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Project Management Case Study

1. Key Pros and Cons of the acquisition Ans: From the data provided in the case study the key advantages of the acquisition are as followsPros of the Acquisition The risk free rate is 2.98 % which is not bad to invest money The Revenue of the company is stable or steadily increasing over the period of 4 years The products of the target company are more of generic i.e. they run on commercially available tablet and PCs which are easily available in the market There are around 50 to 100 small companies in the market and target company is in top 20 Sales channel is very well distributed through the independent distributed network which is good thing as it has good sales base Holds new device which is similar in function with the existing competitive products Company has all the permanent employees which indicates that the importance of all the employees in the company $ 200K Capitalized software investment $ 150k Finished goods indication of good operations management

Cons of the Acquisition Target Company has no owned property Target Company is not independent but has parent company and that parent company of target is very demanding Company has $ 250K aged accounts receivable Company has 1.98 Debt. / Equity ration Considerably high Debt. $ 1.6 M

2.

Individual Recommendation on the Acquisition and Supporting Argument

Ans: In my opinion the Buyer Company should go ahead with the acquisition ASAP. As the Target Company has a steady growth over the last 4 years also the bad Debt over the period has reduced significantly. Also the risk free rate for the company is 2.98 % which is fairly good. In any acquisition take place majorly for two reasons, to expand operation base to have new footprints or to increase the product portfolio (Technology exchange). In this case target Company has technology which runs of the easily available commercial devices like Windows based PC and Tablets. Windows being leading operating system in terms of market coverage that is a huge advantage. The buyer produce products which runs on proprietary Software which makes it little more expensive and obstructs it reaching the bottom layer of customers.

Since the industry is AAC, It is important that the devices go to the bottom layer of the society at affordable prices as well as easily available. Since the target company has primary distribution channel through distributor, this makes the distribution more efficient and easily available even for the remote areas. Also considering the financial and ranking of the company, its not at all a bad deal to acquire the deal. Strategic advantage domestically as Buyer has majority base and operations in eastern part of USA whereas target Company is located in the California. This will help buyer company to make a strong base in Western USA also it will be helpful for the Supply chain management team.

3.

Steps to be considered should the acquisition go forward

Ans: In my opinion the acquisition should go forward ASAP as per the expectation of the Parent of the target Company. The following steps should be taken in order to make the acquisition and the operations smooth. 1. Plan and Carry out strong negotiation process in order to reduce the acquisition value. 2. Visiting the target companys plant to see how the current operations are carried out. If they dont match the standard of the buyer company then planning on modifying the processes and make a strong implementation plan. 3. Verify the reliability of the products, the target company sells. 4. Understand the distributor channel of the Company. 5. Identify the key customer (mass) customer base of the target company. 6. Hold a meeting with the distributors and convey the message to them. Win the faith of the distributors. 7. Meeting with the CEO and other team members to put forth the situation and listening to their views / suggestions on the acquisitions. 8. Notify all the employees of the target company about the acquisition. 9. Retain all the old employees on payroll and new employees on contract basis (as all the employees are on payroll, in my opinion all hold key in the companys success till date.) 10. Going ahead with the successful acquisition of the company.

4. Ans:

Review of the target companys base value

Calculating the base value is a tedious task, there is no full proof method to calculate the base value of a company. So many factors like tangible assets which includes Reputation, trademark, customer list, patents and intangible assets which includes Revenue, Liabilities, Cash flow or profit, industry multiplier determine the companys actual worth. In my opinion, looking at the companys financial data the base value of th e company should be around $ 1750K. This value is based on the value of the total assets.

This value may vary during the negotiation process which. 5. Target companys worth to buyer

Ans: Again it is very difficult task to calculate the companys worth to my firm. Based on the data provided in the case study the value of a share is $ 3.7 Total Equity is $ 370K market value and total number of shares are 100000. In order to acquire controlling stake in the company, one must have at least 51% shares. (51000 shares in this case). Therefore the companys worth is 3.7*51000 = $ 188700.

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