Mercury Athletic

Topics: Free cash flow, Discounted cash flow, Cash flow, Net present value, Revenue, Internal rate of return / Pages: 4 (800 words) / Published: Sep 25th, 2013
RE: Mercury Athletic valuation and acquisition recommendations

We believe that Mercury is an appropriate target for AGI since an acquisition can be an excellent growth opportunity. First, through the acquisition AGI can take the advantages of some existing synergies. Acquiring Mercury would expand AGI’s business size and consequently produce the “one plus one is greater than two” effect. This acquisition would double AGI’s revenues, increase its leverage with contract manufacturers, and also help to expand its presence with key retailers and distributors. Moreover, if negotiated well, AGI could acquire Mercury for a lower price than the actual price of Mercury; earning more than what they’ve paid. This will be discussed further in the recommendation.

Secondly, acquiring Mercury is a lower risk way for AGI to increase their growth rate. Mercury has a high growth rate of revenue, which may compensate for the low growth rate of revenue for AGI. Further, since the women’s casual line is going to be closed or consolidated, the rest of the three segments of Mercury show prosperous future prediction in margins and growth. This reflects a good acquisition opportunity.

Finally, acquainting Mercury is ease of integration. This is because Mercury and AGI both are the footwear industry. And the main products of Mercury are athletic and casual footwear that are similar with AGI’s products. Both of the companies’ manufacturers are located in China, so they can enjoy the geographical advantage of sharing resources and infrastructure with each other.

After reviewing Liedtke’s projections, we determined that they seem reasonable overall. One area we may consider altering is the revenue projections. The Revenue growth for each firm seems a bit aggressive. The growth rate of Men’ Athletic Footwear continue decline from 15.39% in 2007 to 5% in 2011 while it was 15.39% and 44.24% in 2005 and 2006. The growth rate of Men’s Casual Footwear remain stable around 2%-3% while

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