WCF has acquired Mercury during its strategic expansion plan. 79% Athletic 21% Casual. Mainly sold in department stores, specialty retailers, wholesalers and independent distributors. Get a verified writer to help you with ?Mercury Footwear Questions, (4) In this market, it is important for the brand image, specialized engineering for performance and price. Cost of Capital Focus on the following - Zero down on the central problem and two to five related problems in the case study. Get step-by-step explanations, verified by experts. Small percentage is sold through website. 4. Active Gear had recently increased its supplier concentration to improve its negotiating position because AGI’s small size … Mercury Athletic Essay Sample. 42% Athletic 58% Casual. (6) Inventory management and production lead times are critical for the success. Executive Summary Great pressure from suppliers and competitors caused some deterioration of basic performance for AGI during 2004–2006. The industry is same, products are similar, markets are similar, greater ability to merge each other’s operating efficiencies and improve deficiencies, therefore it is evident that these factors confirm that Mercury is … We can find during the period from 2007- 2011, the growth rate of net income is not stable, so we assume from 2012, Mercury enter into stable and slow development stage. Get a verified writer to help you with ?Mercury Footwear Questions Mercury Athletic is quite an established company in the footwear industry. Student Instructions, Required Analysis and Questions Your team is to place themselves in the role of John Liedtke, head of business development for Active Gear, Inc. (AGI). Mercury Athletic Footwear Case Mercury athletic footwear Group 7 Contents Executive Summary & Overview of Problems 3 Analysis on Mercury acquisition 4 Reasons why Mercury is an appropriate target for AGI 4 2. How would you recommend modifying them? Do the SWOT analysis of the Mercury Athletic: Valuing the Opportunity . You may also pause the movie frequently to make certain you do not miss anything. The, potential acquisition would roughly double the size of AGI, and improve its negotiation, position with suppliers and retailers. $42,299mn. 1. Estimate the value of Mercury using a discounted cash flow approach and Liedtke’s base case projections. Casual shoes focus on mainstream market. It takes small size as its competitive disadvantages. And it faced with some problems in the consolidation of manufacturers. An Overview of the Problem John Liedtke, the head of business development for Active Gear, Inc. wanted to acquire Mercury Athletic, footwear division of WCF. Besides, smaller firms tend to be more volatile than others, which we could find the same characteristics in these two firms we are talking about. Revenue contribution (2). Don’t waste Your Time Searching For a Sample, Get Your Job Done By a Professional Skilled Writer. How would you recommend modifying them? Financial performance $470,285mn. Download mercury athletic footwear case solution Comments. AGI can improve its asset efficiency by investing in the development of its inventory management system. Mercury Background 2003 - acquired by West Coast Fashions (WCF) Attempted brand extension through apparel line Business stalled Mercury CEO eager to return exclusively to footwear Four footwear product lines Men’s/Women’s athletic Men’s/Women’s casual 2006: Revenue - $431.1 million EBITDA - $51.8 million = Free Cash flow to Firm 12.5%. . We take 14% as reference. Mercury Therefore Unlevered beta for business= 1.35 We know the D/E ratio and tax rate of Mercury, then get levered beta for Mercury =1.52. Operating Income. Step 4 - SWOT Analysis of Mercury Athletic: Valuing the Opportunity. Four main segments: men’s and women’s athletic and casual footwear. In order to summarize, due to AGI’s small size, there is a strong risk of being overtaken by the other giant players in the market therefore, if it acquires Mercury, the risk will be minimized and there is a strong opportunity that the company will grow steadily. also offered here. Mercury Athletic Footwear Case Essay Sample. Mercury Athletic Footwear: Valuing the Opportunity Active Gear, Inc. (AGI) is a privately held footwear company and is contemplating the possibility of acquiring Mercury Athletic Footwear. Based on the formula: Mercury Athletic Footwear: Valuing the Opportunity Case Solution. Once you finished the case analysis, time line of the events and other critical details. Therefore, based on the above analysis, we think that it is not reasonable to use historical data for future projections. Course Hero is not sponsored or endorsed by any college or university. We can find during the period from 2008- 2011, the reinvestment rate 15.57%- 37.1%, we just take a middle one 24.37%, by multi reinvestment rate and cost of capital (assume cost of capital =return on capital), to reach growth rate afterwards= 3.09%. (4) Thanks to the profitable ability of AGI, it is much easier to make a better financial performance of Mercury. Outsource manufacture in China. Is Mercury an Appropriate Target for AGI? For a limited time, find answers and explanations to over 1.2 million textbook exercises for FREE! (5). Why? It has four lines of products, which include Men and Women casual and athletic footwear. So, Mercury Athletic has 4 product ranges. Unlevered beta for business= Beta comparable firms/[1+(1-t)(D/E ratio comparable firms)] From information provided in Exhibit, we can get average Beta and D/E ratio, is 1.56, 24.9% respectively. Revenue and operating income were 470.3 million and 60.4 million in 2006. The outcome of this investment would be a reduction in the number of inventory days from 61.1 days to 42.5 days. And since performance of Mercury is poorer than the average of the industry, it is better to use industry average level for the benchmarking of Mercury when predicting, instead of a discount rate of AGI for example. The image of the company is iconoclastic and nonconformist. And just as we mentioned in the question 1, revenue may be doubled after acquisition, it just fits the theory that it is difficult to maintain historical growth rates as firms double or triple in size. Estimation the value of Mercury based on discounted cash flows and Liedtke’s base case projections. c. based on the growth rate is 3.09%, we can get EBIT in 2012 is 39,930.. We have assumed ROC=WACC. Youth market, mainly 15 to 25. Therefore, take into above factors into account; we think that Mercury should be an appropriate target for AGI. Should AGI purchase Mercury? Athletic shoes developed from high-performance footwear to athletic fashion wear. (3) The product segments are almost the same, which means that there should be little work to do after acquisition in product adjustment. MERCURY ATHLETIC FOOTWEAR Problem statement: West Coast Fashions, Inc a large business of men’s and women’s apparel decided to dispose of one of their segments; Mercury Athletic. You can find data on the course website in a spreadsheet named. 4 a. Estimation of the weighted average cost of capital 5 b. Why or why not? AGI Mercury Athletic Footwear $470.3 Million Sales Revenue in 2006 42% Revenue - Athletic Footwear 58% Revenue - Casual Footwear Among the best profit margins in the Industry Prosperous, Active, and Fashion-Conscious Brand Image. Below are some characteristics for Mercury and AGI we need to focus on during the analysis: AGI For making a decision regarding the acquisition being appropriate or not, the facts and side effects of acquisition should be considered first. Mercury athletic footwear. Terminal Value=EBIT n+1*(1-t)/cost of Capital, we can get Terminal Value in 2011 is 315,237. Mercury Athletic Footwear Case Study John Liedtke head of Active Gear, Inc. (AGI) is contemplating whether to invest in Mercury Athletic a subsidiary of West Coast Fashions (WCF). 5. 3. Retrieved from http://studymoose.com/mercury-footwear-questions-essay, Copying content is not allowed on this website, Ask a professional writer to help you with your text, Give us your email and we'll send you the essay you need, Please indicate where to send you the sample. The subordinate that Liedtke and AG intended to get was Mercury Athletic ( MA ) . Students looking for free, top-notch essay and term paper samples on various topics. 26,867 I think if AGI can reduce the cost of capital, which will show the great synergic effect to the acquisition. 29,319. Are they appropriate? Mercury Athletic Footwear : valuing the opportunity. We've changed a part of the website. (2) They could combine manufacturers to get a powerful bargain in suppliers. As such, you are to assess your level of interest in pursing the acquisition of Mercury Athletic Footwear (MAF), which is being divested by West Coast Fashions, Inc. (WCF). (3) Except some global footwear brands, athletic and casual shoes market is still fragmented, which means each company could has its own market because of its characteristic. 2. Review the projections by Liedtke. Global Athletic Footwear Market is expected to reach $114.8 billion by 2022, growing at a CAGR of 2.1% during the forecast period 2016 - 2022. Why or why not? Athletic Footwear Market Overview. Active Gear was one of the most successful firms in terms of profitability, in the footwear industry. The Charles H. Kellstadt Graduate School of Business DePaul University FIN 555: Financial Management Prof. Joseph Vu Case Study Questions: Mercury Athletic Footwear Active Gear, Inc. (AGI), a privately held footwear company, was considering acquiring Mercury Athletic, the footwear division of West Coast Fashions, Inc. (WCF), a large apparel company. Because of the poor performance, it was decided to sold. As for synergy, the management of inventory has not shown great synergic effect to the outcome, for from 2007 to 2011, inventory level has not reduced. Its mother company decided to extend the brand by creating complementary line of apparel. They target the global youth culture of alternative music, TV, and clothing. (3) Under alternative method, the expected g is much lower as 2.6%, the risk free rate is also a medium one, and the risk premium is a historical one, which is much higher than recent risk premium in USA. RE: Mercury Athletic valuation and acquisition recommendations. Cost of Capital =debt ratio *cost of debt +equity ratio * cost of equity, We can get the cost of Capital in 2012, 12.7%. The acquisition of Mercury Athletic Footwear can create business synergies. Athletic footwear refers to those shoes that are designed for sports and other outdoor activities. Email. Get this from a library! MGMT S-2720 Assignment 1: Mercury Athletic Footwear Questions: 1. Mercury Athletic Footwear Case Study John Liedtke head of Active Gear, Inc. (AGI) is contemplating whether to invest in Mercury Athletic a subsidiary of West Coast Fashions (WCF). Your Answer is very helpful for Us Thank you a lot! (7) Main sale channels are department stores, independent specialty retailers, sporting goods stores, boutiques and wholesalers. (4) Alternative method to calculate cost of capital, then value of Mercury: We have learnt from Exhibit 3 of peer companies information in this business, we can calculate cost of capital in alternative ways. we assume risk free rate is 5%, and risk premium as the historically one 4.3%. And he estimate debt/equity ratio remains the same as AGI, that is also unreasonable, for it is not possible to change that in short period. Estimate the value of Mercury using a discounted cash flow approach and Liedtke’s base case projections. Some studies found there is little evidence that firms grew fast continued to grow fast in the next period. Are they appropriate? We assume the cost of equity equal return on equity, we can calculate the historical return on equity from 2007- 2011 is as below, Return on equity, 12.8% Sales growth is lower than the average because of there is little discount in price. First, through the acquisition AGI can take the advantages of some existing synergies. (3) Except some global footwear brands, athletic and casual shoes market is still fragmented, which means each company could has its own market because of its characteristic. Considering that there are five main channels for analyst forecasts: firm-specific information, macroeconomic information, information revealed by competitors on future prospects, private information about the firm and public information other than earnings, we think Liedtke could find more information from above channles to get more accurate assumption. Additional materials, such as the best quotations, synonyms and word definitions to make your writing easier are Is Mercury an appropriate target for AGI? John Liedtke, head of the business development for Active Gear, Inc saw … From 2007- 2011, the growth rate ranged from 4.74%- 16.3%, we assume the growth in future will be not that high. Valuing Mercury Athletic. Its main customers are not interest in its apparel. As for debt ratio and expect g, it is not so sensitive, but has some influence. John Liedtke, head of the business development for Active Gear, Inc saw … The cost of equity will be 11.5%. 42% of revenue from athletic shoes and balance from casual footwear. Then the cost of capital will be 10.6%. To my surprise, the reinvestment rate is not sensitive to the outcome, I have not figure out the reason. We have conduct some simulation in the spreadsheet, we can find the present value of Mercury is very sensitive to cost of capital, under basic model if the cost of capital reduce to 10%, the value will rise up to 304,882. A few of the movies do not possess the best plots, but it doesn’t make the movie bad. Fundamental Analysis Of Larsen & Toubro Ltd. Mercury Athletic Footwear: Valuing the Opportunity, Financial Analysis on Aftab Automobiles Company, Factors That Influence the Capital Structure Decision of the Firm, Self Medication Practices in a Rural Filipino Community. -17,192 increase its purchase with contract makers and spread out its presence with cardinal retail merchants and distributers. Forecast the Future FCFs Mercury Athletic Footwear. a footwear company. Among the most profitable firms. In the case, we could find that Liedtke used historical averages to assume the overhead-to-revenue ratio. Submit Close. 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