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Strategic Capital Management

In: Business and Management

Submitted By deepayanmohanty
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Strategic Capital Management, LLC
_________________________________________________________________________________________
Case Summary
Strategic Capital Management is an entrepreneurial venture by Elena along with two of her MBA classmates. The fund has $20m as of now for investments with a mandate of generating annual returns of atleast 10% with little market exposure. SCM would charge a management fee of 2% of AUM and an incentive equal to 20% of profits. SCM also required that the investors keep their money for a minimum of 2 years.
The firm is looking to invest into Internet Sector. And currently they are exploring Ubid, an online auction company and a subsidiary of Creative Computers.
Ubid and Creative Computers
Ubid is a subsidiary of Creative Computers, a catalog distributor of computers and computer peripherals. In 1998, the company began selling computer equipment over the internet. Ubid website was developed to sell factory excess and refurbished goods through an auction format. Buyers could view and bid on computers, peripheral equipment and other consumer electronics. Ubid generated revenues of $2.1m in its 1st quarter. Creative Computers’ management felt that its stock price did not adequately reflect the potential of internet business as other internet players in the market were highly valued. Therefore, with an intention of improving valuation, the company decided to carve-out the internet subsidiary. Inorder to discover the fair price, the company decided to roll out an IPO of 20% of Ubid’s equity. The management also decided to distribute the remaining 80% of Ubid’s shares to the share-holders of Creative Computers in a tax free spin-off six months after the Ubid IPO.
Through IPO, the company sold 1.817m shares at a price of $15 per share. On the first day of trading, Ubid shares opened at $38 and reached a high of $60 before closing at...

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