Anacomp Inc. Case Study
1. Evaluate Anacomps new product development strategy. What are the risks and benefits of this strategy for Anacomps shareholders?
Anacomp created severall partnerships to develop new software and services for the banking industry. For example with RTS Associates. Anacomp initiated the development of a major new computer sysstem called CIS. In return, RTS agreed to pay a development fee of 6 million. Anacomp also had the option to acquire all rights to the CIS system at the greater of its appraised fair market value or RTSs investment plus a fixed profit.
RTS associates payments for the CIS development expenses were financed by an investment of $1.444 million by the partners, $3.25 million bank loan and $2.2 million loan of Anacomp.
Several managers of Anacomp are also investors in RTS (38.5%).
More parties are involved in the CIS project: 4 primary development banks and twenty other advisory development banks (page 598, 610).
In june 1982, Anacomp buys the CIS system for $16 million (development costs are $7.5 million, page 598, 610).
Benefits
The partnership takes away the risks of the product development fore the shareholders of Anacomp and it is easier to loan big amounts.
Potential customers (banks) give advise.
Risks
Serveral managers of Anacomp are also investors in RTS. This can lead to conflicts of interest. There is a possibility that Anacomp buys the CIS system for a price which is too high. There are indications that this really happened. De development cost were $7.5 million and Anacomp pays $16 million to RTS.