Research Proposal on "Acquisition Proposal"

Research Proposal 8 pages (2127 words) Sources: 4 Style: MLA

[EXCERPT] . . . .

Aquisition Proposal

Acquisition Analysis

Financial Performance Analysis

Fastpack is the second largest company activating on the courier, express, and parcel delivery market in Ruritania. The company's financial information is proof to Fastpack's outstanding position on the market.

For the past five years, Fastpack has continued its ascending trend. Of the past five years, 2003 was the least financially profitable year. Since 2003, the company has continuously increased its turnover, profits, and assets.

The company's fixed assets have increased from €10,166 in 2003 to €36,315 in 2007. The annual current assets growth rate over the past five years was the following:

90% in 2004

52% in 2005

% in 2006

27% in 2007

As one may observe, 2006 was not a good year for the company's fixed assets that increased from €28,557 in 2005 to €29,128 in 2006. It is expected that the company's assets will follow an ascending trend (Summary Balance Sheets, 2008).

The company's stocks experienced significant growth over the past few years, increasing from €190 in 2003 to €1,224 in 2007. The annual growth rate for the company's stocks over the past five years was the following:

80% in 2004

70% in 2005

71% in 2006

50% in 2007

The highest growth was registered in 2004 compared to 2003, while the least important growth in the company's stocks was reported

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in 2007 compared to 2006. It is expected that the company's stocks' value will slightly increase over the following period of time.

The evolution of the company's cash level has followed an interesting direction over the past few years, with significant changes in the situation. For example, the company's cash level reached €254 in 2003, but in 2004 the cash level drastically reduced to €26. In 2005 the company recovered, reaching a €130 value in cash. The company's recovery continued in 2006, when the cash level reached the value of €199.

However, the biggest increase in the company's cash level was registered in 2007, when the company's cash was reported to be €647. Given the circumstances of the domestic courier, express, and parcel delivery market and the company's position on this market, it is expected that Fastpack's cash level will increase over the following period of time.

The company's liabilities have significantly increased over the past five years, from €4,864 in 2003 to €23,680 in 2007. The annual growth rate of liabilities during this period of time was the following:

97% in 2004

54% in 2005

18% in 2006

19% in 2007

The highest increase in the company's liabilities was reported in 2004 compared to 2003, while the lowest increase can be observed over the past two years. Given the recent evolution of the company's liabilities over the past two years, it is expected that the liabilities annual growth rate will not exceed 18% over the next few years.

The shareholders' funds that financially support the company have doubled during the past five years, from €11,503 in 2003 to €22,770 in 2007.

The company's borrowings have significantly increased during the five years period analyzed here, from €1,242 in 2003 to €32,943 in 2007.

The company's issued shares were maintained at a constant number of 3000 during the years of 2003, 2004, and 2004, but their number was increased to 5000 in 2006 and 2007. It is expected that the number of issued shares to be increased after one year, depending on the company's situation at the time.

In order to properly valuate this company, it is necessary to analyze other financial information also, like the evolution of turnover, cost of materials, salaries, operating profit, and retained profits.

The company's turnover has significantly increased over the past five years, from €36,578 in 2003 to €223,408 in 2007. The company's turnover evolution durin this period was the following:

95% in 2004

97% in 2005

50% in 2006

40% in 2007

It is expected that the company's turnover annual growth rate will not exceed 45% over the next few years.

The cost of materials required in this industry has increased from €2,651 in 2003 to €14,968 in 2007.

The salaries level has increased from €9,571 in 2003 to €52,501 in 2007. Although these numbers represent only Fastpack, the salaries level is similar in other courier companies in Ruritania.

The company's operating profit has increased from €-1,082 in 2003 to €19,031 in 2007. The evolution of Fastpack's operating profit annual growth rate over the past five years was the following:

270% in 2004

620% in 2005

200% in 2006

30% in 2007

The company's retained profits have increased from €-1,136 in 2003 to €4,134 in 2007.

Estimated Future Performance of Fastpack as an Independent Company

Fastpack has two options for its future: to continue as an independent company or to be acquired by TNT. The company's financial performance if it continues to function as an independent company can be derived from the financial analysis detailed above. Any company's future also depends on the macroeconomic conditions and the trends of the market in which the company activates.

The courier, express, and parcel delivery market in Ruritania is expected to continuously and significantly develop over the following period of time. Being the second largest company on this market in Ruritania, Fastpack has the potential and the ability to exploit these growth and expansion opportunities.

Given these market circumstances, there is no reason for Fastpack not to increase its value, turnover, and profits in the future. The only question that remains regards the level of the annual growth of the company.

It is expected that the company's current assets will follow an ascending trend over the next period of time. The company's position and success will affect its stocks, both in their value and number. The price of stocks will slightly increase over the next few years. It is expected that the price of stocks will reach a constant level for a longer period of time that can be attributed to the company's stable and solid situation on the market and in customers' minds. The number of issued shares is likely to be increased once every two or three years, following the pattern already established by Fastpack.

It is also expected that the company's cash level will increase over the following period of time. This will be due to the company's expansion, allowing Fastpack to serve a larger number of customers, also expanding its geographical area of activity.

In such conditions of development, the level of liabilities will probably suit this expansion. Even if the company will become more profitable than it is now, it is expected that the liabilities will not diminish for a longer period of time. However, the annual growth rate of liabilities in the case of Fastpack is expected to progressively decrease each year.

There are certain market conditions that the company cannot control, no matter how good its position on this market is. Such market conditions refer to the level of salaries and the cost of materials. Salaries are growing in every sector of the economy, and the courier market makes no exception. It is expected that the cost of materials used by Fastpack and by the rest of the courier companies will increase. Given the fact that this increase in salaries and cost of materials will affect all the courier companies in the Ruritanian market and not just Fastpack, it is expected that the company's position on the market will not be affected by this situation.

If the company expands its geographical area of activity and it will increase the number of clients it serves, Fastpack's turnover will continue to increase also. This will lead to increased profits.

TNT Express Benefits

The benefits of TNT Express from a prospective acquisition of Fastpack are related to TNT's current position on the market. The comparison between the current situation of TNT and that of Fastpack is the following:

Local market: TNT is not present, Fastpack owns 75% market share

Domestic market: TNT owns 4%, Fastpack owns 25%

International market: TNT owns 14%, Fastpack owns 5%

If TNT were to acquire Fastpack, the market share currently controlled by Fastpack would be transferred to TNT. In other words, TNT would implement its presence on the Ruritanian market. Even more, by acquiring Fastpack, TNT would gain the impressive position that Fastpack holds on the local market through its 75% market share.

As mentioned in the executive summary, it is quite difficult for foreign courier companies to enter the Ruritanian market. Therefore, acquiring such a well-positioned local courier company would guarantee TNT's future success on the Ruritanian market.

Furthermore, TNT's benefits from a prospective acquisition of Fastpack can reach an international level also. Given the fact that Fastpack owns 5% market share of the international courier market, compared to TNT's 14% owned on the international market, TNT could improve its position in the international market. With a more solid position on the international market, TNT would be able to expand its activity in other regions across the world.

The situation would change for Fastpack also… READ MORE

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Quoted Instructions for "Acquisition Proposal" Assignment:

“

The assignment is a acquisition proposal written in the style of a management report (not and essay). It should have an executive summary and must not be more than 3000 words target 2700 words, 9 pages.

The Assignment:

In order to meet its 10-10-10 targets (10bn turnover, 10% profit, by 2010) TNT Express is looking to acquire suitable businesses that will contribute 1.5bn in total to group turnover by 2010. In your capacity as a member of the strategic planning team at TNT Express you have been assigned the task of assessing one such potential acquisition in Ruritania* (*Ruritania is an imaginary, medium sized Eastern European state which is expected to gain accession tot the European Union in January 2009. Fastpack S.A. is an imaginary company operating in Ruritania.)

The company to be investigated was incorporated 10 years ago and has grown rapidly into the biggest domestic courier, express and parcel delivery company in Ruritania.

Supplied information (by email)

1. Summary income statements and balance sheets of Fastpack S.A. for the years of 2003 and 2007 inclusive.(pdf file: P&L and balance sheets.pdf)

2. Extracts from an information memorandum prepared by a reputable international firm of accountants in connection with the offer for sale of new or existing shares in Fastpack S.A. (pdf file: executive summary.pdf)

Required:

a. An analysis of the last 5 year's financial performance and current financial standing of Fastpack S.A. Drawing ont he background information and knowlege of this type of business give explanations for any identified trends and movements in key ratios. Suitable comparisons to other courier companies may be made to enhance interpretation.

b. Assesment of the likely future performance of Fastpack if it remains independent and, using this as a base, estimate of Fastpack's value in current ownership. State and justify all assumptions made.

c. Assessment of the benefits to be gained if TNT Express where to acquire Fastpack and initial estimate of the company's future financial performance if taken into TNT express ownership and control.

d. Based on the assessment in c above, an initial valuation of the company in TNT's hands on the assumption that all shares would be purchased. Explain all assumptions made.

e. On the basis of the information available and valuations for part b and d, make recommendations to management as to whether Fastpack is a worthwhile investment opportunity for TNT express. Summarize the supporting reasons and assumptions and if appropriate provide a range of values as a guide for initial negotiations.

f. State any additional information that you believe should be sought to improve the analysis and back up the final management decision.

Notes:

Advised to work entirely in euros and ignore past and future exchange rate movements.

A spreadsheet valuation model is available if necessary as a tool(sent by email file: Spreadsheet valuation model.xls)

The valuation is highly subjective so, as requested above, it is vitally important to provide explanations of reasoning and all assumptions made.

The paper should be in the style of a management report (not an essay), should have an executive summary and must be no more than 3000 words (excluding graphs, diagrams and appendices) be as concise as is consistent with clarity.

Supporting documents sent by email:

1. executive summary.pdf

2. P&L and balance sheets.pdf

3. Steps in undertaking a valuation for an aquisition.pdf

4. Spreadsheet valuation model.xls

5. assignment.pdf

*****

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