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CEO Report: Buying Competitor's Business - Essay Example

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RUNNING HEAD: Report to CEO: Buying Competitor’s Business (your name) (Institution) Abstract While contemplating acquisition of a competitor’s business, it is important to properly assess the financial health of the target firm apart from careful review of other important business aspects like technology, product range, organization, manpower resources etc…
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CEO Report: Buying Competitors Business
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Download file to see previous pages Report to CEO: Buying Competitor’s Business Buying a competitor’s business is a strategic move that needs to be examined in the background of factors that will impact our business, either positively or negatively. The positive factors are the complementarities between us and the target firm for consolidating our existing operations, and the negative factors are those that might impact our operations. In the short time available for preparing this report, I had to depend upon sources of information in public domain like website information, annual reports, directors’ reports etc., and from our marketing intelligence by way of their product catalogs, distributor/dealer feedback, company announcements etc. (Williams and Lucas, 2000). At the later stage of actual negotiations, we may seek further information from the target firm. Firstly, I will discuss the complementarities in the fields of finance, technology, organization, product range and marketing strengths. Financial information is contained in the balance sheet, cash-flow/profit and loss statements, and ratio analysis, all of which have been accessed through published information such as annual reports. We studied such reports covering the last three years in order to get reliable trend and to eliminate possible distortions. The study enabled determination of the net asset value of the firm, gross and net profit margins on sales in different product/services and return on capital employed (ROCE). We have calculated the net present value of the stream of revenues over the medium-term, ignoring sensitivity analysis for the sake of simplicity. We have collected information on liabilities such as outstanding debts, notes payable, accounts payable and lease agreements for plant and equipment, as recommended by Windhaus (2011). We have broadly assessed the intangible assets such as goodwill, trademarks and patents. This information on the financial health of the firm, shown in the Annexure, is crucial for our Board to consider the viability of the investment proposal and to examine options for sources of finance – internal or external. The conclusion is positive and leads to examination of the other aspects of the proposed buy-out. The target company’s technological assets have been examined to list out strong/weak points in R&D capabilities and innovations since these are crucial for their marketing strategy, competitiveness and profitability. It is noted that there are some product features which are giving them price advantage in the premium segment of products (where we also compete) and the prospective buy-out will enhance our profitability. At the same time, in the non-premium categories, we have superior economies of scale. The relevant information is briefly listed in the Annexure under the heading ‘technological aspects’. It is noted that significant advantages would accrue to our marketing capabilities and profitability by the proposed acquisition. Organization is the next crucial element which we examined by analyzing employee strength, value addition per employee, organization structure and industrial relations. All this information was collated from their annual reports. This data is essential for the post-acquisition situation when we reorganize our present set up and fit in the new people ...Download file to see next pagesRead More
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