Advanced Medical Technology corp.
AMT is in the business of developing, manufacturing and marketing scientific medical instruments, needles and catheters for minimal invasive medical treatments. They have a dedicated sales force to sell their products via the medical hospital and doctor’s channel. The industry continues to experience a robust 30% sales growth currently as well in the future. AMT has experienced extraordinary sales growth as can be seen in the Income statement. To maintain their sales growth (at least around industry growth) and market share, AMT has been spending heavily on their Sales and marketing (around 48-53% of sales from 1983-1985) and R&D (9-19% of sales dollars).It seems product differentiation based on scientifically superior medical instruments is their long term strategy as well as USP. Heavy SG&A spending is responsible for their operating losses or negative earnings. To sustain their sales growth they have SG&A costs which are responsible for additional finance requirements. It remains to be seen when AMT’s R&D and Sales force will hit the economies of scale from fixed cost perspective. 2.
AMT is in need of $8 million at the end of year 1988 as can be seen from the calculation of free cash flow which is negative ~$8million. 3.
From Mr. Winter standpoint the bank would not recommend a loan to AMT. They have a negative ROE and so are destroying value of the firm. Although AMT’s revenue is growing by a robust 30% and they have a niche product in the medical instruments market, their inability to manage their operating expenses from SG&A perspective makes AMT’s management inefficient. 4.
Biolabs would be disappointed with the negative FCF, negative ROE going forward with acquiring this company. They are definitely concerned about AMT’s SGA expenses and would want Mr. Haskin to manage and utilize economies of scale some time soon. Unless significant synergies result from merger of AMT into Biolabs, Biolabs would not finalize...
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