Transcript No Slide Title

Strategic Analysis
Hilary Dorr
Michelle Mullins
Overview
Summary of Key Industry and Firm
Characteristics
Summary of SWOT Analysis
Strategic Alternatives Considered
Final Recommendation
Background on eMERGE
1994—eMERGE Interactive incorporated as eMERGE
Vision
Developed image and infrared thermography systems for maritime
use
1999—IPO, high stock price, initial offering 8 M shares
 Fall 2001— Sold many non-profitable company operations
 August 2001—New mngmt. team, significant exp. in cattle
industry.
 2002 – New product launch
 2004 – Sold PCC
 2005—Two business units
 2005— Company has been operating in the red since IPO
Huge stock price fluctuations.
Case Study Objectives
How does eMERGE stay afloat until the
market is ready?
What can eMERGE do to increase the
adoption rate of their new technologies?
Industry Overview
eMERGE Interactive operates in two distinct industries:
Animal Information Management Industry
CattleLog: Animal Information Management System
• Provides a management system for the livestock as well as
traceability if there were a food safety issue.
Visual Diagnostic Technology Industry
VerifEYE: Detects organic contamination on several surfaces
• VerifEYE has many other applications, not just in the realm
of food safety.
Firm Financial Analysis
INCOME STATEMENT
Net Sales
COGS
Gross Profit
Selling, General and Admin Expenses
Technology and Development (R&D)
Impairment, Restructuring and Related Charges
Deprec. (and Amort.)
Amoritization
Total Operating Expenses
Operating Income/Loss
2003
926,838
321,664
605,174
5,873,471
1,747,015
0
2,433,048
0
10,053,534
-9,448,360
COGS = Approx 32% of Net Sales
Combined SGA and R&D = Approx 760% of Net Sales
Implies eMERGE Cost Structure =
High Fixed Costs, Low Variable Costs
2004
1,156,019
367,229
788,790
6,605,865
2,204,051
0
1,806,076
0
10,615,992
-9,827,202
SWOT Analysis:
CattleLog Pro
Strengths
Weaknesses
Good reputation among customer base
USDA PVP Certification
Future operational capacity (database and financial)
Potential to lose PVP Certification (must be renewed
yearly)
Poor financial health
100% Equity Financing
Least expensive data service in AIM Industry
Products give information, not just data
CattleLog Pro is easy to use
Already meets the NAIS program specifications
Already have strategic alliance with ADM Alliance
Nutrition
Large number of producer organizations already
utilizing the system
Opportunities
Threats
Possible NAIS mandate (Traceability)
Stricter regulatory requirements and practices
Removal of International Trade Barriers (CAFTA Beef
Imports)
Emergence of Substitute Products (Microsoft)
Fragmented Organizational Environment of Primary
Customer Base
Customer base hesitant to adopt innovative
technology
Traceability is already mandated in Canada
Application of system to other animals (zoos/pets)
Growing health and quality trend among consumers
Increased food safety movement (Bioterrorism)
COOL
Global market expansion
Fragmented Organizational Environment of Primary
SWOT Analysis:
VerifEYE
Strengths
Weaknesses
Patented Technology
Lack of Brand Recognition
Future R&D is necessary and cost intensive
Products give information, not just data
Many potential applications
Already have established relationship
with Excel
High cost of product to potential buyers
Alliances with Major Global Distributors
Opportunities
Threats
Unfulfilled customer need
New Entrants/New Patented Technology
Wide variety of buyers
New modifications of current
technology
Increased Regulatory Procedures (Testing/R&D)
Changing Education Curriculum (Health
Classes)
Social Changes: Shift toward healthier society
Global Market Expansion
Cost of R & D
General Strategies to Increase Net Income
Objective:
Positive Net
Profit
Increase
Volume of
Product Sold
Animal Info
System
Increase
Product Price
Food Safety
Technology
Reduce
Operational
Business Costs
Selling, General
and
Administrative
Research and
Development
Increase Volume of CattleLog Sold
CattleLog
Target CattleLog
Pro to the Top
Four Feedlots
1. Cactus Feeders Inc
2. ContiBeef LLC
3. ConAgra
4. Caprock
Market to Global
Producers
Niche Markets
1. Canadian Prod.
2. Producers Exporting
Replacement Heifers
Purebred Assoc.
Relying on Quality
COOL Markets
Increase Volume of VerifEYE Sold
VerifEYE
Carcass
Inspection
System
Market to other top five
meat packers and
Possible modifications
to ID other
contaminants
Handheld
Solo
Continue to market
Solo to packing
facilities
Market to other
industries
Hand Hygiene
System
Licensing
Agreement with
Hand Sanitation
Distributor
Final Recommendations
 QUESTION: How does eMERGE stay afloat until the
market is ready?
 ANSWER: Limit operational expenditures to net sales
Best achieved by increasing net sales
 QUESTION: What can eMERGE do to increase the adoption
rate of their new technologies?
 ANSWER:
Reposition investment among products
Increase volume of VerifyEYE Solo and Hand Hygiene
System
Licensing Agreement with Unilever
Economics Behind the Unilever Strategy
At high prices, volume is low
Lower the price and increase volume sold
Move along AFC curve providing lower company fixed costs
Final Strategy Recommendation
Increase volume of
VerifEYE products sold
through a licensing
agreement with Unilever
SWOT: eMERGE
Strengths Utilized
Good reputation among consumer base
Patented Technology – possible marketing
monopoly
Many Potential Applications
Alliances with major global distributors
SWOT: eMERGE
Weaknesses Addressed
Poor financial health
Consumer’s purchase price can be large – high
cost of product (CIS, possible hand wash
system)
Lack of Brand Recognition
SWOT: eMERGE
Capitalized Opportunities
Increased food safety movement
(Bioterrorism)
Unfulfilled customer need
Wide variety of buyers
Global market expansion
SWOT: eMERGE
Threats Addressed
Gap in the Technology Adoption Curve
Cost of R&D
Plan of Action
Short term: 1 year
Form licensing agreement with Unilever
Market Hand Hygiene System and Solo to food service
industry
Medium term: 2-5 years
Branch into other industries such as medical,
education and child care
Conclusions
The products that will see eMERGE to a
future of net profit are predominantly the
VerifEYE products.
eMERGE should maintain the current quality
of the CattleLog Pro and work closely with the
industry and government on the NAIS
mandate
Sources
 Copeland, Tom et al. Valuation: Measuring and Managing
the Value of Companies, 3rd ed. Wiley Publishing, 2000.
 eMerge Interactive, http://www.emergeinteractive.com/.
Accessed July 20, 2005.
 Golan, Elise, et al. Food Safety Innovation in the United
States: Evidence from the Meat Industry. Agricultural
Economic Report Number 831. April 2004.
 Gremaud, Michael. Personal Interview. July 18 2005.
 Mays, Don. Personal Interview. July 14, 2005.
 Oster, Sharon. Modern Competitive Analysis, 3rd ed. Oxford
University Press, 1999.
Thank you from
Mizzou!