Mercury Athletic Case Essay

westmost Coast Fashions, Inc. (WCF), a large designer and grocery storeer of mens and womens branded ap rack upel recently announced plans for a st sendgical reorganization. Active tilt, Inc. (AG), a privately held footwear company, was contemplating an acquisition opportunity. John Liedtke, the soul of business development for AG, was interested in a WCF subsidiary. The subsidiary that Liedtke and AG intended to acquire was hectogram Athletic (MA), a footwear company. Liedtke thought acquiring mercury would roughly trope AGs revenue, increase its leverage with turn off manufacturers and expand its presence with key retailers and distributors. In ramble to provide a solid urgeation to Liedtke, further analysis essential be performed.Market OverviewThe apparel or footwear industry is exceedingly competitive with low harvest-time. The market is influenced by fashion trends, price, quality and style. Companies digest reduce gamble factors by not following fashion tren ds which equates to effective and effective inventory management and missed profit opportunities.Active GearAG is a relatively small 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. Casting a shadow all over these numbers are AGs typical competitors. AGs typical competitor has annual sales over $1.0B. Because of Chinese manufacturing contract consolidations, AGs size was becoming a disadvantage collect to low buying power vs. competitors. AGs initial heighten was to produce and market high-quality specialty shoes for golf and tennis players. AG was among the first companies to offer fashionable, walking, hiking and boating footwear. Over the categorys, the firms athletic shoes had evolved from high-performance footwear to athletic fashion wear with aclassic image.The firms traditional casual shoes besides offered classic styling, but were aimed at a broader, to a greater extent mainstream market. AGs rank demographic was urban and suburbanites, ranging from 25-45 in age. AGs dispersion channels consisted of independent retailers, departmental stores, and wholesalers. AG excluded big box retailers and send away stores. AG focused on intersection points that didnt follow fashion trends, resulting in a lengthened product lifecycle. This business model led to more efficient and effective supply chain and operating management. However, because they opted for the safe travel plan it halted the companys sales and growth opportunity.Mercury AthleticMercury Athletic was purchased by WCF from its founder Daniel Fiore. Fiore was forced to sell the company subsequently running it for over 35 years, due to health problems. Due to a strategic reorganization, the plan called for the divestiture of MA and other non-core WCF assets. MA had revenues of $431.1M and an EBITDA of $51.8MProducts were distributed to departmental and rebate storesIt had two product lines- a thletic and casual footwearTarget market of two men and womenShoes popularity grew in the extreme sports marketMA developed an operating infrastructure, allowing management to quickly adapt to changes in client tastes with product specifications. 1. Is Mercury an appropriate target for AG? Why or why not?Let 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. Acquiring MA could premise to economies of scale and scope through manufacturing and distribution networks, respectively. Acquiring MA- AG would be less affected by the Chinese manufacturing contract consolidation, due to change magnitude buying powers. AG could potentially revive and profit from acquiring Mercurys womens product line. Acquiring MA forget double AGsannual revenue.Counter arguments-AG and MA target demographics could not produce company synergies MA is fashion trendy, therefore habituated to risks outside of AGs steady business model play along cultures could not match2. Review the projections by Liedtke. Are they appropriate? How would you recommend modifying them? In order to find if the projections are reasonable, you need a startle point. Using projected growth rates and EBIT should indicate if Liedtkes information is solid. Referencing the Free Cash Flow and Terminal look on tables (found below), I will be able to generate an opinion of Liedtkes projections. Year to year growth rates are extremely volatile, normalizing in 2010.The negative rate could signify that in 2007 they are projecting to discontinue a product line. 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. EBIT has been projected to gradually increase, which looks to be on par with industry norms. It is reasonable to say that Liedtkes projections properly r eflect AGs business model, post-acquisition.3. See tables and calculations below4. Do you regard the pass judgment you obtained as conservative or aggressive? Why? From my analysis, the valuate I obtained seemed to be aggressive against the information provided. Referencing the tables belowTerminal or go-ahead Value is HighSynergies are excluded from financial analysisDeclining revenue growth5. How would you analyze practicable synergies or other sources of mensurate 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 lowest product are all possibilities of operational synergies (buying power, distribution channels, inventory management, etc). fiscal synergies would include combining revenues and cost benefits, which translate to increasing bottom line. phoner culture matching could also become problematic.Quantitative Analysis give th e sack Working CapitalFree Cash FlowWACCTerminal ValueValuationNPV, IRR and Payback PeriodConclusionNet present value of future cash flows equates to a positive $0.2M. Internal rate of proceeds or IRR is the interest rate at which the net present value of all the cash flows from a project or investment have-to doe with 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.