merger and acquistion 2
Mergers and Acquisitions
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Company Overview
Super Retail Group
Kathmandu Holdings
Super Retail Group (SRG) is an Australian based company founded in 1972 by Reg Rowe.
The company deals with auto, sport and outdoor leisure products in Australia and New Zealand and has brands such as Supercheap Auto, Macpac, Boating Camping and Fishing (BF) and Rebel sport.
SRG acquired Rays in 2010 and was merged with Macpac in 2018. Rebel sport was also as a result of a merger between Amart Sports and Rebel Sports in 2011(Super Retail Group, 2020).
Super retail derives its sales from retail stores and online sales.
The Company is headed by Anthony Heraghty
The biggest shareholder in the company is Reg Rowe with 29% of total shares.
Kathmandu is a leading retailer founded in 1987 and operating in Australia and New Zealand with headquarters in Christchurch and a second one in Melbourne.
The company retails travel and adventure outdoor apparel and equipment. The various brands are Rip curl, Kathmandu and Oboz.
Kathmandu was listed in Australian and NZ stock exchanges in 2009.
The company purchased Oboz Footwear in 2018. in 2019, it bought Australian surf brand, Rip Curl(RC) at A$350 million (Kathmandu Holdings, 2020)
The current CEOs are Xavier Simonet (Group Chief Executive Officer of Kathmandu Holdings Ltd), Reuben Casey (Chief Executive Officer of Kathmandu), Michael Daly (Chief Executive Officer of Rip Curl), Amy Beck (President of Oboz) , David Kirk (Chairman of the Board)
Super Retail Group Limited is a retail company operating in Australia and New Zealand. The company’s major activities include selling auto parts, tools, and equipment, selling boating, camping and outdoor equipment, fishing and sport equipment and apparel. It was formed in 1972 in Australia.
The company has grown through a number of mergers such as buying Rays and merging it with Macpac in 2010 as well as Amart and Rebel sports in 2011.
The company has five segments. The first one is Supercheap Auto which sells auto parts and accessories. The second one is BCF which deals with boats, camping, and outdoor equpments. The third one is Rebel which deals with sporting equipment. The last one is Macpac which deals with camping and outdoor equipment and apparel.
Kathmandu Holdings Limited was formed in 1987. The giant company deals with travel and outdoor equipment. The company has been able to purchase a number of companies to widen its revenue sources such as Oboz in2018 and Rip Curl in 2019. KHL has 3 entities, namely Kathmandu, Rip Curl and Oboz. The company is headed by a CEO who oversees the overall operations of the company.
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Kathmandu Holdings
Sales
Revenue in AUD dollars
Kathmandu performance has been impressive.
Revenues have been on the increase and profit margin.
2020 saw the revenue increase but the profit margin decreased significantly owing to the COVID-19 pandemic.
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Segment Analysis
Super Retail Group
Sales Revenue ‘[Million USD]
Super Retail Group Ltd is one of the leading retail sellers in Australia.
For the financial year 2020, they made a total sales of $2.83 billion. This was an increase of 4.2% from previous year. All business segments indicated increase in sales from except Macpac (Super Retail Group, 2020).
Kathmandu is a chief competitor with Super Retail Group and made sales worth $801.5 million, an increase by 48.7% from previous year (Kathmandu Holdings, 2020).
All sectors in Kathmandu showed increase in sales except Macpac.
Both companies posted increase in sales revenue in 2020 compared to 2019.
Super Retail Group is a major retailer for variety of goods in Australia and beyond. In 2020, the Company made sales worth $2.83 billion. This was a 4.2% increase from the previous year 2019. Despite the Covid-19 pandemic. Segments such as Supercheap auto, rebel and BCF posted increase in sales revenues. For Macpac which deals with travel and adventure accessories made sales worth $131.9 million. The sales went down by 5.0% from the previous year. Reasons put forward for this was due to Australian bushfires in 2020 and the COVID-19 pandemic which led to lockdowns and travel restrictions. There was an increase in online sales by 44.4% with Macpac showing the highest rate of online sales at 83%. Supercheap made sale worth $1.1 billion, Rebel $1.0 billion and BCF $535 million.
For Kathmandu, there was tremendous increase in sales from the previous year. In 2020 they made sales worth $801.5 million. This was a 48.7% increase from the previous year. Online sales also increased by 63%. Kathmandu general retailers posted $426.4 million sales followed by Rip curl with sales revenue of $315.7 million. Oboz had $59.4 million.
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Super Retail Group made more sales in the year 2020 than Kathmandu.
Comparison of the two companies indicate that Super Retail Group made 77.93% of the total sales of the two companies combined.
The two companies compete for similar markets. They would integrate well if they combine forces.
Comparison
Segment Analysis
Sales SUPER RETAIL KATHMANDU 0.77929999999999999 0.22070000000000001
Kathmandu performance has been impressive.
Revenues have been on the increase and profit margin.
2020 saw the revenue increase but the profit margin decreased significantly owing to the COVID-19 pandemic.
Kathmandu Holdings
Revenue 42917 43282 43647 44013 445.35 497.44 545.62 801.52 Net profit 42917 43282 43647 44013 38.04 50.67 57.63 8.1300000000000008 Column1 42917 43282 43647 44013
Profit margin increased over the years but dropped in 2020 due to covid 19 pandemic.
ROA and ROE were highest in 2019. There was a trend of increase over the years but decreased in 2020.
EBITDA showed significant improvement over the years.
Financial Performance
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Super retail group made a combined $2.83 billion sales. The tax after tax stood at $154.1 million.
A merger with Kathmandu would present Super retail group with over NZ$ 231,000of working capital.
Kathmandu is also a reputable brand with a market capitalization of NZ$ 1.13 billion.
The average shares per month being 1.16 million would be an added advantage for Super retail group. (Yahoo finance, 2021).
A merger between the two companies would thus be beneficial.
Financial performance cont’d
Industry analysis is an important business strategy tool which uses five forces of analysis such as industry rivalry, threat of product substitution, Bargaining power of buyers and suppliers and barriers of new entrants (Martínez-Olvera and Mora-Vargas, 2019).
Threat of new entrants brings new changes such as lowering prices, innovation upgrade, and reducing costs. Super Retail can overcome this through engaging more in research and development to bring quality products.
Super Retail can build a strong supply chain with several suppliers to ensure efficient delivery.
Industry Analysis
Industry analysis is also known as Porter’s Five Forces Analysis. This tool explains profit margin variations between industries due to differences in structure. The framework consists of the following forces.
The first one is the industry rivalry which outlines the degree of competition between companies. Kathmandu and Super Retail Group compete for travel and adventure clothing and equipment. Intense completion between firms can lead to reduced profit potential for the two companies. Both companies operate in the same region and compete for customers within the same region and among other firs.
The other force is the threat of substitutes. If a firm raises its prices above another firm selling similar products, customers likely will shift to the cheaper firm. By so doing the expensive company in terms of sales lose a considerable number of customers. Kathmandu and Super Retail Group are always cautious not to sell their products at higher prices than their competitor.
The bargaining power of buyers is where buyers dictate the price of products. Both firms have a wide range of customers with the power to negotiate for better prices. The other aspect is the bargaining power of suppliers. Powerful suppliers can bargain for better prices and that may lower the profit margin for the company. Therefore both companies have to choose their suppliers wisely.
The last force is the barrier of entry for new companies into the market. With the industry already packed up with various competitors for the same consumers, a new entry would tactically be not possible. The two giant companies are already competing for customers in Australia and New Zealand. For another firm to enter that market it would be difficult.
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Super Retail competes with Kathmandu for customers and a merger would help create a large customer base and easily tackle the bargaining power of buyers.
Threat of substitutes is likely and Super Retail must commit not only to be product oriented but service oriented as well.
Super Retail faces diverse rivalries in the industry and can overcome this by establishing mergers with close players like Kathmandu. Together as a one entity, they can leverage the economies of scale and beat close competitors.
Industry Analysis
Super Retail Group is focused on growing its four brands. It also plans to enhance its customer relationships.
The company also is strategizing to create and integrated supply chain and fulfilling customer demands.
Super Retail Group has engaged in merging previously. Macpac and Rebel are results of merging.
SRG strategy in merging involves purchasing completely the entire business it wishes to absorb. This has seen it diversify its operations.
Strategy Analysis
Super Retail Group is focused on growing the four brands, that is Macpac, Rebel, Supercheap auto and BCF. It is focused to align its investment capital to develop and produce to the market competitive brands. The company is also working tirelessly to deepen their connection with the customers. They plan to develop a structured customer relationship that will improve transaction growth. By aligning marketing and pricing strategies, they will build a strong relationship with the customer. The company is also strategizing to improve supply chain retail. They wish to optimize distribution networks through proper planning for product flow. The are in haste to streamline online order flow and maximizing group sourcing capability.
As previously discussed, Super Retail Group has engaged other in the merging business previously. This has improved the company performance through diversification. Diversification is important for a business because one sector may perform well while the other sector performs bad in terms of sale. At such a time, the profits made by one sector can offset the losses of the other.
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Deal Rationale
Synergy
Super Retail Group merging with Kathmandu would be beneficial.
Diversity is created through incorporating entities like Rip Curl and Oboz. Rip Curl specializes with surfing equipment which could increase customer reach for Super Retail group.
Kathmandu has global outreach serving millions of people. Kathmandu has retail shops in the American continent and other parts of the world which can fetch them a wide customer base.
Macpac would integrate so well since Kathmandu deals with travel and adventure goods as well. Macpac saw decline in sales from the previous year. It made a 5% less in sales revenue in 2020 than previous year. By integrating with Kathmandu, its likely that Super Retail branch would boost its sales revenue in the long run.
Kathmandu has invested well in online sale strategies. There is the shifting of market trends to online buying by consumers.
Kathmandu sales increased by 48.7% from 2019. The online sales increased by 63% owing to the COVID-19 pandemic era. That would make it integrate perfectly with Super Retail Group.
A merger between Super Retail Group Ltd and Kathmandu would work out well. By incorporating Kathmandu, SRG would reduce the competition the two companies have since some of the product they retail such as travel and adventure wear are similar. The other advantage of the merger would be that Super Retail Group will be in a position to diversify its products. For example Kathmandu deals with surfing equipment under the division, Rip Curl.
The Macpac division has reported reduced sales for the 2020 financial year. By incorporating Kathmandu, it is likely that they will get a sales boost. Kathmandu has a wide global outreach cutting across North America, Europe and South Africa. That would be an opportunity for more customers for Super Retail Group. The online sales volumes by Kathmandu are also encouraging and Super Retail Group would grow so well. The current business world is shifting more to online selling and buying due to the COVID-19 pandemic.
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Martínez-Olvera, C., & Mora-Vargas, J. (2019). A comprehensive framework for the analysis of industry 4.0 value domains. Sustainability, 11(10), 2960.
Kathmandu Holdings Limited. (2020, November 24). Kathmandu Holdings Limited. Retrieved from Board Charter: https://www.kathmanduholdings.com/wp-content/uploads/2020/02/Board-Charter-Final-24-November-2020.pdf
Kathmandu Holdings Ltd. (2020, November 25). Kathmandu Holdings Limited. Retrieved from 2020 Annual Report: https://www.annualreports.com/HostedData/AnnualReports/PDF/ASX_KMD_2020.pdf
Super Retail Group. (2020, September 21). 2020 Annual Report. Retrieved from Super Retail Group Limited: https://www.asx.com.au/asxpdf/20200921/pdf/44mv40h4ycc4cq.pdf
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