Academic journal article Journal of Case Studies

Currency Machines Incorporated: A Firm Valuation for a Succession Plan

Academic journal article Journal of Case Studies

Currency Machines Incorporated: A Firm Valuation for a Succession Plan

Article excerpt


As they stood in their newly-rented apartment, John Stuve and his wife, Amber, were excited about their move to Charlotte, North Carolina. John had recently accepted a job as an Assistant Professor of Finance at a local university and Amber had just started working as a nurse in a doctor's office. John hugged Amber and said, "I really like it here and want to stay. Let's work on making some friends." Amber agreed and they decided to find a local church which they could join and get involved in the congregation's social activities.

Several weeks later, when John and Amber were at a Wednesday night church dinner, they met Steve and Stephanie Finley. The couples immediately hit it off and had a great conversation over dinner. During the meal, Steve asked John what he did for a living. When John explained he was a professor of finance, Steve exclaimed, "Hey, I could really use a finance professor's help. Would you be interested in working with me and my Dad on a valuation of our family company?"

Steve explained that he had solicited a couple of large firms for a firm valuation, as his father who started the company was thinking about retiring in the next few years. Steve planned to buy the company from his father, James, who would then use the money to retire and they wanted to know what the firm was worth. However, the two had agreed that Steve had already transitioned into somewhat of an ownership role and, thus, was entitled to half of the value he had added since he started working for the company in 2002.

John Stuve sat back and thought, "A firm valuation is pretty standard financial analysis and would make a good consulting job forme. But figuring out Steve's contribution is an added twist on the problem. Hmmm...I like the idea of taking on the challenge and can use the money after the move, so I am going to accept Steve's offer."

Company Background

Currency Machines Incorporated (CMI) was in the business of selling cash and currency counting machines. The company competed in a specialized niche of the financial services industry, which focused on the automation and handling of coins, cash and checks. CMI distributed various brands of cash and currency counting machines and provided service contracts and supplies for such machines.

James Finley started Currency Machines Incorporated in 1983. Prior to that time, James had worked into a management position at Brandt, the largest cash and currency machine distributor in the world. In his role as a district manager for Brandt, James was asked to be part of the company's product review board. James travelled world-wide in search of new products that the company could market to its customers. Although the product review board recommended many cutting-edge products to Brandt, the company opted not to take the recommendations of the group. Many of these products were from the newly growing Japanese market, and Brandt was a traditional German company that preferred to stick with German manufacturers.

According to James, "it was at that time that I realized that there were lots of great products out there that needed distribution in the U. S. So I quit my job at Brandt, and before I returned home that day, I had two suppliers signed up." In the early days of CMI, James also had two business partners. One partner was bought out a few years into the venture as he became more interested in a separate entrepreneurial endeavor. The second business partner opened a sales office in Virginia while James opened an office in North Carolina. In 1998, the two partners decided to go separate ways and split the company along geographical lines. At that time, James became the sole owner of CMI, located in Charlotte, North Carolina.

Charlotte was a great strategic location, as the city was the second largest financial center in the United States. In addition to housing the operations for two major banks, Bank of America and Wells Fargo, Charlotte was home to many regional and local financial institutions that needed cash and currency counting machines. …

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