Professional Documents
Culture Documents
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Cost
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Finance
o Sell non-essential assets
o Have customers pay sooner
Business Situation Framework (Market entry, new product, new
business, how to grow, turnaround)
- What defines success? Why is the company trying to enter
market/launch new product etc?
Customer
- Market size/growth- industry trends (industry lifecycle)
- Who is the customer? (segments, size, growth rate, % of total
market, trends)
- What do the segments want?
- What price is the segment willing to pay?
- Switching costs
Competition
- Competitor concentration (market share, monopology)
- Competitor behaviours (target segments, pricing strategy, brand
loyalty)
- If there are little competitors is it because not profitable?
- Industry changes (new players/technology)
- Barriers to entry/exit time and cost of entry, specialist
knowledge, economies of scale, technology to protection,
regulatory barriers to entry, other entrants to the market
- Supplier concentration number of suppliers, substitutes
Company
- Capabilities and expertise, current distribution channels
- Cost structure high fixed costs = barrier to entry, investment
costs
- Intangibles (brands, brand loyalty)
- Financial situation
- Organisational structure (were organised by product line, but
customers want one point of contact etc)
Product
- Nature of product is it a commodity good or easily differentiable
- Complimentary goods and substitutes
- R&D
Possible solutions
- Start from scratch
- Acquire existing player
- Joint venture- what can both sides bring?
M&A Considerations
1. Objectives/what defines success?
a. Increase market access share
b. Economies of scale
c. Diversify holdings
d. Incorporate synergies
e. Shareholder value/tax advantages
2. Customer / Competition
a. Market size, growth, profitability,
b. Who are the customers
c. Competitor concentration
d. Threats: substitutes, imports
e. Key market trends
f. Barriers to entry (international trade restrictions, sunk
costs, advertising, customer loyalty, government
regulations, tariffs (taxes on imports, control of resources,
R&D, patents)
3. Company attractiveness
a. Profitability
b. Relative market share
c. Relative cost position
d. Key customer segments
e. Strength of customer relationships
f. synergies
g. Strength of key talent
4. Product
a. Cannibalisation, reputation
5. Due diligence
a. How secure are markets and customers
b. Cultures between the 2 companies
c. What would the competitive response be
6. Feasability and profitable exit
a. Existence of strategic buyers
b. Expected profit?
Pros and Cons
- (+) Market share, economies of scale, reduction of competition,
profit for R&D,
- Acquisitions are cheaper, easier and faster than merger (less
legal procedures, less fighting between DM and ownership)
- Culture- have to incorporate both in merger
- (+) Lower risk compared to developing new products, increased
diversification, speed to market
New Product
Product
- Special or standard
- Financing
- Patented?
- Substitutions
- Advantages and disadvantages
- Place in product line?
- Cannibalising own product? Replacing?
If Scenarios
Sales
- If sales are flat and profits are suffering analyse BOTH sides (rev
first)
- If sales are flat but market share is constant everyone else may
be same
- If decline in sales: is there just less demand for that market? Is it
possible that market has matured or become obsolete? Is it
because of substitutions?
Product:
- If emerging: focus on R&D, competition, pricing
- If in growth: marketing and competition
- Mature: manufacturing, costs, competition
- Declining: niche, analyse competition strategy, exit
Pricing
- If you lower prices and volumes rise you may reach point beyond
full capacity and costs will rise as dont have adequate resources
or employees going overtime
- Volume and costs easier to change than industry price levels
Math reminders
- Markup percentage is ON TOP of cost i.e. it costs 100 to produce
and markup is 120 so final price is 220
- CAGR = (Final value / initial value)^(1/years)
- Current ratio = current assets divided by current liabilities (ideal
ratio is 1:1)