 |
View Solution
Introduction
The decision to make a strategic acquisition or
divestiture is always difficult. The desire to
modify the scope of operations must always be measured
against the operational implications, industry
reactions, and price paid for the enterprise.
Situation
Our client came to us
in search of for an opportunity to increase
their sales reach. As a mid-sized player in the highly
competitive avionics radar market, they sought
opportunities to increase their market reach against
substantially larger operators that had begun to
integrate their solutions. While the acquisition
appeared to be favorable at first view, due diligence
with outside assistance was necessary to ensure that the
proposed deal was worth pursuing.
The Shpigler Group was called upon to evaluate the
market, quantify the potential impact of the deal, and
make recommendations regarding the investment.
Complication
While the acquisition, if carried through, would allow
for added sales opportunities, the asking price needed
to be justified when matched against the projected
benefit. Competitive response from larger competitors
needed to be measured and evaluated in terms of
potential impact to the proposed deal.
Research
As a
first step in the engagement, we conducted extensive
research within the industry to develop a complete
understanding of the deal’s potential impact. We
interviewed hundreds of industry players, including
suppliers, distributors, integrators, OEMs, and end user
customers. Based on our market research campaign, we
provided projections about the potential sales impact on
an annualized basis for the proposed acquisition.
Analysis
Based on the sales projections analysis we developed
from our research efforts, The Shpigler Group then
developed a pro forma analysis of the economic impact of
the proposed deal. We developed a view of how earnings
and our client’s overall valuation would be impacted by
the acquisition through detailed financial analysis.
Problem Solved
According to our
initial financial review, the deal – at the proposed
price point – appeared to offer significant positive
value for our client. However, while the straightforward
financial analysis we conducted was a start, we still
needed to evaluate the deal further.
Our
research indicated that the acquisition would generate
additional sales to existing product lines as well as
provide more support of end user needs. However, we also
could see that the deal would threaten an important
existing strategic partnership our client had, thus
negating the overall value of the acquisition. Based on
all of our research and analysis, we quantified all of
the impacts of the deal.
Result
When
taking into account all of the elements of the proposed
acquisition at the proposed price, we determined that
while the deal would add positive NPV to our client, the
benefit would be relatively mild and generate
significant market risk. As
a result, our client decided not to acquire the
competing product line. Instead, it found that pursuing
additional strategic partnerships with complementary
product lines would better accomplish the original
growth goals set forth. As a result, our client struck a
deal 90 days later with another manufacturer and has
seen a joint marketing campaign yield very impressive
results.
To receive more information on this topic, please visit
our
contact page and fill
out the information form.
|
Benchmarking
Economic Development
Feasibility Studies
Financial Analysis
Market Analysis
New Product Strategy
Pricing Analysis
Strategy Development
|
|
