Ref: IMD-7-2285

Case study

Reference: IMD-7-2285

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Elite: Affinity Financing and Smart Leases

Benoit F. Leleux

By Professor Benoit F. LeleuxBenoit F. Leleux and Marc Chauvet

The case documents the original mattress leasing program initiated by François Pugliese, the owner of premium mattress firm Elite in Etoy (Switzerland). Since the beds he sold targeted the higher end of the market, it quickly dawned on him that customers could be tempted by a leasing offer instead of a standard purchase arrangement. In 2012, François launched the Smart Lease program: Mattresses were equipped with connected pressure sensors that could identify occupancy and relayed the information to a centralized system that monitored mattress usage and invoiced the client accordingly. Smart Lease was an immediate hit, earning some distinguished innovation awards in the process. On the financing side, though, François faced a dilemma. Smart Leasing was so successful that it created serious issues in his finances, made worse by the fast growth of his flagship stores. How could he raise a large, flexible line of credit to finance these strategic endeavors without diluting himself? He engineered a very original affinity financing solution, a convertible loan program offered to friends and family, with conversion possible under conditions to non-voting participating shares. DAMICI was a triple win: Money raised at favorable variable interest rates, a chance for friends and supporters of the firm to get involved in its future success, and a balance-sheet strengthening move. The case documents in great detail the operational and financial features of the Smart Leasing program and the DAMICI affinity financing model used to provide the funding both for leasing and for general growth options for the company. It offers rare insights into an original financial engineering montage that offered cheap, flexible financing to a high-growth entrepreneur.

Learning Objective

• Discuss original financial engineering efforts, in this case mostly for working capital purposes, taking advantage of tax and accounting regulations to create a formula of interest to the various parties.
• Reflect on what the objectives of the financing are, compare the traditional offerings available (bank debt, equity, etc.) and are prodded to engineer a superior offering for all parties involved.

Settings Switzerland
Elite Beds
2020-2021
Type Field Research
Copyright ©2021
Language English
Related material Teaching note, Video
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Reference: IMD-7-2285

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