 |
View Solution
Introduction
The decision to make a strategic acquisition or
divestiture is always a difficult one. The desire to
modify the scope of operations always must be measured
against the operational implications, industry
reactions, and price paid for the enterprise.
Situation
Our client came to us
when they were looking 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 a good one at first view, outside
assistance was needed to perform due diligence to
evaluate whether the proposed deal was one worth making.
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
To start the engagement, we conducted extensive research
within the industry to develop a complete understanding
of the potential impact of the deal. We interviewed
hundreds of industry players, including suppliers,
distributors, integrators, OEMs, and end user customers.
Based on our market research campaign, we were able to
make projections about the potential sales impact on an
annualized basis of 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 further evaluate the deal. Our research
indicated that we could expect to see added sales could
be generated to existing product lines as well by
supporting more 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 found
that the deal would add positive NPV to our client, but
only mildly so and generated 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
Financing Analysis
Market Analysis
New Product Strategy
Pricing Analysis
Strategy Development
|
|
