Harvard Case - Dürr: Disintermediation in the German Mid-cap Corporate Bond Market
"Dürr: Disintermediation in the German Mid-cap Corporate Bond Market" Harvard business case study is written by Pierre Hillion, Jean Wee, Bowen White. It deals with the challenges in the field of Finance. The case study is 32 page(s) long and it was first published on : Nov 26, 2012
At Fern Fort University, we recommend that D'rr pursue a disintermediation strategy in the German mid-cap corporate bond market. This involves directly accessing investors through a digital platform and innovative financing solutions, bypassing traditional intermediaries like banks. This approach will allow D'rr to reduce financing costs, enhance investor relations, and gain greater control over its capital structure.
2. Background
D'rr, a German engineering company, faces challenges in accessing capital through traditional channels due to the disintermediation trend in the German mid-cap corporate bond market. This trend is driven by technology advancements, increasing investor sophistication, and regulatory changes. D'rr's current reliance on banks for financing limits its flexibility and increases costs.
The case study focuses on the decision of D'rr's CFO, Dr. Markus Klumpp, who must decide whether to embrace disintermediation and leverage the potential of digital platforms to directly access investors.
3. Analysis of the Case Study
This case study can be analyzed using the Porter Five Forces framework to understand the competitive landscape and the SWOT analysis to assess D'rr's internal strengths and weaknesses.
Porter Five Forces:
- Threat of new entrants: The entry barriers in the German mid-cap corporate bond market are relatively low, with increasing competition from fintech companies and alternative investment platforms.
- Bargaining power of buyers: Investors have increasing bargaining power due to the availability of information and alternative investment options.
- Bargaining power of suppliers: Banks, as traditional suppliers of debt financing, are facing pressure from disintermediation and competition.
- Threat of substitute products: Alternative financing options like private equity and crowdfunding pose a threat to the traditional corporate bond market.
- Rivalry among existing competitors: Competition among existing players is intense, with banks and fintech companies vying for market share.
SWOT Analysis:
Strengths:
- Strong brand reputation and industry expertise
- Established track record of financial performance
- Access to a large pool of potential investors
Weaknesses:
- Limited experience in direct investor relations
- Lack of a dedicated digital platform for bond issuance
- Dependence on traditional bank financing
Opportunities:
- Disintermediation trend in the German mid-cap bond market
- Growing demand for alternative investment options
- Technological advancements enabling direct investor access
Threats:
- Regulatory uncertainty and potential legal challenges
- Increased competition from fintech companies
- Volatility in the financial markets
4. Recommendations
D'rr should implement the following recommendations to capitalize on the disintermediation trend:
- Develop a dedicated digital platform: This platform should provide investors with comprehensive information about D'rr's financial performance, bond offerings, and investment opportunities. It should also facilitate communication and interaction between D'rr and investors.
- Implement a robust investor relations strategy: This strategy should focus on building relationships with institutional and individual investors, educating them about D'rr's business model, and promoting transparency in financial reporting.
- Offer innovative financing solutions: D'rr should explore alternative financing structures like private placements, crowdfunding, and structured bonds to attract a wider range of investors and enhance its financing flexibility.
- Partner with fintech companies: Collaborating with fintech companies can provide D'rr with access to advanced technologies, expertise in digital platforms, and a wider network of investors.
- Conduct thorough risk assessment: D'rr should carefully assess the risks associated with disintermediation, including regulatory compliance, cybersecurity, and market volatility.
5. Basis of Recommendations
These recommendations are based on the following considerations:
- Core competencies and consistency with mission: D'rr's core competency lies in engineering and manufacturing. Disintermediation allows D'rr to focus on its core business while accessing capital more efficiently.
- External customers and internal clients: The recommendations cater to the needs of both external investors seeking attractive investment opportunities and internal clients requiring access to capital.
- Competitors: The recommendations address the competitive landscape by leveraging technology and innovation to differentiate D'rr from traditional players.
- Attractiveness ' quantitative measures: The potential benefits of disintermediation include reduced financing costs, increased investor base, and enhanced flexibility in capital structure.
- Assumptions: The recommendations are based on the assumption that the disintermediation trend in the German mid-cap bond market will continue and that D'rr can successfully navigate the regulatory landscape.
6. Conclusion
By embracing disintermediation, D'rr can unlock significant opportunities in the German mid-cap corporate bond market. A well-executed strategy involving a digital platform, innovative financing solutions, and strong investor relations will allow D'rr to reduce financing costs, enhance its capital structure, and gain a competitive advantage.
7. Discussion
Alternatives not selected:
- Maintaining the status quo: This option would expose D'rr to increased financing costs and limit its flexibility in accessing capital.
- Partnering with a single large bank: This option would reduce the risk of disintermediation but would limit D'rr's access to a diverse investor base.
Risks and key assumptions:
- Regulatory uncertainty: Changes in regulations could impact the feasibility of disintermediation.
- Technological advancements: Rapid technological advancements may require continuous adaptation of the digital platform.
- Market volatility: Fluctuations in the financial markets could impact investor appetite for corporate bonds.
Options Grid:
| Option | Advantages | Disadvantages |
|---|---|---|
| Disintermediation | Reduced financing costs, increased investor base, enhanced flexibility | Regulatory uncertainty, technological risks, market volatility |
| Status quo | Predictability, established relationships | Increased financing costs, limited flexibility |
| Partnership with a single bank | Reduced risk, established relationships | Limited investor base, potential for higher costs |
8. Next Steps
- Develop a detailed implementation plan: This plan should outline the specific steps required to establish the digital platform, build investor relationships, and launch innovative financing solutions.
- Secure necessary resources: D'rr should allocate sufficient resources to support the implementation of the disintermediation strategy.
- Monitor progress and adapt as needed: D'rr should regularly monitor the progress of its disintermediation strategy and make adjustments based on market conditions and investor feedback.
By taking these steps, D'rr can successfully navigate the disintermediation trend in the German mid-cap corporate bond market and achieve its financial objectives.
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Case Description
In September 2010, Dürr AG issued a corporate bond without the use of underwriters or rating agencies via a new bond issuance platform developed by Boerse Stuttgart. This reflected a growing trend among European corporations to tap capital markets instead of bank debt to secure debt financing.
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