in the initial lists are marginal and can be left out.
Second stage for conducting weighted SWOT analysis of the Harvard case study Investing in Sponsor-Backed IPOs: The Case of Hertz is to give probabilities to the external strategic factors thus better understanding the opportunities and threats arising out of macro environment changes and developments.
Third stage of constructing weighted SWOT analysis of Investing in Sponsor-Backed IPOs: The Case of Hertz is to provide strategic recommendations includes – joining likelihood of external strategic factors such as opportunities and threats to the internal strategic factors – strengths and weaknesses. You should start with external factors as they will provide the direction of the overall industry. Secondly by joining probabilities with internal strategic factors can help the company not only strategic fit but also the most probably strategic trade-off that Hertz Ipo needs to make to build a sustainable competitive advantage.
