merger

On 5th April 2019, AP Eagers announced its intentions to establish an offer to acquire all the shares in AHG through an off-market takeover bid. The CEO, Martin Ward, also said that this was a compelling opportunity for both stakeholders. He also emphasized that the offer granted AHG an opportunity to contribute in the benefits and upside afforded by AP Eagers' expertise strategy and management. The combination would also promote both of them in the motor vehicle retailing market. The offer stated that AHG to receive a single fully paid APE share on every 3.0 AHG shares owed after considering the market value of 2019. As of April 2018, the Return on Equity of APE was 12.49% which they needed to maintain for it to be impressive (Apeagers.com.au, 2021). Its maintenance can only be measured by the financial support of the company, especially debt which is not included in calculating ROE. ROE is the measure of the company's profit relative to the equity of the shareholders. It helps measure the profit margin, which showcases how much revenue moves into earnings hence illustrating the business's efficiency. APE’s ROE is impressive since it efficiently covers its costs of equity. In addition, the total revenue growth of APE has been growing steadily as demonstrated in the Appedix.

SWOT Matrix of AP eagers

SWOT analysis is a strategic technique used to determine the firm's strengths, weaknesses, opportunities, and threats. The internal strategic factors are the strengths and weaknesses, while the external are opportunities and threats (Simplywall. st, 2018).

Strengths of APE limited

It is a highly successful marketing strategy.

It has strong free cash flow, which supports its new projects.

It has developed expertise that helps it perform excellently in the new markets.

It is believed to have a high level of satisfaction to customers.

Since it is an old company, it has built a strong dealer community.

It has got reliable suppliers of raw materials hence avoiding supply chain challenges.

The consistency of quality products has made APE scale up and down based on the demand in the market.

Weaknesses

APE is not excellent in demand forecasting.

The net contribution and profitability ratio is below the industry average.

Compared to the competitors, APE does not heavily invest in research and development.

It has limited success beyond its core retailing business.

Deficient in product segmentation.

Opportunities

New trends give APE an opportunity to diversify into new products.

Adopting new technologies enables it to enter into the emerging market.

Utilize the stable free cash flow to invest in product segments and research and development heavily.

Low shipping prices reduce the cost of transportation.

Threats

The rising pay level like in transportation in China.

The Lawsuits in markets and regular fluctuations since it operates in many countries.

The Irregular supply of innovative products leading to unreliable sales numbers.

The rationale behind the combination of AP Eager and AHG

To form a more extensive geographical portfolio diversification of their products and services in all Australian States and Territories. The combination offered an opportunity to improve their representativeness of approximately 11.9% of all the new vehicle sales in the Australian market and New Zealand. The second reason is to enhance their brand diversification by using the AHG'S 229 new car dealership areas in Australia and 13 in New Zealand. The combination also aimed to enhance pre-tax cost synergies and form a more and larger flexible balance sheet(Accc.gov, 2019). Such a reason will promote their financial strength to pursue future opportunities.

Porter’s five forces

It is a holistic strategy framework that helps a company build a sustainable competitive advantage. AP Eagers needed to analyze the forces to make an informed decision of acquiring AHG in the automotive industry. The first force is threats of new entrants where APE has to manage the new entrant's innovation. Innovation has come with new ways of doing things, putting a lot of pressure on AP to reduce their costs, produce new value propositions, and lower pricing strategy for their customers. Such pressure makes APE develop effective barriers to these challenges to safeguard its competitive edge in the market. One way to deal with such a threat is to innovate new services and products to give the old customer a valid reason to buy APE's products and services. Acquiring AHG is one way of bringing new products to the company.

The second force facing APE is rivalry among the competitors in the industry. In case the competition in the industry is intense, the companies are forced to lower their prices which lowe the company’s profitability. AP Eagers works under a very stiff competitive retail industry. In order to deal with such intense competition in the existing industry, the company should collaborate with competitors to enlarge its market size. (Ibisworld.com, 2020) I believe this is the most significant decision made by APE. Because both are the largest automotive retailers, coming together will reduce competition in the Australian market and outside.

Appendix

Total revenue growth of APE from 2016 to 2020

References