Mercury Athletic Footwear
Mercury Athletic Footwear:
Valuing the Opportunity
Group 1
Bushra Javed Butt
M. Sharjeel Shahid
Mahnoor Malik
Uzair Nasir
MBA II – Section A
Submitted To: Sir Nawazish Mirza
Introduction
West Coast Fashions, Inc. (WCF), a large designer and marketer of men’s and women’s apparel decided to dispose of one of their divisions; Mercury Athletic. John Liedtke, head of the business development for Active Gear, Inc. (AGI), saw a possible opportunity for his company in acquiring Mercury.
The footwear industry is very competitive, with low growth and stable profit margins. AGI is very profitable but it is smaller than its competitors, which is becoming a disadvantage. Therefore, Liedtke believes that if they takeover Mercury, it will double AGI’s revenue, increase its leverage with contract manufactures and expand its presence with key retailers and distributions. Liedtke has to evaluate the company to justify that whether investing in the Mercury would be profitable and at what maximize price could AGI offer in order to acquire the division.
Analysis
In order to achieve the above set goal, Liedtke needs to analyze the financial data from 2006 to 2011 (Exhibit 6 and 7), and calculate free cash flows. This data will enable him to identify the strengths and weaknesses of this acquisition. Following is the snapshot of AGI and Mercury operations based on year 2006, the last year before AGI plans to acquire Mercury.
Active Gear, Inc
Mercury Athletic
Revenues
$470, 286 m
$431,121 m
Operating Income
$60.4 m
$42,299 m
Days Sales in Inventory
42.5
61.1
It can be seen that AGI and Mercury has somewhat the same revenues and considering the profitability of AGI, Mercury seems to be an attractive investment opportunity.
Calculation
After calculating NOPAT, we proceed to calculate FCFs for Mercury. The Depreciation expense, change in WC, and Capital Expenditure are adjusted back. Here we are actually subtracting all of the net reinvestment from the firm’s operations (NOPAT).
Valuing the Opportunity
Group 1
Bushra Javed Butt
M. Sharjeel Shahid
Mahnoor Malik
Uzair Nasir
MBA II – Section A
Submitted To: Sir Nawazish Mirza
Introduction
West Coast Fashions, Inc. (WCF), a large designer and marketer of men’s and women’s apparel decided to dispose of one of their divisions; Mercury Athletic. John Liedtke, head of the business development for Active Gear, Inc. (AGI), saw a possible opportunity for his company in acquiring Mercury.
The footwear industry is very competitive, with low growth and stable profit margins. AGI is very profitable but it is smaller than its competitors, which is becoming a disadvantage. Therefore, Liedtke believes that if they takeover Mercury, it will double AGI’s revenue, increase its leverage with contract manufactures and expand its presence with key retailers and distributions. Liedtke has to evaluate the company to justify that whether investing in the Mercury would be profitable and at what maximize price could AGI offer in order to acquire the division.
Analysis
In order to achieve the above set goal, Liedtke needs to analyze the financial data from 2006 to 2011 (Exhibit 6 and 7), and calculate free cash flows. This data will enable him to identify the strengths and weaknesses of this acquisition. Following is the snapshot of AGI and Mercury operations based on year 2006, the last year before AGI plans to acquire Mercury.
Active Gear, Inc
Mercury Athletic
Revenues
$470, 286 m
$431,121 m
Operating Income
$60.4 m
$42,299 m
Days Sales in Inventory
42.5
61.1
It can be seen that AGI and Mercury has somewhat the same revenues and considering the profitability of AGI, Mercury seems to be an attractive investment opportunity.
Calculation
After calculating NOPAT, we proceed to calculate FCFs for Mercury. The Depreciation expense, change in WC, and Capital Expenditure are adjusted back. Here we are actually subtracting all of the net reinvestment from the firm’s operations (NOPAT).