Quantitative Analysis d. Estimation value of Mercury based on estimates from (a) to (c) 6 With 2006 revenue of $431.1 million, Mercury Athletic represents a similar market share in the mature, highly competitive industry. How would you recommend modifying them? b. Estimation of the free cash flows from 2007 to 2011 5 5. With fewer and bigger Chinese manufacturers, larger shoe sellers would have an advantage. Please join StudyMode to read the full document. Target customers are urban and suburban family members aged 25 to 45. Dr. Adam Guerrero ui. Companies can reduce risk factors by not following fashion trends which equates to efficient and effective inventory management and missed profit opportunities. Casting a shadow over these numbers are AG’s typical competitors. Active Gear, Inc. (AG), a privately held footwear company, was contemplating an acquisition opportunity. Company culture matching could also become problematic. We use cookies to give you the best experience possible. Why? In order to emphasizing individual products, it began to monitor styles and images from global culture Mercury was purchased by WCF in hopes to increase business revenue however this was not the case. This business model led to more efficient and effective supply chain and operating management. While Mercury Athletics was an owned subsidiary of WCF, they were allowed to operate with a rather large amount of autonomy. businesses. Although Mercury’s financial performance has been disappointing, they experienced top line growth of 20% in 2006. Harvard Business Case Studies Solutions - Assignment Help. Referencing the tables below: Synergies are excluded from financial analysis Analysis on Mercury acquisition 4 Fiore was forced to sell the company after running it for over 35 old ages. Due to a strategic reorganisation. Athletic shoes developed from high-performance footwear to athletic fashion wear. Active Gear held footwear company, was contemplating an acquisition opportunity. West Coast Fashions, Inc. He also expected that Active Gear’s bankers would quickly approach the company about a possible If you are not following the correct format for writing a Case Study Solution, then it becomes quite risky and profoundly affects your status. Let me walk you through some qualitative considerations before making my recommendation. Overview Boosta Ltd - 10 Kyriakou Matsi, Liliana building, office 203, 1082, Nicosia, Cyprus. In January 2007, West Coast Fashions, Inc., a large designer and marketer of branded apparel, announced a strategic reorganization that would result in the divestiture of their wholly owned footwear subsidiary, Mercury Athletic. Dec. 15, 2020. Having a positive NPV and an IRR that considerably outweighs the discount and risk free rate- suggests that this acquisition should be pursued. 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. When students have the English-language PDF of this Brief Case in a coursepack, they will also have the option to purchase an audio version. West Coast Fashions, Inc. (WCF), a large designer and marketer of men’s and women’s branded apparel recently announced plans for a strategic reorganization. Products were distributed to departmental and discount stores Two main problems are continuing low growth rate because of serious competition of the mature footwear industry and rise of discount retailors, and pressure from supplies to boost capacity utilization because of its relative smaller firm. A main contributor to these problems was that the company has to discount many of its lines to be allowed to be sold in large discount retailers. 4. During the past three years AGI’s revenue has grown at an average annual rate of only 2.2% while the industry average is about 9.7%. Financial Analysis Due to a strategic reorganization, the plan called for the divestiture of MA and other “non-core” WCF assets. Blog. Four main segments: men’s and women’s athletic and casual footwear. AG and MA are both competing in the athletic and casual footwear industry. Over the years, the firm’s athletic shoes had evolved from high-performance footwear to athletic fashion wear with a classic image. Theprice per earnings ratio comes from a comparable footwear company in Exhibit 3. Quantitative Analysis bid for Mercury; consequently, he wanted to complete his own rough evaluation of the opportunity Before acquiring Mercury Athletic Footwear, Liedtke wants a complete evaluation of the opportunity. Despite the industry’s overall stability, the performance of... StudyMode - Premium and Free Essays, Term Papers & Book Notes. AG and MA target demographics could not produce company synergies MA is fashion trendy, therefore prone to risks outside of AG’s steady business model Company cultures could not match. Liedtke knew that acquiring Mercury would roughly double Active Gear’s revenue, increase its Valuing Mercury Athletic To perform a preliminary valuation, Liedtke developed a base case set of financial projections based on forecasts of revenue and operating income for each of Mercury’s four main segments as shown in Exhibit 6. Estimation the value of Mercury based on discounted cash flows and Liedtke’s base case projections. Acquiring Mercury would expand AGI’s business size and consequently produce the “one plus one is greater than two” effect. ACTIVE GEAR COST OF CAPITAL ASSUMPTION Tax Rate Cost of Debt Risk Free Rate Expected Market Return Market Risk Premium Asset ?eta Debt-to-Value Ratio Debt-to-Equity Ratio Equity Beta 40.0% 6.00% 4.93% 10.43% 5.50% 20.0% 25.0% 0.970 Mercury Athletic Footwear: Some of the essential factors that we focus on while developing Case Study Solution content are: Because of Chinese manufacturing contract consolidations, AG’s size was becoming a disadvantage due to low buying power vs. competitors. In conclusion, AG should acquire MA. Why or why not? Reasons why Mercury is an appropriate target for AGI 4 Nicholas Thebeau, Student ID 50927830 In March 2007, John Liedtke, the head of business development for Active Gear, Inc., a privately Do you regard the value you obtained as conservative or aggressive? MA had revenues of $431.1M and an EBITDA of $51.8M. Just give us some more time, By clicking Send Me The Sample you agree on the, Mercury Athletic Footwear: Valuing the Opportunity, Self Medication Practices in a Rural Filipino Community. The Business plan on Mercury Athletic Case. The swing back to a positive growth rate could be indication of AG leveraging its economies of scale and scope, while distributing their product lines through big box retailers. Secondly, acquiring Mercury is a lower risk way for AGI to increase their growth rate. One of the divisions WCF intended to shed was Mercury Athletic, its footwear division. AG is a relatively small athletic and casual footwear company. Mercury Athletic was purchased by WCF from its laminitis Daniel Fiore. Synergies within supply chain, operations, research and development, and advertising should all improve Mercury’s EBITDA. For making a decision regarding the acquisition being appropriate or not, the facts and side effects of acquisition should be considered first. (WCF), a large designer and marketer of men’s and women’s branded apparel had recently AGI’s head of business development, John Liedtke, believes acquiring Mercury Athletic Footwear is a good option for the company. First, through the acquisition AGI can take the advantages of some existing synergies. Great pressure from suppliers and competitors caused some deterioration of basic performance for AGI during 2004–2006. To begin the analysis, we examine both companies’ historical financial data to get a better idea of their respective financial health. In order to analyze possible synergies, I would look at both companies’ operations. Mercury Footwear Case Study; Mercury Footwear Case Study. a. Estimation of the weighted average cost of capital 5 AG could potentially revive and profit from acquiring Mercury’s women’s product line. AGI can solve these problems by merging with Mercury Athletic. Athletic and Casual Footwear Industry Case Study Analysis Solutions Mercury Athletic Footwear: Valuing the Opportunity Case Solution The industry is same, products are similar, markets are similar, greater ability to merge each other’s operating efficiencies and improve deficiencies, therefore it is evident that these factors confirm that Mercury is the best target for acquisition. Mercury Athletic Footwear Case Study John Liedtke head of Active Gear, Inc. (AGI) is contemplating whether to invest in Mercury Athletic a subsidiary of West Coast Fashions (WCF). Br. also offered here. Internal rate of return or IRR is the interest rate at which the net present value of all the cash flows from a project or investment equal zero. Your Answer is very helpful for Us Thank you a lot! Synergy Effects of the Acquisition 6 John Liedtke, the head of business development for Active Gear, Inc., (AGI) looked to acquire Mercury from WCF, believing that the purchase would double their revenue and provide greater leverage with manufacturers and distributors. an ag em en t tM. First, acquiring Mercury could improve both companies financially. AG excluded big box retailers and discount stores. View case1 from FVS 101 at University of Veterinary & Animal Sciences, Lahore. 3. Mercury Athletic was purchased by WCF from its founder Daniel Fiore. Mercury Athletic Footwear: Valuing the Opportunity Active Gear, Inc. (AGI) is a privately held footwear company and is contemplating the possibility of acquiring Mercury Athletic Footwear.West Coast Fashions Inc., a large designer and marketer of men’s and women’s branded apparel recently announced that it plans to shed its Mercury Athletic Footwear subsidiary. AG’s initial focus was to produce and market high-quality specialty shoes for golf and tennis players. Net Working Capital. Mercury was purchased by WCF in hopes to increase business revenue however this was not the case. AG focused on products that didn’t follow fashion trends, resulting in a lengthened product lifecycle. Students looking for free, top-notch essay and term paper samples on various topics. 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. In order to provide a solid recommendation to Liedtke, further analysis must be performed. In this case, the cashinflow is the acquisition price, which used to purchase the Mercury Corporation. John Liedtke, the head of business development for AG, was interested in a WCF subsidiary. Mercury Athletic Footwear Case Study: Corporate Valuation First name, last name Subject Professor Submission Date Mercury Athletic Footwear Case Study: Corporate StudentShare Our website is a unique platform where students can share their papers in a … c. Estimation for long-term growth rate and estimate the terminal value 5 Liedtke thought acquiring Mercury would roughly double AG’s revenue, increase its leverage with contract manufacturers and expand its presence with key retailers and distributors. Mercury Athletic Footwear Case study September 10, 2017 ~ AssignmentHelpCenter ~ Leave a comment 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. The negative rate could signify that in 2007 they are projecting to discontinue a product line. By continuing we’ll assume you’re on board with our cookie policy. Women’s casual footwear is Mercury’s worst performing product and post-acquisition the line may be discontinued by Active Gear. In order to find if the projections are reasonable, you need a starting point. Liedtke thought acquiring Mercury would roughly double AG’s revenue, increase its leverage with contract manufacturers and expand its presence with key retailers and distributors. Target market of both men and women Active Gear, Inc. (AG), a privately held footwear company, was contemplating an acquisition opportunity. Mercury Athletic Footwear Case Study John Liedtke head of Active Gear, Inc. (AGI) is contemplating whether to invest in Mercury Athletic a subsidiary of West Coast Fashions (WCF). Executive Summary & Overview of Problems 3 By roughly doubling the volume after the proposed acquisition, AGI would be in a better negotiating position. The subsidiary that Liedtke and AG intended to acquire was Mercury Athletic (MA), a footwear company. Companies can reduce risk factors by not following fashion trends which equates to efficient and effective inventory management and missed profit opportunities. Mercury Athletic. This will be discussed further in the recommendation. Mercury Athletic Case. How would you analyze possible synergies or other sources of value not reflected in Liedtke’s base assumption? This could have attributed to the various profitability problems that plagued Mercury. Mercury Athletic. Second, by increasing the size of the AGI they would realize certain supply chain benefits. ...There are several reasons why AGI should consider Mercury Athletic as an appropriate target for acquisition. Referencing the Free Cash Flow and Terminal Value tables (found below), I will be able to generate an opinion of Liedtke’s projections. Mercury Athletic Footwear AG is a relatively small athletic and casual footwear company. Mercury Athletic is the footwear division of West Coast Fashions (WCF), a designer and marketer of men’s and women’s apparel. Get a verified writer to help you with Mercury Athletic Case. This reflects a good acquisition opportunity. Acquiring Mercury would double AGI’s revenue. It is reasonable to say that Liedtke’s projections properly reflect AG’s business model, post-acquisition. There are four main reasons supporting this acquisition. Because of consolidation of Chinese manufacturers, AGI and its competitors were being pressured to commit to larger manufacturing runs in an effort to increase capacity utilization. How to increase brand awareness through consistency; Dec. 11, 2020. In January 2007, West Coast Fashions, Inc, a large designer and marketer of branded apparel, announced a strategic reorganization that would result in the divestiture of their wholly owned footwear subsidiary, Mercury Athletic. Year to year growth rates are extremely volatile, normalizing in 2010. It has annual revenues of $470.3M (42% of revenues came from athletic shoes), and $60.4M of operating income. They maintained their own financial statements, databases, resource management systems, and distribution facilities (Luehrman & Heilprin, 2009). It had two product lines- athletic and casual footwear Net present value of future cash flows equates to a positive $0.2M. Active Gear, Inc. (AG), a privately held footwear company, was contemplating an acquisition opportunity. Declining revenue growth. Due to unspectacular financial reports, the division was going to be sold. However, because they opted for the safe route it halted the company’s sales and growth opportunity. Problem Statement Goldman Sachs Case Competition. Although AGI is currently among the most profitable firms in the footwear industry, it is also much smaller than most of its competitors, which the company’s management views as a competitive disadvantage. 1. Mercury Athletic Footwear Case Study John Liedtke head of Active Gear, Inc. (AGI) is contemplating whether to invest in Mercury Athletic a subsidiary of West Coast Fashions (WCF). AG’s distribution channels consisted of independent retailers, departmental stores, and wholesalers. 2. leverage with contract manufacturers, and expand its presence with key retailers and distributors. Group 7 Liedtke believes the acquisition would help nearly double Active Gear’s revenue, and is confident that West Coast Fashions will be approaching Active Gear soon with an offer. MA developed an operating infrastructure, allowing management to quickly adapt to changes in customer tastes with product specifications. The subsidiary that Liedtke and AG intended to acquire was Mercury Athletic (MA), a footwear company. Mercury Athletic Case In order to provide a solid recommendation to Liedtke, further analysis must be performed. The plan called for a divestiture of certain non-core se. Finally, acquainting Mercury is ease of integration. Mercury Athletic was purchased by WCF from its founder Daniel Fiore. 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. From my analysis, the value I obtained seemed to be aggressive against the information provided. John Liedtke, the head of business development for AG, was interested in a WCF subsidiary. ... Age Discrimination In The Workplace Case Study. profit margins. Casual shoes focus on mainstream market. Writing a Case Study Solution requires a student to consider various vital factors before working on it. 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