Reference no: EM133466734

Assignment:

The Friendly Market is a large supermarket in a Thai provincial city. 'Friendly's', as it is popularly known, has more sales per square metre than any of its competitors because it lives up to its name. The personnel go out of their way to be friendly and helpful. If someone asks for a particular brand-name item and the store does not carry it, the product will be ordered. If enough customers want a particular product, it is added to the regular line. Additionally, the store provides free delivery of groceries for elderly citizens and credit for those who have filled out the necessary application and have been accepted into the 'Friendly Credit' group.

The owner, Pacapol Anurit, believes that his marketing-oriented approach can be successfully used in any area of the country. He is therefore thinking about expanding and opening two new stores, one in the northern part of the same city and the other in a city located 50 kilometres east. Locations have been scouted and a detailed business plan has been drawn up. However, Pacapol has not approached anyone about providing the necessary capital. He estimates he will need about THB 120 million (AUD$4 million) to get both stores up and going. Any additional funding can come from the current operation, which has a positive cash flow of about THB 4 million monthly.

Pacapol first considers two avenues available to him: debt and equity. His local banker has told him the bank would be willing to look over any business plan he submits and would give him an answer within five working days. Pacapol is convinced he can get the bank to lend him THB 120 million. However, he does not like the idea of owing that much money. He believes he would be better off selling shares to raise the needed capital. Doing so would require him to give up some ownership, but this is more agreeable to him than the alternative.

The big question now is: How can the company raise THB 120 million through a shares offering? Pacapol intends to check into this over the next four weeks and make a decision within eight weeks. A number of customers have approached him over the past year and have asked him if he would consider making a private shares offering. Pacapol is convinced he can get many of his customers to buy into the venture, although he is not sure he can raise the full THB 120 million this way. The other approach he sees as feasible is to raise the funds through an informal investor network connected with the ICC chain of food products. This might be the best way to get such a large sum, but Pacapol wonders how difficult it would be to limit his food range to ICC products on a long-term basis. In any event, as he said to his wife yesterday, 'If we're going to expand, we have to start looking into how we can raise more capital. I think the first step is to identify the best source. Then we can focus on the specifics of the deal.'

QUESTIONS

1. What would be the benefits of raising the THB 120 million through a private placement? What would be the benefits of raising the money through ICC? Are there other creative ways to find a blend of capital raising and adapting the business model?

2. In preparing the business plan for the bank, how would this differ to the approach for a private placement, or for the ICC network? Can he present the same plan?

3. What would you recommend Pacapol do now? Briefly outline a plan of action he can use to get the financing process started.