...2009 TIMOTHY A. LUEHRMAN JOEL L. HEILPRIN Mercury Athletic Footwear: Valuing the Opportunity In March 2007, John Liedtke, the head of business development for Active Gear, Inc., a privately held footwear company, was contemplating an acquisition opportunity. West Coast Fashions, Inc. (WCF), a large designer and marketer of men’s and women’s branded apparel had recently announced plans for a strategic reorganization. The plan called for a divestiture of certain non-core assets and a renewed focus on WCF’s higher-end business, business-casual, and formal-wear apparel businesses. One of the divisions WCF intended to shed was Mercury Athletic, its footwear division. Liedtke knew that acquiring Mercury would roughly double Active Gear’s revenue, increase its leverage with contract manufacturers, and expand its presence with key retailers and distributors. He also expected that Active Gear’s bankers would quickly approach the company about a possible bid for Mercury; consequently, he wanted to complete his own rough evaluation of the opportunity before hearing the bankers’ pitch. Athletic and Casual Footwear Industry Footwear was a mature, highly competitive industry marked by low growth, but fairly stable profit margins. Despite the industry’s overall stability, the performance of individual firms could be quite volatile as they vied with one another to anticipate and exploit fashion trends. The market for athletic and casual shoes remained fragmented, despite...
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...MERCURY ATHLETIC FOOTWEAR Problem statement: West Coast Fashions, Inc a large business of men’s and women’s apparel decided to dispose of one of their segments; Mercury Athletic. John Liedtke, head of the business development for Active Gear, Inc saw it has a possible opportunity for them to acquire it. The footwear industry is very competitive, with low growth and stable profit margins. AGI is very profitable but it is smaller than its competitors, which is becoming a disadvantage. Therefore, Liedtke believes that if they takeover Mercury will double AGI’s revenue, increase it’s leverage with contract manufactures and expand its presence with key retailers and distributions. Liedtke is evaluating the company in order to find out whether the future benefits justify or surpass the present value of the investment in Mercury. Analysis: In order for Liedtke to get a broader picture on the acquisition of Mercury, he needs to compare and analyze a list of financial data from 2006 to 2011; projected balance sheet accounts, operating results and free cash flows, and cost of capital calculations. This data will enable him to identify the strengths and weaknesses of this acquisition. First lets look a summary of the operations of both AGI and Mercury Athletics’ actual operations based on the last year given 2006 before AGI plans of acquiring Mercury. | Active Gear, Inc | Mercury Athletic | Revenues | $470, 286 m | $431,121 m | % Of Revenue Product | 42 % athletic...
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...Libros de Gerencia Resumidos Curso corto para gerentes 33 tácticas para mejorar su carrera por Bil Holton y Cher Holton RESUMEN EJECUTIVO Bil y Cher Holton presentan 33 “recetas” cortas para mejorar de inmediato sus habilidades en el trabajo. Si se arriesga a probarlas, seguramente le ayudarán a ser más productivo, más efectivo y más visible ante los ejecutivos que le pueden ayudar en su carrera. Los consejos están clasificados por tópico: 1. Dar poder (Empower) a sus subordinados. 2. Actuar como un líder. 3. Dar la bienvenida al cambio. 4. Comunicarse para obtener mejores resultados. 5. Manejar el tiempo. 6. Alcanzar su máximo potencial. 7. Usar la creatividad en todo lo que hace. Lo interesante de estos consejos es que los puede aplicar utilizando los recursos con los que ya cuenta. No necesita pasar horas de estudio para comenzar a aplicarlos. La mayoría de las tácticas requieren trabajo y auto disciplina. Pero nadie ha logrado objetivos importantes de otra manera. Pequeñas celebraciones, hechas con frecuencia, hacen una gigantesca diferencia en la moral y en la productividad. 2. Administre la pila de trabajo Escriba la siguiente frase en un papel: “El procedimiento o regla o regulación o política más fastidioso y humillante con el que tengo que vivir es…”. Distribuya copias de este papel entre los miembros de su equipo e invierta una mañana discutiéndolo con ellos. Escriba todas las frustraciones en un papel, y comprométase de inmediato a hacer los cambios necesarios...
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...------------------------------------------------- ------------------------------------------------- Mercury Athletic Footwear: Valuing the Opportunity By Christian Daba Submitted To John Katkish Background West Coast Fashions, Inc has decided to sell one of their segments, Mercury Athletic in the context of a broader reorganization. The head of the business development for Active Gear, Inc(AGI), John Liedtke, views this event as a good opportunity to acquire Mercury Athletic. Acquiring Mercury, to a large extent, is driven by that Mercury would double Active Gear’s revenue, increase its leverage with contract manufacturers, and expand its presence with key retailers and distributors. More importantly, this is due to some inferior performance AGI is going through, mainly the small size does not put AGI in a dominating negotiating position with its contract manufacturers. Meantime, some possible synergies make Mercury Athletic a very appropriate target. However, John Liedtke has not completed his evaluation of this opportunity by using various methods. Qualitative valuation Firstly, there are some facts should be considered: 1. AGI and Mercury are in the same industry—footwear, and both have casual and athletic segments, and are located in North America. 2. Their brand images and target consumers are quite similar. AGI brand and logo are associated with a lifestyle hat was prosperous, active and fashion-conscious. Likewise, Mercury monitored styles and image that are from a global youth culture...
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...was Mercury Athletic Footwear. WCF wanted to dispose off this segment. They just wanted to divest because they wanted to focus more on their core business and move it up to the elite class. John Liedtke was the Business Development Head at that time in Active Gear Inc. He had a clear idea that acquiring Mercury will shoot up AGI’s revenues for sure. It would also ensure an expansion of the key business. In order to get a clearer picture on the acquisition, he needed to compare and analyze the company’s financials well. By this he could gauge the pros and cons of this acquisition. Are the strategic reasons behind the Merger good enough? Explain As a team, we had different views on this question. Some reasons make us think that it may be beneficial for AGI to grab the opportunity but some make us think that it might not be as promising as it seems. Let us see why we feel it is a good idea for AGI to acquire Mercury. Active Gear Inc. Mercury Athletic Footwear Revenue $470,285mn $431,121mn % Revenue Product wise 42% Athletic 58% Casual 79% Athletic 21% Casual Operating Income $60.4mn $42,299mn Revenue growth 2% to 6% 12.5% Active Gear was one of the most successful firms in terms of profitability, in the footwear industry. Mercury looked like a good opportunity for an attractive investment because they almost have the same revenues, while being smaller in size, in the market. The Percent revenue in the casual footwear in AGI compensates for the gap in Mercury. It’s...
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...1 The Value of Synergy Aswath Damodaran Stern School of Business October 2005 2 The Value of Synergy Many acquisitions and some large strategic investments are often justified with the argument that they will create synergy. In this paper, we consider the various sources of synergy and categorize them into operating and financial synergies. We then examine how best to value synergy in any investment and how sensitive this value is to different assumptions. We also look at how this synergy value should be divided between the parties (or companies) involved in the investment. We conclude with an empirical examination of how much synergy is actually created in corporate mergers, and how much is paid. Synergy, we conclude, is so seldom delivered in acquisitions because it is incorrectly valued, inadequately planned for and much more difficult to create in practice than it is to compute on paper. 3 When Carly Fiorina argued for Hewlett-Packard’s acquisition of Compaq, she offered a number of of reasons the deal made sense. She noted that the combined company would be able to meet the demands of customers for “solutions capability on a truly global basis.” She also claimed that the firm would be able to lead with its products “from top to bottom, from low end to high end.” As her crowning argument, she claimed that the merger made sense because it would create “synergies that are compelling.” Synergy, the increase in value that is generated by combining two entities...
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...Mercury Athletic Footwear | Caso Mercury Athletic Footwear | Valorización de Empresas | | | 11/05/2013 | Cuellar, Sandra Karina Gudiel Alfaro, Guillermo José Guerra Caballero, Mario Alexis Contenido Preguntas del caso Inversiones financieras BancoSal 2 ¿Cuál es la temática del caso? 2 Realice un análisis del sector y la empresa 2 FORTALEZAS 2 OPORTUNIDADES 2 DEBILIDADES 3 AMENAZAS 3 ¿Cuáles son las diferencias entre las empresas del sector financiero y sector industrial? 3 Elabore un diagnóstico de rentabilidad y riesgo de la empresa 4 ¿Qué método es más empleado en la valorización de empresas financieras? 4 Valorice la empresa y su patrimonio 5 ¿Cuánto seria lo máximo que pagara para adquirir el 51% del capital de la empresa? 5 ¿Cómo recomienda tratar al accionista minoritario? ¿Opciones de salida? ¿Representación en la junta directiva? 5 Caso 4: Mercury Athletic Footwear. West Cost Fashion, Inc es un negocio grande de ropa para hombre y mujeres que a decidido deshacerde de uno de sus segmentos; Mercury Athletic Footwear, empresa de calzado. John Liedtke director de desarrollo de negocios de Active Gear, Inc (AGI). Tiene una posibilidad para adquirirla y desea evaluar cuanto es lo que tendría que pagar por si desea hacerse con la empresa Mercury Preguntas del caso Mercury Athletic Footwear ¿Cuáles son las características de la industria del calzado? La industria del calzado es muy competitiva, con bajo crecimiento y...
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...Executive Summary The footwear industry is highly competitive industry with fairly stable profit margins. Active Gear is a profitable firm in the industry; however Active Gear is a smaller firm than many other competitors and its small size is becoming a competitive disadvantage. The rise of large retailers has also endangered Active Gear’s growth. Mercury Athletic Footwear designs and distributes athletic and casual footwear dominantly to the youth market. Mercury competes in four main product lines: men’s and women’s athletic and casual footwear. Men’s athletic footwear is the leading product for Mercury Athletic. Women’s casual footwear is Mercury’s worst performing product and post-acquisition the line may be discontinued by Active Gear. The acquisition of the Mercury Athletic division has sources of potential including an increase in Active Gear’s revenue, an increase in leverage with contract manufacturers, boosting capacity utilization and expanding its presence with retailers and distributors. Upon the review of the opportunity to acquire Mercury Athletic Footwear, the results of the financial analysis below indicate Active Gear should proceed with the acquisition. Based on the Free Cash Flow Method, considering the financial projections and assumptions for Mercury Athletic, indicate the acquisition has a positive net present value of $112,778,000 [Present Value of Future Cash Flows (59,440,000) + Terminal Value ($276,921,000) – Purchase Price ($223,583,000)]. There...
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...Caso Mercury Athletic Footwear (MAF) 1. ¿Cuáles son las características de la Industria del calzado? LA INDUSTRIA DEL CALZADO ES UN SECTOR ALTAMENTE COMPETITIVO Y CARACTERIZADO POR UN BAJO CRECIMIENTO, TIENE MARGENES DE UTILIDAD RELATIVAMENTE ESTABLES CON RENDIMIENTOS VOLATILES DEBIDO A LA COMPETENCIA. LA PARTE SENSIBLE DE LA INDUSTRIA ES LA MODA. LOS NUEVOS PRODUCTOS REQUIEREN UN CICLO 8 A 10 MESES PARA COMPLETAR SU NUEVO DISEÑO. 2. ¿Cómo evalúa el desempeño financiero de las empresas Active Gear, Inc. & Mercury Athletic Footwear? ACTIVE TIENE UN BUEN DESEMPEÑO A PESAR DE SER UNA PEQUEÑA EMPRESA CON UN ENFOQUE SIMPLIFICADO HACIA LA MARCA Y GESTION DE INVENTARIO, OBTENIENDO UN MARGEN OPERATIVO FUERTE. AUN QUE TENIA UN CRECIMIENTO DE 6% ANUAL, ESTE DISMINUYÓ A UN 2,2% DEBIDO A LA FUERTE COMPETENCIA MERCURY EL RENDIMIENTO FINANCIERO FUE DESEPCIONANTE DEBIDO A LOS BAJOS PRECIOS Y LA POCA ACEPTACION DE CALZADO CASUAL Y DEPORTIVO PARA LA MUJER, LO QUE LLEVO A SACARLO DEL MERCADO. 3. ¿Considera que la empresa Active Gear, Inc. está lista financieramente para adquirir Mercury Athletic Footwear? NO ESTA LISTA, YA QUE PRIMERAMENTE DEBE TENER UNA MAYOR ACEPTACION EN EL MERCADO 4. Realice un análisis FODA de la empresa Mercury Athletic Footwear para la empresa Active Gear, Inc. 5. ¿Considera que es un fit estratégico idóneo la adquision de Mercury Athletic Footwar por parte de Active Gear, Inc? ¿Porqué? 6. ¿Cuánto puede valer la empresa Mercury Athletic...
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...Executive Summary The footwear industry is highly competitive industry with fairly stable profit margins. Active Gear is a profitable firm in the industry; however Active Gear is a smaller firm than many other competitors and its small size is becoming a competitive disadvantage. The rise of large retailers has also endangered Active Gear s growth. Mercury Athletic Footwear designs and distributes athletic and casual footwear dominantly to the youth market. Mercury competes in four main product lines: men s and women s athletic and casual footwear. Men s athletic footwear is the leading product for Mercury Athletic. Women s casual footwear is Mercury s worst performing product and post-acquisition the line may be discontinued by Active Gear. The acquisition of the Mercury Athletic division has sources of potential including an increase in Active Gear s revenue, an increase in leverage with contract manufacturers, boosting capacity utilization and expanding its presence with retailers and distributors. Upon the review of the opportunity to acquire Mercury Athletic Footwear, the results of the financial analysis below indicate Active Gear should proceed with the acquisition. Based on the Free Cash Flow Method, considering the financial projections and assumptions for Mercury Athletic, indicate the acquisition has a positive net present value of $112,778,000 [Present Value of Future Cash Flows (59,440,000) + Terminal Value ($276,921,000) Purchase Price ($223,583,000)]. There are...
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...Mercury Athletic Footwear: Valuing the Opportunity Merger and Acquisition Assignment * Is mercury an appropriate target for AGI? Why or Why not? The footwear industry is highly competitive industry with fairly stable profit margins. In this industry, players compete on basis of style, price and quality. Success factors are active management of inventory and production. Active Gear is a profitable firm in the industry; however Active Gear is a smaller firm than many other competitors and its small size is becoming a competitive disadvantage. The rise of large retailers has also endangered Active Gear’s growth. Mercury Athletic Footwear designs and distributes athletic and casual footwear dominantly to the youth market. Mercury competes in four main product lines: men’s and women’s athletic and casual footwear. Men’s athletic footwear is the leading product for Mercury Athletic. Women’s casual footwear is Mercury’s worst performing product and post-acquisition the line may be discontinued by Active Gear. The below table lists some financial and other aspects of both firms: | Active Gear Inc | Mercury Athletic | Financial Aspect: | Revenues | $470,286 M | $431,121 m | % of Revenue Product | 42% Athletic58% Casual | 79% Athletic21% Casual | Operating Income | $60.4 m | $42,299 m | Revenue Growth | $2-6% | 12.5% | DSI (Days Sales Inventory) | 42.5 | 62.2-10 days more than industry | Other Aspects: | Demographical Target | Family members | Youth...
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...AGI & Mercury Acquisition Analysis Mercury is not currently an appropriate target for AGI. Mercury needs to first restructure and improve the overall operating performance of the company. Sales and operating margins have been areas Mercury has struggled with. Mercury has four segments within the company: Men’s Athletic Footwear, Men’s Casual Footwear, Women’s Athletic Footwear and Women’s Casual Footwear. Men’s Athletic Footwear is Mercury’s largest segment of the business. It has seen high sales growth as well as operating margins, in comparison to industry competitors. Consumers also tended to pay higher prices for the product. Women’s casual footwear is the worst preforming segment of the business. It has experienced low sales volume due to a lack of brand awareness and promotion. Men’s Casual Footwear and Women’s Athletic Footwear are segments of Mercury that have seen subpar sales and operating performance but with reorganization and promotional attention, have the potential to experience higher levels of growth and performance. AGI is one of the most profitable footwear companies in the industry. They started out as a very specialized footwear manufacturer and have successfully expanded and entered many other areas of the footwear market. However, AGI is a smaller firm compared to many of the industry leaders and competitors. Executives see this as a disadvantage because they don’t have as many growth and sales opportunities as other competitors. They have also been...
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... George Triarchou Monica Balbuena Shuyuan Qiu RE: Mercury Athletic valuation and acquisition recommendations We believe that Mercury is an appropriate target for AGI since an acquisition can be an excellent growth opportunity. First, through the acquisition AGI can take the advantages of some existing synergies. Acquiring Mercury would expand AGI’s business size and consequently produce the “one plus one is greater than two” effect. This acquisition would double AGI’s revenues, increase its leverage with contract manufacturers, and also help to expand its presence with key retailers and distributors. Moreover, if negotiated well, AGI could acquire Mercury for a lower price than the actual price of Mercury; earning more than what they’ve paid. This will be discussed further in the recommendation. Secondly, acquiring Mercury is a lower risk way for AGI to increase their growth rate. Mercury has a high growth rate of revenue, which may compensate for the low growth rate of revenue for AGI. Further, since the women’s casual line is going to be closed or consolidated, the rest of the three segments of Mercury show prosperous future prediction in margins and growth. This reflects a good acquisition opportunity. Finally, acquainting Mercury is ease of integration. This is because Mercury and AGI both are the footwear industry. And the main products of Mercury are athletic and casual footwear that are similar with AGI’s products. Both of the companies’ manufacturers...
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...Mercury Athletic Footwear – Assessing the Opportunity Mercury Athletic Footwear Objective and Focus Comm 401 – Individual Assignment The focus of this exercise is to undertake a broad level assessment of the strategic fit of Mercury Athletic Footwear into the Active Gear Inc. portfolio. In addition, a preliminary valuation assessment needs to be made as to the value of this potential acquisition. In regards to this: 1. Is Mercury Athletic Footwear an appropriate target and strategic fit for AGI? Why or why not? 2. Are John Liedtke’s projections appropriate and acceptable for decision-making purposes? Do you have any concerns with the assumptions made or computations offered for analysis? If so, what are they? 3. What preliminary valuation estimate (can be stated as a range) would you place on the value of Mercury Athletic Footwear? Do you consider your estimate to be conservative or aggressive? 4. Where do you feel AGI can leverage synergies should they decide to acquire Mercury? Which of these, if any, would you expect AGI to position its acquisition rationale around in making its pitch for financing support? Can you illustrate a valuation of potential cost savings or revenue generation opportunities resulting from your synergy assessment? 5. Identify what you feel are the top five (5) decision criteria which would guide your thought process as to whether Mercury Athletic Footwear should be acquired. 6. Based on your analysis, do you recommend that Athletic Gear Inc. move...
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...Mercury Athletic Footwear: Valuing Opportunity Case Summary: John Liedtke, head of business development for Active Gear Inc. (AGI), is evaluating the acquisition of Mercury Athletic (Luehrman & Hielprin, 2009). Both companies compete in the footwear industry which is a highly competitive industry characterized by low growth and stable profit margins (Luehrman & Hielprin, p. 1). Liedtke’s initial assumptions was that the acquisition of Mercury Athletic would double AGI’s revenue, increase its leverage with manufacturers and expand its distribution. In order to evaluate these assumptions and determine if the acquisition would be a good decision, Liedtke generated pro forma income from Mercury’s four main segments and key balance sheet account for the years spanning 2007 through 2011. In preparing these, he made the following assumptions: • Mercury’s women’s casual footwear would be merged with AGIs within the first year. • Overhead to revenue ratio would conform to historical averages • Capital structure would follow AGI post acquisition • Discount rate was calculated using AGI’s leverage and tax rate Additionally, he was counting on synergies between the two companies with respect to inventory management and the women’s casual footwear line. Using this information, he calculated projected EBIT margin of 9% and revenue growth of 3%. Case Questions: a. Is Mercury an appropriate target for AGI? Why or why not? According to Liedtke, Mercury is...
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