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Mercury Footwear

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Valuation and Capital Investments

Assignment 2

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Contents Mercury Footwear 1 Appendix A-1

Mercury Footwear
Question 1
We think that this acquisition makes sense for AGI, for a number of reasons.
First, the Mercury product portfolio gives AGI access to growing markets that they have not had access to in the past. Specifically, Mercury’s products have become popular with a loyal market of extreme sports enthusiasts that has seen recent sales growth. This could be a nice complement to AGI’s current brand, which is associated with a prosperous, active lifestyle.
Just as importantly, there are potential synergies related to manufacturing. As mentioned in the case, there has been a recent wave of consolidation among Chinese contract manufacturers (used by both AGI and Mercury) that has been to the disadvantage of smaller companies. Acquiring Mercury would roughly double AGI’s revenues and allow them to offer longer production runs, build stronger relationships and negotiate better terms with their current manufacturers. There is further potential to consolidate suppliers and reduce the number of staff needed for on-site monitoring, creating efficiencies and cost reductions in the process.
Additionally, numerous factors (proliferation of brands, underperforming lines) have served to strain Mercury’s infrastructure recently. AGI could potentially unlock some untapped value at Mercury by focusing on performing brands and winding down unprofitable segments such as women’s casual footwear. They have had success at this thus far, focusing on a smaller portfolio of products and becoming one of the more profitable firms in the footwear industry. Further, AGI’s inventory management system could be implemented by Mercury and potentially reduce their DSI (Days Sales Inventory) to a more acceptable level in order to avoid write-downs and missed profit

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