...------------------------------------------------- ------------------------------------------------- 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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...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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...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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...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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...Active Gear, Inc. Active Gear, Inc. is an athletic shoe company, which, at the time of the case focuses on casual and recreational footwear aimed at a core demographic of suburban family members aged 25-45. The shoes are generally considered to be fashionable and functional. The casual line of shoes is sold in general retail stores, department, and specialty stores via wholesalers and independent distributors. The athletic line is made through independent sales representatives to a small number of sporting goods stores, pro shops, and specialty athletic stores. AGI has in part maintained their perceived high quality brand image by abstaining from selling through discount retailers. Although they feel this decision has preserved operating margins, they believe it has hurt sales growth. By focusing on a smaller portfolio, Active gear has been able to maintain relatively simple and efficient production an supply chains. This has led to a competitive advantage by way of avoiding poor industry cycles, write-downs, and missed profit opportunities. AGI’s days in inventory is 42.5, much lower than the industry average of 50.9. Despite the fact that AGI is among the most profitable firms in the industry, AGI has started to believe their smaller than industry average size is resulting in a competitive disadvantage. Mercury Athletic Mercury is a smaller shoe company with a highly niche market. The demographic for the company is 15 to 25 year olds with an interest in extreme sports...
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...Mercury Athletic Footwear: Valuing the Opportunity Team 10 / Mergers and Acquisitions West Coast Fashions, Inc (WCF) was a large business, which dealt with men’s and women’s apparel. One of their segments 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 ...
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...1. Do you think Mercury is an appropriate target for AGI? Why or why not? Mercury is an appropriate target for AGI. AGI is looking to increase its revenue and profit by utilizing synergies. The initial aim of AGI for acquiring Mercury Athletics is to increase leverage with contract manufacturers and to boost the cooperation with the retailers and distributors. AGI was one of the most profitable and successful companies in the market segment, but the firm’s size re mained rather small in comparison with the main competitors. Therefore, with the acquisition of Mercury, AGI planned to build competitive advantage. Besides, the target company had well developed operation infrastructure, impressive labor facilities in China and numerous possibilities in reaching the markets in Asia. 2. Review Liedtke’s projections stated in the case. Are they reasonable? How would you rec ommend modifying them? [Hint: Calculate ratios and margins for the projections and compare these to the historical relationships.] Mercury’s EBIT margin for 2006 was 9.8%. Liendke’s 2007 projected EBIT reflects a conser vative increase in EBIT of 9% compared to the average industry growth rate of 10%. According to the forecast for 2007 to 2011, the company is forecasted to show gradual and stable growth of consolidated income from $479.3 million to $597.7 million. This growth rate was estimated by assuming that men’s athletic department sales will be declining from 15% in 2007 to 5% in 2011. Similar trends...
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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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...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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...Modi 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’...
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...1. Do you think Mercury is an appropriate target for AGI? Why or why not? Mercury is an appropriate target for AGI. AGI is looking to increase its revenue and profit by utilizing synergies. The initial aim of AGI for acquiring Mercury Athletics is to increase leverage with contract manufacturers and to boost the cooperation with the retailers and distributors. AGI was one of the most profitable and successful companies in the market segment, but the firm’s size remained rather small in comparison with the main competitors. Therefore, with the acquisition of Mercury, AGI planned to build competitive advantage. Besides, the target company had well developed operation infrastructure, impressive labor facilities in China and numerous possibilities in reaching the markets in Asia. 2. Review Liedtke’s projections stated in the case. Are they reasonable? How would you recommend modifying them? [Hint: Calculate ratios and margins for the projections and compare these to the historical relationships.] Mercury’s EBIT margin for 2006 was 9.8%. Liendke’s 2007 projected EBIT reflects a conservative increase in EBIT of 9% compared to the average industry growth rate of 10%. According to the forecast for 2007 to 2011, the company is forecasted to show gradual and stable growth of consolidated income from $479.3 million to $597.7 million. This growth rate was estimated by assuming that men’s athletic department sales will be declining from 15% in 2007 to 5% in 2011. Similar...
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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 ...
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...F745 Valuation and Capital Investments Assignment 2 | 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...
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...Jide Wintoki From: Richard Smith, Scott Mitchell, Zack Gregory Re: Mercury Athletic Acquisition Based on our analysis of Mr. Liedtke’s base case projections for a potential acquisition of Mercury Athletic, we have concluded that this is a positive net present value project, and that AGI should proceed with the acquisition. Under Mr. Liedtke’s operating assumptions, we calculate the value of Mercury’s discounted cash flows to be $624.446 million, and the acquisition price to be $156.643 million, yielding a net present value of $467,804 for AGI. Our calculations indicate that this project becomes even more attractive financially when potential favorable synergies between AGI and Mercury are taken into account. A real options valuation (details below) involving inventory management and the women’s casual line indicates that an additional $22.365 million of value would be created by the successful implementation of fairly simple operating synergies in those two areas alone. Considering that far more possible synergies and savings are a possibility for AGI and Mercury post-acquisition, we believe this acquisition would be an appropriate strategic move for AGI to improve its own performance and to compete on a more level playing field with the larger companies in the industry. Methodology/Supporting Assumptions To estimate the price of acquiring Mercury, we averaged the P/E multiples of comparable companies in the industry and applied that multiple to Mercury’s 2006 net income to arrive...
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...mercury 3/26/12 10:45 PM Scribd Upload a DocumentCramer's Stock Picks See what stock Cramer is trading for his charitable trust & why. www.TheStreet.com Jim Is CBIS A Scam? Academics... Search Books, Presentations, Business,Read Now Urgent Must Read Report Never Before Seen Information www.VictoryStocks.com/CBIS Search Documents High Dividend ETFs Earn 16% On Average. Find High Dividend ETF's Online Now. FinanceCity.com Explore Buy These 12% Yields Now Forget Treasuries, buy these 12% yields instead. www.GlobalDividends.com Documents Books - Fiction Books - Non-fiction Health & Medicine Brochures/Catalogs Government Docs How-To Guides/Manuals Magazines/Newspapers Recipes/Menus School Work + all categories Featured Recent People Authors Students Researchers Publishers Government & Nonprofits Businesses Musicians Artists & Designers Teachers + all categories Most Followed Popular Sign Up | Log In Jide Wintoki From: Richard Smith, Scott Mitchell, Zack Gregory Re: Mercury Athletic Acquisition Based on our analysis of Mr. Liedtkes base case projections for a potential acquisition of Mercury Athletic, we have concluded that this is a positive net present value project, and that AGI should proceed with the acquisition. Under Mr. Liedtkes operating assumptions, we calculate the value of Mercurys discounted cash flows to be $624.446 million, and the acquisition price to be $156.643 million, yielding a net present value of $467,804 for AGI. Our calculations indicate...
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