Deliverable 7 - JBH Project Plan Deliverable 7 - JBH Project Plan

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Business Case

Brooklyn Maasch

Rasmussen College

10/25/2021

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Introduction

The Kingston-Bryce Limited wishes to acquire the T&C Limited which is a major competitor. The T&C Limited and the Kingston-Bryce Limited both deal with manufacture and sale of custom furniture. The competitor acquisition is expected to enable KBL to expand its operations and triple the workforce.

Purpose of the acquisition

The acquisition of the competitor will enable the KBL enjoy economics of scale. These are the benefits of the company becoming bigger such as increased capital, better bargaining power with distributors and lower costs due to high volumes as stated by Katz, (2021). The company will also enjoy economies of scope where it will have a larger client base. The company will now have the clients of the acquired competitor. The company will also enjoy synergies which is the value that result from two companies working together to make something far more powerful. The KBL will add its strength while the competitor company acquired will also add its strength making the formed company even more productive. The KBL after acquiring the competitor will have an increased market share. The KBL is aiming at becoming one of the largest retail custom furniture distributors and by acquiring the competitor, it expands its market share even more.

The KBL will also attain high levels of competition which is a benefit of economies of scale. When the company becomes bigger, it is able to compete even better.

Pros and cons of the project

The pros of the acquisition include:

It will add more value to the KBL in terms of production. Acquisition is about reducing duplication and increasing efficiencies as explained by Jope, Schiereck & Zeidler, (2010). This results in enhanced levels of total revenue due to more production and reduced costly redundancies in the production chain.

Increased market for the company. The KBL will have the market for the competitor. This is because most people are brand loyal. The acquisition process allows people to maintain their loyalty to brand while transitioning to more goods and services. They are given a chance to experiment with new goods and services.

The acquisition increases cost efficiency of the company in terms of its purchasing power. The company will now buy raw material in bulk at reduced cost and discount. The company will also enjoy tax benefits where production of goods and services in large quantities results in financial advantages, use of tax shields by use of alternative tax benefits.

Cons of the acquisition

Cultural clash. KBL and the acquired company may have different cultures which can result to culture clash. This if not carefully handled may result in business failure.

The acquisition process consolidates positions for the companies that are duplicated. This means that there are chances of layoffs. Many employees are forced to high level of uncertainty as

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they do not know what will happen to them after the acquisition is complete. In case the company being acquired had debt, it will increase the company debt. This may affect the company ability to obtain new credit lines or be able to borrow additional funds.

Budget/Funding Schedule

The company will do debt financing which has an estimated cost of $5 million. This can be obtained from bank which will be the most cost efficient. An analysis of the cost of the debt must be done to determine the payback period after acquisition has been made. The payback period should be as short as possible for the company to start earning profit from the investment. The payment includes premium to be paid which is approximately 27% to the company’s closing price on the day agreed on. KBL will pay $3.0 million of the total $5 million deal acquisition price which means that it will pay about 60 percent for future growth prospects and 25 percent is for the current business for the company. The 15 percent will take care of the intangibles.

The budget for the project is as shown in the table 1 below:

Item cost Future growth prospect

$3 million

Current business $1.25 million Intangibles, debt payments and compensations

$0.75 million

Table 1showing the project budget

Major Risks or opportunities of the project

There are opportunities in growing the company by acquisition. This result from addition of products and services provided by the company. The KBL will be in a position to expand the product and services they provide to the customers. The company has good understanding of the industry and acquisition of the competitor enables it to make improvements based on its operations. The company will be in a position to expand geographically. This increases the customer base and sales.

The risks involved in acquisition is branding mistake when the company changes the acquired company name to its own. This can result in some customers who were used to a specific brand opting to go for another rather than the one with changed name. Challenge of integration. This results from labor issues, spending habits, management style and workplace culture. The company should develop a way to address these issues as they can lead to business failure.

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References

Jope, F., Schiereck, D., & Zeidler, F. (2010). Value generation of mergers and acquisitions in the technology, media. Journal of Telecommunications Management, 2(4).

Katz, M. L. (2021). Big Tech mergers: Innovation, competition for the market, and the acquisition of emerging competitors. Information Economics and Policy, 54, 100883.