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Dr.

Anirban Ghatak

Course Assignment Mergers and Acquisition (2013 15)

Internal Circulation

Acquisition Team Project


Early in the term, the students will divided into a group of six students, where each will share the
research, analysis, and field work required to design a viable corporate acquisition proposal. The
purpose of the Acquisition Project is to give students the opportunity to apply the tools they have
learned in an increasingly common situation, i.e., mergers and acquisitions.
Each team will be asked to represent an acquiring company or investment group whose business
strategy involves an acquisition or merger. The acquiring and target firms must be in the same
industry. The acquisition can involve a recent transaction (i.e., last 12 to 18 months), a current
transaction, or a hypothetical transaction involving two publicly traded firms, private companies,
or some combination. The use of publicly traded companies will facilitate data collection, and
the selection of companies in the same industry will simplify the analysis by eliminating the need
to analyze two different industries.
Selecting Companies to Study: The success of the Project will be greatly dependent on the
Teams ability to understand the companys operations, products, and the competitive dynamics
of the industry in which it competes and to obtain financial, technical and market-related
information on the company. The teams are encouraged (but not required) to select a publicly
traded company, because both internal financial and operating data, as well as market/industry
data, is likely to be more readily than for a privately owned firm.
While there are no restrictions on the size and type of company you select, I suggest that teams
select relatively small, uncomplicated businesses such as single product, independent companies
or operating units within larger companies. For those teams that choose to select privately
owned companies, small companies, particularly those that are considering going public or
attempting to obtain additional funding from venture capitalists, may be more receptive to
cooperating with your team. Contacting the president, general manager, or chief financial officer
of the company or division is a good place to start. Commercial and industrial parks offer
dozens of potential candidates for your analysis.
For those that choose a private company, assure management that they will be provided with a
final report and presentation in order to more readily obtain the necessary information.
Emphasize to senior management that the report will contain a recommendation(s) of how to
increase the going concern value of their business and a valuation of the business. Also
emphasize that the results of the study and any information that they provide to your team will be
kept confidential.
Students should not consider financial services companies such as banks, insurance, or leasing
companies as we will not be addressing how to address these types of firms. Furthermore, it is
recommended that students not select airlines due to the extensive use of equipment leasing,
which creates challenges not adequately addressed in the course.
Teams may also choose to represent an acquiring company, which has actually completed an
acquisition within the last 12-to-18 months. If students choose to evaluate a recent transaction,
they must address the key elements of the acquisition as outlined below as if the transaction had
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Dr. Anirban Ghatak

Course Assignment Mergers and Acquisition (2013 15)

Internal Circulation

not taken place. However, based on their analysis, they must be able to answer the question of
whether the acquiring firm overpaid, underpaid, or paid fair market value for the target firm
and why. This may require that the Team undertake several activities or evaluate options that
may not have actually been undertaken by the acquiring company. In this instance, the Team
must determine and justify what it considers to be appropriate terms and conditions for the
transaction. Alternatively, the Team must vigorously justify the actual terms and conditions of
the transaction.
Students are encouraged to consult with the Professor about selecting a Target company early
in the selection process if there are questions about the appropriateness of a potential Target.
The Professor will have final approval of the companies to be used in the Acquisition Project.
In the past, students have developed business plans for their own companies (both public and
private) and for a business they were planning to start. The latter option represents an excellent
opportunity to get input from both the Professor and other students.
Each acquisition team is encouraged to develop mission statements, strategies and action plans
that are different from what the selected company may be saying publicly if the team feels that
this is appropriate.
The Acquisition Team Project will be completed by each team submitting a business plan to the
Professor in both hard and copy form. The cover page should indicate the team members and the
section(s) each member was responsible for completing.
Acquisition Team Project Business and Acquisition Plans: Each team will submit a business
plan, which includes an acquisition plan, not to exceed 40 pages plus supporting financial tables.
The acquirers business plan should include the following elements:
Introduction
1. Executive Summary: In 1-2 pages, describe what you are proposing to do, why, how it will
be accomplished, and by what date. Be specific about how what you are proposing will
enhance shareholder/owner value.
Business Plan (for acquiring firm)
1. Industry/market definition: Define the industry/market in which the target firm competes in
terms of size, growth rate, product offering, and other pertinent characteristics.
2. External analysis: Describe industry/market dynamics in terms of customers, competitors,
potential entrants, product/service substitutes, and suppliers.
3. Internal analysis: Describe the acquiring companys strengths and weaknesses and how they
compare to the competition.
4. Opportunities/threats: Discuss major opportunities and threats that exist because of the
industrys competitive dynamics. Be sure that you can show how these threats or
opportunities are a consequence of the industry dynamics described in (2).
5. Business mission/vision statement: Describe what industry/market needs are to be satisfied,
who the targeted customers are, and what resources or capabilities will be used to satisfy
these targeted customer needs.
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Dr. Anirban Ghatak

Course Assignment Mergers and Acquisition (2013 15)

Internal Circulation

6. Quantified strategic objectives (including completion dates): Indicate both financial (e.g.,
rates of return, sales, cash flow, share price, etc.) and non-financial (market share, being
perceived by customers or investors as number one in the targeted market in terms of market
share, product quality, price, innovation, etc.) goals.
7. Business strategy: Identify how the mission and objectives will be achieved (e.g. become a
cost leader, adopt a differentiation strategy, or focus on a specific market segment).
8. Implementation strategy: From a range of reasonable options (build or go it alone strategy,
partner via a joint venture or less formal business alliance, license, minority investment, and
acquisition), indicate which option would enable the acquiring firm to best implement its
chosen business strategy. Because of the nature of the course, you must indicate that an
implementation strategy involving an acquisition is preferred to the other options and why.
9. Acquirers business plan valuation: Provide projected five year income, balance sheet, and
cash flow statements for the acquiring company and estimate the firms value based on the
acquirers projected cash flows. State key forecast assumptions underlying the projected
financials and the valuation. If the projected cash flows are negative for the first five years,
continue to project these cash flows until they turn positive.
Acquisition Plan (developed by acquiring firm)
1. Plan objectives: Identify the specific purpose of the acquisition. This should include what
specific goals are to be achieved (e.g., cost reduction, access to new customers, distribution
channels or proprietary technology, expanded production capacity, etc.) and how the
achievement of these goals will better enable the acquiring firm to implement its business
strategy (see (7) above).
2. Timetable: Establish a timetable for completing the acquisition including integration if the
target firm is to be merged with the acquiring firms operations. Identify key activities that
need to be accomplished and indicate the estimated time required to complete these activities.
Also, estimate resources (i.e., people, money, licenses, etc.) needed to complete each
activity.
3. Resource/capability evaluation: Evaluate the acquirers financial and managerial capability to
complete an acquisition. Identify affordability limits in terms of the maximum amount the
acquirer should pay for an acquisition. Explain how this figure is determined.
4. Tactics: Indicate the acquirers preferences for a friendly acquisition, controlling interest,
using stock, debt, cash, or some combination, etc.
5. Search plan: Develop screening criteria for identifying potential target firms and explain
plans for conducting the search, why the target ultimately selected was chosen, and how you
will make initial contact with the target firm.
6. Negotiation strategy: Identify key buyer/seller issues. Recommend a deal structure that
addresses the primary needs of all parties involved. Comment on the major elements of the
deal structure including the proposed acquisition vehicle, post closing organization, form of
payment, form of acquisition, and tax structure. Explain why each major element of the deal
structure was selected. Indicate how you might close the gap between the sellers price
expectations and the offer price in the event the initial offer is rejected by the seller.
7. Purchase (offer) price estimate: Provide projected five year income, balance sheet, and cash
flow statements for the target firm and for the consolidated acquirer and target firms.
Develop a preliminary minimum and maximum purchase price range for the target. Specify
potential sources of and destroyers of value. List key forecast assumptions. Identify an
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Dr. Anirban Ghatak

Course Assignment Mergers and Acquisition (2013 15)

Internal Circulation

initial offer price, the composition (i.e., cash, stock, debt, or some combination) of the offer
price, and why you believe this price is appropriate in terms of meeting the primary needs of
both target and acquirer shareholders. The appropriateness of the offer price should reflect
your preliminary thinking about the deal structure.
8. Financing plan: Using the combined/consolidated financial statements, determine if the
proposed offer price can be financed without endangering the combined firms credit
worthiness or seriously eroding near-term profitability and cash flow.
9. Integration plan: Identify potential integration challenges and possible solutions. (For those
teams characterizing themselves as financial buyers, an integration plan may not apply.
Instead, they should identify an exit strategy.)
Acquisition Team Project Assessment
The total possible point score of 230 points for the project will be apportioned as follows:

33% for completeness: How well did the team address each point on the syllabus outline for
the Acquisition Team Project?
33% for quality of application: Did the team apply correctly tools and concepts learned in
this course? (Hint: Each team member should apply a number of different tools and concepts
in each section for which they are responsible.)
33% on creativity: Did the team specify clearly the acquirers and targets objectives/needs?
Did the team address common deal structuring questions? Were they successful in meeting
the highest priority needs of both parties? Was the proposed deal structure realistic?

Each team member will receive the projects total score adjusted for the professors evaluation of
the section(s) for which they are responsible. For example, while a paper may receive 200
points, individual team members may receive 105% or 95% of the projects total score.
Team Member Peer Review: Each team member will be asked to anonymously evaluate their
team members by assigning a letter grade to their overall contribution to the team paper. The
students overall all grade will be calculated as a simple average of the grades assigned by their
team members, with A=30, B=20, C=10, D=5, and F=0.
Project Leader Peer Review: Each team member will also be asked to evaluate anonymously
their project leaders performance, with A = 20, B = 15, C = 10, D = 5, and F = 0. The project
leader should be evaluated in terms of their leadership in scheduling meetings, setting meeting
agendas, facilitating meetings, motivating others to satisfy their commitments, and overall
quality control. Quality control refers to effort expended to ensure that all portions of the final
document have been completed and that the document reads as if one person wrote it.

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