AN ACQUISITION PROPOSAL

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Table of Contents
Executive Summary.............................................................................................................................3
1. Introduction and Background........................................................................................................4
1.1 Serco Group Plc Profile...............................................................................................................4
1.2 Aim and Objectives......................................................................................................................4
1.3 Literature on Mergers and Acquisition.........................................................................................4
2. Acquisition Strategy........................................................................................................................5
2.2 Statement of Need.......................................................................................................................5
2.3 Applicable Conditions.................................................................................................................6
2.4 Costs and Performance................................................................................................................6
2.5 Delivery or Performance-Period Requirements...........................................................................7
2.6 Risk Assessment..........................................................................................................................7
2.6 Financial Assessment...................................................................................................................9
3. Plan of Action.................................................................................................................................10
3.1 Service Description....................................................................................................................10
3.2 Potential Sources.......................................................................................................................10
3.3 Competition...............................................................................................................................11
3.4 Acquisition Considerations........................................................................................................11
3.5 Business Valuation of the Target Firm.......................................................................................12
3.6 Milestone for Acquisition Cycle................................................................................................13
References..........................................................................................................................................14
Appendices.........................................................................................................................................16
Appendix A......................................................................................................................................16
Appendix B......................................................................................................................................18

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Executive Summary
As a business manager of Serco Group Plc the author has analysed the acquisition strategy of
Serco to take over the Listening Limited which is one of the leading contact centres in the
UK and provides outsourcing customer services to both private and public entities within the
UK. The Listening Companys latest accounts submitted to Companies House illustrate
58,000 cash at bank, 1,801,000 liabilities, 10,042,000 net worth, and 10,693,000 current
assets. In the past, the Listening Company has achieved many customer service awards on the
basis of satisfying customers, customer retention, and efficient advisory system. The
Listening Company provides services through multi-channels such as internet, fax, telephone,
and email. It is believed that acquiring the Listening Company will enhance existing contact
centre capabilities of Serco Group. Also, the scale of the Listening Company and their
expertise in call and contact centre will strengthen the capacity of Serco to deliver services to
existing and potential customers.

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1. Introduction and Background

1.1 Serco Group Plc Profile
Serco Group PLC is based in the UK and has its subsidiaries all around the world. The
company has five vital segments such as Defence, Science, and Nuclear; Local Government
and Commercial; Civil Government; AMEAA; and the Americas. Serco works to enhance
quality and competence of inherent services that are required by millions of people across the
world. The key services of Serco include: defence, education, BPO, health and environment,
consultancy, home affairs, nuclear, welfare, science, transportation, and facility management.
The company has more than 50 years experience of assisting its customers on a regular basis
in achieving their goals (Serco Group, 2013a). The simple vision of the company is to be the
worlds greatest service company while the strategy to achieve this vision is based on four
primary elements such as build a balanced portfolio, maintain high rebid and new win rates,
make strategic acquisitions, and develop new models (Serco Group, 2013b). The key
statistics of Serco Group plc are presented in Appendix A.

1.2 Aim and Objectives

The purpose of this report is twofold. First, to review the importance of mergers and
acquisitions in the context of the academic literature; and secondly, to target an acquisition
strategy of Serco to take over Listening Company which is one of the leading contact centres
in the UK but adversely hit by the financial crisis. The report briefly documents commercial,
financial, and valuation aspects of the acquisition strategy.

1.3 Literature on Mergers and Acquisition

Merger and acquisition gives the fastest track in achieving the goals of corporate growth.
Merger and acquisition range from simple licensing agreement between two parties, an
alliance of two or more companies or it may be a joint venture (Marks & Mirvis, 1998).
Extensive research has been conducted on the merger and acquisition of firms both from
domestic and international point of view. A number of researches have focused in preacquisition and post-acquisition performance of firms. The study of Hitt et al. (1998)
validates the findings of Rao & Sanker (1997) that there is a positive impact on liquidity,
profitability and leverage of the acquirer firm. However, the findings of Shleifer & Vishny
(1994) and Cartwright & Schoenberg (2006) showed that there is no effect of merger and
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acquisition on the performance of companies. Important reason why management supports

the decision of merger and acquisition lies in the managerialism hypothesis. According to this
hypothesis, management chooses the option of merger and acquisition to enhance their own
utility at the cost of shareholders (Hambrick & Cannella, 2004).
The mechanism of merger and acquisition is used to analyse the critical resource of
companies, enhance the power of firms with respect to other organizations and to minimise
the competitive uncertainty that is created among companies due to dependency of resources.
Merger and acquisition can also be a great learning option for both companies (Kogut, 1988;
Hamel, 1991; Vermeulen & Barkema, 2001). Companies may expand their knowledge base
by acquiring other companies (Huber, 1991).
Doukas and Petmezas (2007) examine the CEO biasness and overconfidence in mergers and
acquisitions. They found that self-attribution bias of the CEO and managers often result in
overconfidence. An overconfidence CEO or manager thinks that he has superior decision
making skills and capabilities compared to others. The existence of such cognitive biases
motivates them to focus on their own judgements in making merger and acquisition
decisions. Due to the overconfidence, the managers and CEOs either underestimate the risks
and hazards related to merger and acquisitions or overvalue the probable synergy gains from
a business combination.
In contrast, Malmendier and Tate (2008) investigate the degree to which overconfidence can
be beneficial for the companies compared to other CEOs. They explained that it is more
expected from overconfident CEOs to practise acquisitions when their organisations have rich
internal resources. In addition, diversified merger are also more likely occurs in case when
CEOs are overconfident as they finance their mergers more compared to other CEOs.

2. Acquisition Strategy
2.2 Statement of Need
The Serco Group has undertaken several projects in the past to offer an integrated and
widespread approach of service delivery to people. Today, Serco provides in excess of 50
services and products to private and public entities in a range of fields. As Serco Group
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recently extended its contract with Docklands Light Railway (Reuters, 2013), it needs to
employ more contact centre services to comply with the requirements. Therefore, the
company has decided to acquire the Listening Limited Company which is one of the leading
contact centres in the UK but adversely hit by the financial crisis.

2.3 Applicable Conditions

The takeover process is not easy and therefore consists of lengthy and complex procedures.
The overall takeover process involves a phase-in period to achieve acquisition of a new
customer centre. In addition, 120 to 180 days are required as ramp-up period which refers the
period following the preliminary arrangement of an asset securitisation transaction. After that,
the acquired company i.e. the Listening Ltd. will be able to comply with the full performance
level of Serco. There are a number of reasons where some of them are as follows:
Data assembling: The Listening Company will be needed to acquire and assemble a massive
piece of information that they are not familiar with. In addition, the contact centre experience
of many companies demonstrates that first six months of operations are crucial in terms of the
expansion of customer database (Aksin et al. 2007).
Workload management: Each customer contact centre has its own unique patterns of working.
These patterns would be changed according to the requirements of Serco group or in other
words, it can be said that the patterns will be based on the nature of the services that Serco
provides to their customers. Therefore, it will be necessary for the Listening Company to
workout on how to respond and satisfy callers to achieve the enormous level of customer
service.
Quality management: Serco might get difficulties in the initial months after acquisition in
terms of managing workload as well as managing quality at the same time. The literature
suggests that it is not easy for the acquirers to manage both things simultaneously
(Engelbeck, 2001).

2.4 Costs and Performance

The cost and performance objectives of this acquisition will be based on to get hold of the
services of the Listening Company at a realistic and sound price based on ample price
competition. Life-cycle costing is not applicable to this acquisition as Serco is not involved in
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acquiring and plant or equipment. Similarly Design-to-Cost will also not be applicable as
Serco will not be involved in designing any new product/service. Should-costing will be used
when staff will conduct an in-depth analysis of the contractors plan to discover and remove
deficiencies and diseconomies in the Listening Company.
The performance criteria for each work element will be reviewed by the program office at
Serco Group and at the Listening Company to ensure the delivery of ample products/services.
Furthermore, the performance criteria will also be based on the anticipated target level of
performance and its frequency of measure (e.g. daily-basis, weekly-basis, monthly-basis etc.).

2.5 Delivery or Performance-Period Requirements

The option periods are required to facilitate the performance-period requirements because the
process of acquiring the Listening Company needs a substantial amount planning, scheduling,
commitment, and resources on the part of Serco Group. The initial planning due to adequate
option periods will provide Serco the prospect for managing risks effectively, service
continuity, and flexibility for cost control. It is believed that primary start-up costs to be
sustained by Serco Group for acquiring Listening Company are significant and cannot be
recovered once the task is terminated. By taking these constraints into consideration, it would
be better for Serco Group to set one base year period along with four option years to best
meet the requirements of acquiring a customer contact centre (Calvert, 2004).

2.6 Risk Assessment

Serco Group may face a range of risks associated with the acquisition of the Listening
Company. The probable risks along with risk description, probability, impact, and appropriate
risk response strategy are outlined in table 1.1.
Whereas figure 1.1 and table 1.2 illustrate risk map and probability impact matrix of Serco
Group showing the probable acquisition risks in acquiring the Listening Company. It is
evident in the tables that financial risks are critical compared to other risks.

Table 1.1 Risk register for Serco Group plc

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R7
Legal risk
R8
Activity processes sequencing risk
R9
Process integration risk
R10
Reckless enthusiasm risk
Risk avoidance: engage in alternate activity
Risk reduction: minimise the likelihood of risk
Risk transfer: transfer risk to other part
Risk acceptance: unavoidable risks

Result = PxI

Financial risk
Compatibility risk
Outcome risk
Operational cost risk
Corporate integration risk
Return on Investment risk

Impact (I)

R1
R2
R3
R4
R5
R6

Prob. (P)

Rank

Description

4
4
4
4
4
3

5
5
4.5
4.5
4
4

20
20
18
18
16
12

3
3
2
3

3
3
3
3

9
9
6
9

Risk Response

Risk avoidance
Risk avoidance
Risk reduction
Risk reduction
Risk reduction
Risk reduction
Risk acceptance
Risk reduction
Risk transfer
Risk reduction
Created by author (2013)

Figure 1.1 Risk map for Serco Group Plc

Table 1.2 Probability impact index of Serco Group plc

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2.6 Financial Assessment

The key financials including cash at bank, net worth, total current liabilities, and total current
assets of the Listening Ltd. are as shown in the following figures which clearly demonstrate
the worth of the company.

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Data source:
http://companycheck.co.uk

In addition, Listening Ltds profit and loss accounts, balance sheets, capital & reserves,
working capital, and ratios for the period from 2008 to 2011 are listed in appendix B. These
statistics also shows strong financial position of the Listening Limited which is a good sign
for Serco Group Plc.

3. Plan of Action
3.1 Service Description
Serco group is seeking to acquire the Listening Company in order to expand its multi-channel
contact centre services to facilitate public due to the extension of its contact with Docklands
Light Railway. After the acquisition, the Listening Company will be responsible to provide
call and contact centre support services on the behalf of Serco to respond inquiries related to
Docklands Light Railway.

3.2 Potential Sources

The Listening Company will provide all essential services, equipment, personnel,
management, and support to comply with the requirements mentioned in the acquisition
agreement with Serco Group. The term multi-channel contact and customer support centre
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in the service description section refers to performing all duties associated with entertaining
and responding inquiries of people including deaf through telephones, email, mail, fax, posts,
and other media including internet. In addition to providing these services, the Listening
Company will be accountable to perform all management and technical functions to devise,
develop, apply, operate, and organise support service centre solutions. Furthermore, the
Listening Company will also provide additional support to Serco on special short-term or
long-term projects.

3.3 Competition
The proposed acquisition will be non-competitive as Serco is not involved in providing only
call and contact centre services in the UK. The Listening Company will only be acquired to
respond the inquiries related to Docklands Light Railway.

3.4 Acquisition Considerations

The following acquisition considerations are applied to this procurement:

Serco Group will ensure that all stakeholders (board members, stockholders,
management of both companies, investors etc.) agree on the strategies defined for the

acquisition process
All mandatory equipment will be contract furnished property
Client benefits: the resultant task sequence will be recommended by Serco which will

consequently allow the Listening Company to effectively handle the public queries
Establishment of multi-channel call and contact support centre: this will enable Serco

to make available a single efficient customer service portal to timely resolve the issues
Serco Group will establish the business plan drivers as it is very important to convert

their business strategies to motivational source (Hitt et al. 1998)

Serco will identify and examine all risk factors associated with the acquisition
Performance based contract: the KPI metrics will be used throughout the term of the
task order. An example of KPI metrics is shown in table A2 appendix A. A dedicated
individual will be assigned as a contracting officer who will be accountable to
coordinate quality assurance surveillance with the Listening Company on the awarded

task order
Subcontracting: The Listening Company will be allowed for subcontracting. Serco
will approve the ultimate plan after evaluating the offers of the potential
subcontractors.
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3.5 Business Valuation of the Target Firm

The discounted cash flow analysis using Net Present Value (NPV) is considered as one of the
best ways to find the value of the offered price (Howard, 2007). The calculations on business
valuation of the Listening Company are as follows:

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Source: Based on excel calculations

The above analysis through NPV method illustrates the feasibility of acquiring the Listening
Company.

3.6 Milestone for Acquisition Cycle

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References
Aksin, Z., Armony, M. and Mehrotra, V. (2007). The Modern Call Center: A MultiDisciplinary
Perspective on Operations Management Research. Production and Operations Management.
16(6), pp. 665-688.
Cartwright, S. and Schoenberg, R. (2006). 30 years of mergers and acquisitions research: Recent
advances and Future opportunities. British Journal of Management, 17(S1), pp. 1-5.
Doukas, J. and Petmezas, D. (2007). Acquisitions, Overconfident Managers and Self-Attribution Bias,
European Financial Management, 13, pp. 531-577.
Engelbeck, R.M. (2001). Acquisition management. Management Concepts
Hambrick, D. & Cannella, A. (2004). CEOs who have COOs: Contingency analysis of an unexplored
structural form.. Strategic Management Journal, 25(10), pp. 859-979.
Hamel, G. (1991). Competition for competence and inter-partner learning within international
strategic alliances. Strategic Management Journal, 12(S1), pp. 83-104.
Hitt, M., Harrison, J. and Best, A. (1998). Attributes of successful and unsuccessful acquisitions of US
firms. British Journal of Management, 9(2), pp. 91-114.
Howard, M. (2007). Accounting and Business Valuation Methods: how to interpret IFRS accounts.
Elsevier
Kogut, B. (1988). Joint ventures: Theoretical and empirical perspectives. Strategic Management
Journal, 9(4), pp. 319-332.
Marks, M. & Mirvis, P. (1998). Joining forces: Making one plus one equal three in merger,
acquisition, and alliances.. San Francisco: Jossey-Bass.
Rao, K. & Sanker, K. (1997). Takeover as a strategy of turnaround. Mumbai: UTI.
Shleifer, A. & Vishny, R. (1994). The politics of market socialism.. Journal of Economic
Perspectives, 8(2), pp. 261-297.
Calvert, N. (2004). Handbook of Call and Contact Centre Management. Gower Publishing, Ltd.
Cartwright, S. & Schoenberg, R. (2006). 30 years of mergers and acquisitions research: Recent
advances and Future opportunities. British Journal of Management, 17(S1), pp. 1-5.
Gaughan, P. A. (1999). Mergers, acquisitions, and corporate restructurings. New York: John Wiley
and Sons.
Hambrick, D. & Cannella, A. (2004). CEOs who have COOs: Contingency analysis of an unexplored
structural form.. Strategic Management Journal, 25(10), pp. 859-979.
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Hamel, G. (1991). Competition for competence and inter-partner learning within international
strategic alliances. Strategic Management Journal, 12(S1), pp. 83-104.
Hitt, M., Harrison, J. & Best, A. (1998). Attributes of successful and unsuccessful acquisitions of US
firms. British Journal of Management, 9(2), pp. 91-114.
Huber, G. (1991). Organizational learning: The contributing processes and the literature..
Organization Science, 2(1), pp. 88-115.
Kogut, B. (1988). Joint ventures: Theoretical and empirical perspectives. Strategic Management
Journal, 9(4), pp. 319-332.
Malmendier, M. and Tate, G. (2008). Who makes acquisitions? CEO overconfidence and the markets
reaction, Journal of Financial Economics, 89, pp. 20-43.
Marks, M. & Mirvis, P. (1998). Joining forces: Making one plus one equal three in merger,
acquisition, and alliances.. San Francisco: Jossey-Bass.
Rao, K. & Sanker, K. (1997). Takeover as a strategy of turnaround. Mumbai: UTI.
Reuters (2013). Serco Group PLC: Docklands Light Railway Contract Extension. Reuters.com, 07
January 2013.
Serco Group (2013b). Vision and Strategy of Serco Group Plc. [online]. Available from:
http://www.serco.com/about/vision/index.asp [Accessed: 05 March 2013]
Serco Group (2013b). Serco Group Plc About us [online]. Available from:
http://www.serco.com/about/index.asp [Accessed: 05 March 2013]
Shleifer, A. & Vishny, R. (1994). The politics of market socialism.. Journal of Economic
Perspectives, 8(2), pp. 261-297.
Vermeulen, E. and Barkema, H. (2001). Learning through acquisitions. Academy of Management
Journal, 44(3), pp. 457-476.

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Appendices
Appendix A
Table A1: Key Statistics of Serco Group Plc

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Table A2: Key Performance Indicators

KPI

Anticipated Target
Performance

Reporting
Frequency

Quality Assurance
Service delivery quality (through telephone)

At least 95% or higher

Monthly

Service delivery quality (through Email)

At least 95% or higher

Monthly

Customer Satisfaction
Customer survey for assure call quality

At least 90% or higher

Customer survey for assure email quality

At least 90% or higher

Rate of increase in survey participation

At least 2.5% or higher

Availability of service delivery

Maximum (99.9%)

Monthly or
Quarterly
Monthly or
Quarterly
Monthly or
Quarterly
Daily or
Weekly

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Appendix B
Key financials of Listening Limited

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