Barracuda Inc._case study answers by taranzat2


More Info
									Case Scenario: Barracuda Inc.

Copyright: Taranjeet Gill MBA

Barracuda Inc. has diversified beyond its early base as a lamp fixture manufacturer into
multiple hardware and plumbing fixture products that it sells to professionals (i.e., plumbers
and electricians) and through the large volume do-it-yourself (DIY) stores like The Home
Depot and Lowe’s. While this successful growth has been achieved primarily through
acquisition, the company tends to let the acquired businesses run independently. It has done
so by looking to fragmented industries to acquire small firms with efficient operations and
good management teams. It then grows these businesses through a combination of internal
cash flow and debt, and directs new sales to the professional and DIY channels. Barracuda
has been particularly successful in the faucet segment, which it practically reinvented though
such technological innovations as the washerless faucet, and marketing innovations like
branding and good-better-best merchandising. Barracuda has leveraged this merchandising
strategy across its businesses and, coupled with the explosive growth of the DIY channel, is
spectacularly profitable with a net profit after tax (NPAT) of 18%. The firm’s management is
looking to broaden its revenue base and has identified the home furnishings business as
sharing many characteristics with faucets, prior to Barracuda’s entry into faucets. It plans to
enter this industry through large-scale acquisitions. The landscape of the U.S. home
furnishings manufacturing industry consists of many players, none with controlling share,
and serious issues of overcapacity. There are presently 2500 home furnishings firms, and
only 600 of those have over 15 employees.

        Average NPAT is between 4 and 5%, which also reflects the fact that few firms have
good managers. While the industry is still primarily comprised of single-business family-run
firms, which manufacture furniture domestically, imports are increasing at a fairly rapid rate.
Some of the European imports are leaders in contemporary design. Relatively large
established firms are also diversifying into the home furnishings industry via acquisition.
Supplier firms to the home furnishings industry are in relatively concentrated industries (like
lumber, steel, and textiles), and therefore typically offer fewer accommodations to the small
furniture manufacturers. Retailers, the intermediate customer of the home furnishings
industry, are becoming increasingly concentrated and the few large, successful furniture
companies actuall
To top