Mercury Athletic Case Essay

West Coast Fashions, Inc. (WCF), a lifesizing designer and market placeer of mens and womens branded enclothe tardily announced proposals for a strategic reorganization. vigorous Gear, Inc. (AG), a privately held footgear fellowship, was contemplating an scholarship opportunity. John Liedtke, the head of business nurture for AG, was interested in a WCF subordinate. The subsidiary that Liedtke and AG intended to acquire was mercury Athletic (MA), a footgear company. Liedtke mentation acquiring quicksilver would roughly effigy AGs revenue, increase its supplement with contract manufacturers and expand its presence with advert retailers and distributors. In separate to provide a solid recommendation to Liedtke, further compendium must be performed.Market OverviewThe app arl or footwear industry is passing competitive with low proceeds. The market is influenced by fashion trends, price, quality and style. Companies can switch off take chances factors by not followin g fashion trends which equates to efficient and sound armory management and missed profit opportunities. prompt GearAG is a comparatively sm every last(predicate) gymnastic and casual footwear company. It has annual revenues of $470.3M (42% of revenues came from athletic shoes), and $60.4M of operating income. plaster bandage a shadow over these come are AGs typical competitors. AGs typical competitor has annual gross sales over $1.0B. Because of Chinese manufacturing contract consolidations, AGs size was becoming a disadvantage collectable to low buying power vs. competitors. AGs initial focus was to go and market high-quality specialty shoes for golf game and tennis players. AG was among the first companies to erect fashionable, walking, hiking and boating footwear. Over the years, the firms athletic shoes had evolved from high-performance footwear to athletic fashion wear with aauthorised image.The firms conventional casual shoes also offered classic styling, but were aimed at a broader, more than mainstream market. AGs target demographic was urban and suburbanites, ranging from 25-45 in age. AGs distribution channels consisted of independent retailers, departmental stores, and wholesalers. AG excluded big knock retailers and entailment stores. AG focused on harvest-feasts that didnt follow fashion trends, resulting in a lengthened product lifecycle. This business fabric led to more efficient and effective supply chain and operating management. However, because they opted for the safety device route it halted the companys sales and harvest-tide opportunity. mercury AthleticMercury Athletic was purchased by WCF from its founder Daniel Fiore. Fiore was hale to sell the company after cart track it for over 35 years, due to wellness problems. Due to a strategic reorganization, the plan called for the divestiture of MA and new(prenominal) non-core WCF assets. MA had revenues of $431.1M and an EBITDA of $51.8MProducts were distributed to depa rtmental and discount storesIt had two product lines- athletic and casual footwearTarget market of both men and womenShoes popularity grew in the extreme sports marketMA developed an operating infrastructure, allowing management to quickly alter to changes in customer tastes with product specifications. 1. Is Mercury an appropriate target for AG? why or why not? allow me walk you through some qualitative considerations before making my recommendation.Strategic considerationsAG and MA are both competing in the athletic and casual footwear industry. getting MA could lead to economies of scale and screen background through manufacturing and distribution networkworks, respectively. Acquiring MA- AG would be less affected by the Chinese manufacturing contract consolidation, due to increase buying powers. AG could potentially concern and profit from acquiring Mercurys womens product line. Acquiring MA will double AGsannual revenue.Counter arguments-AG and MA target demographics coul d not produce company synergies MA is fashion trendy, therefore given over to risks outside of AGs calm business model Company goals could not match2. Review the projections by Liedtke. atomic number 18 they appropriate? How would you recommend modifying them? In ready to find if the projections are reasonable, you need a starting point. Using projected growth grade and EBIT should indicate if Liedtkes information is solid. Referencing the Free Cash Flow and utmost Value tables (found down the stairs), I will be able to generate an opinion of Liedtkes projections. Year to year growth rates are extremely volatile, normalizing in 2010.The damaging rate could signify that in 2007 they are projecting to discontinue a product line. The swing back to a validatory growth rate could be distinction of AG leveraging its economies of scale and scope, speckle distributing their product lines through big box retailers. EBIT has been projected to gradually increase, which styles to be on par with industry norms. It is reasonable to ordain that Liedtkes projections properly reflect AGs business model, post-acquisition.3. See tables and calculations below4. Do you regard the order you obtained as conservative or scrappy? why? From my analysis, the value I obtained seemed to be aggressive against the information provided. Referencing the tables below destination or Enterprise Value is HighSynergies are excluded from financial analysisDeclining revenue growth5. How would you analyze possible synergies or other radicals of value not reflected in Liedtkes base assumption? In order to analyze possible synergies, I would look at both companies operations. Starting from where they source their materials to distributing their final product are all possibilities of operational synergies (buying power, distribution channels, inventory management, etc). fiscal synergies would include combining revenues and cost benefits, which restate to increasing bottom line.Company culture matching could also become problematic. numeric AnalysisNet Working upper-case letterFree Cash FlowWACCTerminal ValueValuationNPV, IRR and Payback occlusionConclusionNet present value of future currency flows equates to a lordly $0.2M. 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 funds equal zero. The IRR of this acquisition is 28%. Having a positive NPV and an IRR that considerably outweighs the discount and risk free rate- suggests that this acquisition should be pursued. In conclusion, AG should acquire MA.