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Case study for 436B docx, Exercises of Finance

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Typology: Exercises

2024/2025

Uploaded on 04/14/2025

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Sconce & Shade LLC: Exploring Strategic Options
Sconce & Shade LLC (“Sconce & Shade”) is a leading designer, marketer,
manufacturer and distributor of custom lighting products. Its products are
marketed under several well-known brands. It sells its products to the residential,
commercial and hospitality industries through a network of independent and
specialty lighting showrooms, electrical supply distributors, lighting specifiers,
national accounts and multi-channel retailers.
Sconce & Shade offers one of the most extensive product portfolios in the hardwire
lighting industry. Hardwire lighting products include chandeliers, pendants, wall
sconces, recessed lighting and under-cabinet lighting. Hardware lighting products
typically command much higher price points than portable lighting products (i.e.,
lamps) due to their superior design and technology, and the increased time,
complexity and expense required to mount hardware fixtures. As such, hardwire
lighting products typically have longer product lifecycles versus portable lighting
products. Within each of its brands, Sconce & Shade offers a value-added line of
innovative and/or technologically advanced products that are targeted towards a
specific consumer’s interest in terms of pricing, design and distribution channel.
Sconce & Shade is widely recognized for its new product design and technology
efforts. Its success is largely dependent upon its product designers located in the
United States and China. Additionally, it partners with third-party designers to
assist in new product development. Sconce & Shade’s product development efforts
are further supported by its ability to leverage a foreign supplier network to
manufacturer cost-effective products that meet stringent quality requirements.
Most of its products are sourced through a vast network of suppliers based in
China and the Philippines.
Family Ownership and Interests
Sconce & Shade is owned by the Smith family:
David Smith, founder, age 62, CEO and Chairman, and holder of 70% of the
stock,
Dan Smith, age 30, son of David and holder of 15% of the stock,
Gina Pierce, VP of Sales, age 27, daughter of David Smith and holder of 15%
of the stock.
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Sconce & Shade LLC: Exploring Strategic Options Sconce & Shade LLC (“Sconce & Shade”) is a leading designer, marketer, manufacturer and distributor of custom lighting products. Its products are marketed under several well-known brands. It sells its products to the residential, commercial and hospitality industries through a network of independent and specialty lighting showrooms, electrical supply distributors, lighting specifiers, national accounts and multi-channel retailers. Sconce & Shade offers one of the most extensive product portfolios in the hardwire lighting industry. Hardwire lighting products include chandeliers, pendants, wall sconces, recessed lighting and under-cabinet lighting. Hardware lighting products typically command much higher price points than portable lighting products (i.e., lamps) due to their superior design and technology, and the increased time, complexity and expense required to mount hardware fixtures. As such, hardwire lighting products typically have longer product lifecycles versus portable lighting products. Within each of its brands, Sconce & Shade offers a value-added line of innovative and/or technologically advanced products that are targeted towards a specific consumer’s interest in terms of pricing, design and distribution channel. Sconce & Shade is widely recognized for its new product design and technology efforts. Its success is largely dependent upon its product designers located in the United States and China. Additionally, it partners with third-party designers to assist in new product development. Sconce & Shade’s product development efforts are further supported by its ability to leverage a foreign supplier network to manufacturer cost-effective products that meet stringent quality requirements. Most of its products are sourced through a vast network of suppliers based in China and the Philippines. Family Ownership and Interests Sconce & Shade is owned by the Smith family:  David Smith, founder, age 62, CEO and Chairman, and holder of 70% of the stock,  Dan Smith, age 30, son of David and holder of 15% of the stock,  Gina Pierce, VP of Sales, age 27, daughter of David Smith and holder of 15% of the stock.

The Smith family has differing thoughts on the future of the business and individual desires for their involvement going forward. It is generally known that David is looking to sell the business soon and retire, since much of his net worth is tied up in company stock. Dan wants to sell his shares and has no desire to be part of the family business, as he has many outside interests. Gina would like to stay with the business and has a keener sense than the rest of her family that the business should remain in family hands. She also believes she will be ready to lead the business in a year or two, while her father believes she is probably more like 5- 10 years away from doing so. Industry Highlights The residential lighting fixture industry is currently estimated at $6.5 billion in sales and is forecasted to grow at an average rate of 5% for the foreseeable future, with the premium segment expected to grow slightly faster. The historic market growth is underpinned by the increase in the number of American households, modest price increases and the overall health of the U.S. economy and disposable income of its end-customers. Nearly 85% of the residential market pertains to repair and remodeling, with the balance in the new-build market. There has been a gradual shift away from showrooms toward omnichannel specialists, designer direct and e-commerce channels. The $4.0 billion commercial segment is forecast to grow 3% for the foreseeable future. COVID had a significant impact on the commercial sector in 2020 and drove flat growth in the residential segment, though both showed strong growth in 2021, which was expected to continue. Non-Recurring Losses Sconce & Shade often pursues and invests in new business ideas. One of these ventures led to a $1.5 million write-off in early 2020. This write-off was charged against SG&A in 2020 and should probably be treated as a one-time extraordinary cost that should not be counted against profitability for that year. History of Interested Parties