Target Company Acquisition Report
15 The synergistic gain of the acquisition of the company 15 Proposed deal value and finance of the acquisition 16 The potential implications of such acquisition on firm performance 17 Challenges and risk assessment of the acquisition 17 Conclusion 19 References 19 Introduction CLS Holdings Company is a British commercial property investment business. The company is listed in the London Stock Exchange. The company’s property portfolio was valued at circa £1. 8 billion as at 31 December 2017. It’s based in London, United Kingdom. Financial performance of the business is known as a measure that shows how well a firm can use its assets from its primary mode and generate revenues. The CLS Holdings Co. financial ratios can be explained and calculated as follows: 1. Profitability ratios are the type of financial ratios that measure the efficiency of operations within a firm with respect to its sales and investments.
All stakeholders of a company will use profitability ratios to assess the efficiency of the company (Maverick, 2016). 70m 97. 80m 129. 30m Net sales 113. 10m 107. 10m 99. (Gross profit margin=Gross profit/Net sales?*100) Year 2017 2016 2015 2014 2013 Gross profit - - - - - Net sales 113. 10m 107. 10m 99. 00m 99. 60m 91. 10m 99. 00m 99. 60m 91. 20m Operating profit margin -1,424. 533 Return ratios may include: i. 256m 292. 779m 214. 0m 215. 9m ROA 119. 3191 This shows that the acquirer can get the target company and generate profits from deployed assets. 57% which is a good return. iii. Return on capital employed. Shows the amount of profit that a company gains for the capital employed (Gregory, 2011). (net income/capital employed) Year 2017 2016 2015 2014 2013 Net sales 157. 08847 Quick rations. The ratio shows whether a company has the ability to meets its short-term obligations using the liquid assets.
Year 2017 2016 2015 2014 2013 Cash and cash equivalents 78. 06 Current receivables - - - Total 78. 06 Current liabilities 1,826. The comparison of prices for different periods is difficult as the value of a penny in different years will always differ and this will automatically give an unverifiable figure (Banking, 2015). Only one method analysis. Financial ratios give only a fraction of information required in decision making and this makes it hard to make a comprehensive decision (Picardo, 2018). No indication of the cause of changes. Financial ratios will only respond to the question what happened but don’t clearly show the reason for happenings. Helps in determining decision criteria. Since the objective of shareholders is to have their wealth maximized as opposed to managers’ aim of maximizing profit, NPV stands a better chance to give way on how to make a decision of increasing shareholders’ wealth by adopting positive NPV.
The decision making process on evaluating the best project to consider becomes so easy. iii. All relevant cash flows are considered. Simply, NPV cannot assign the value of a project, i. e. whether the project is the best or not. Internal Rate of Return On the other hand, IRR is the discount rate that makes NPV zero. There are various advantages of internal rate of return that include: I. iv. Dependent or contingent projects. Sometimes CFO finds themselves in investment dilemmas once they use IRR in determining the dependent or contingent projects. For example, CLS Holdings may consider investing in rental houses. In the real sense, the building needs water so pipes are part of the investment but in this case, IRR will only consider the main project and forfeit the other.
7282 NPV = Present value of cash inflows – Present value of cash outflow NPV = 30m – 25. 7282m = -4. 2718 Since the NPV is negative, reject the project. If CLS Holdings choose to acquire the firm, while there is negative NPV, it can operate on a deficit. NPV rule states that a company should invest in a project that gives an NPV greater than zero which is believed to maximize shareholder’s wealth. Conversely, CLS Holding may adopt the project of acquiring another company because the target company has other intangible benefits such as being part of impeding competition or working for a certain strategic plan. On the other side, CLS Holdings, as its CFO I can recommend the project of acquisition for the higher cash flows that it will generate to the company.
Potential acquisition The Rationale for choosing the target company. The acquisition of the target company will grow the market share of the acquiring company hence making it the market leader in the market. The target company to be acquired will sharpen the business focus of the main company and make it surpass others in the industry. An Increase in turnover due to the acquisition. Once the two companies are combined, the totals sales will increase and this will automatically increase the revenue (Gregory, 2011). Cost synergies. The acquisition shall decrease the operating costs and capital requirements due to the combination of the businesses which will make the company operate in the economies of scale. Market power. Shareholders of the target gain control in the predator iii.
There will an increment on equity capital after the initial public offering. c) Use of convertibles such as debentures and preference shares. This is where the acquirer will issue convertible securities to the shareholders of the target to surrender their shares and become debenture or preference shareholders in the acquirer’s company. This method has the following implications: conserves the cash of the acquirer, there is no dilution of ownership and control, improves the gearing level of the predator resulting in an increase of financial risk, among others (Khan, 2018). Culture clashes is an another important challenge that will be faced by the company at the time of acquiring another company (Barney et al. , 2001s). Moreover, there are various risk which the company need to access like cyber security, intelligence based risk, security program risk and others such as the following; Uncovering hidden liabilities through proactive due diligence.
Pre-acquisition risk assessment should be done to ensure that no stone has been left unturned. The pre-risk assessment will make the target and acquirer company to on a fairground and allow no one to leave a burden to any. Too much expectation on the target company may make the managers overestimate or underestimate the potential risks. Conclusion From the above discussion, it can be concluded that the financial for decision making will provide current course of investigation which is helpful financial performance of the business. As per the above calculation, profitability of the business will able to measure the profitability level with the help of return on equity, return on asset, net profit ratio, current ratio, quick ratio of the business.
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