Acquisition and Valuation Harvard Case Solution & Analysis

Acquisition and Valuation Case Solution

Introduction& Problem Statement

This case is about valuing an acquisition opportunity which Bonneau is seeking currently. Bonneau is founded by Bonneaus. The company is operating in a sun glass industry and achieves significant growth after the and now it is considered as one of the largest company along with the Polaroid and American Optical.

In order to achieve growth, the company follows the procedures of both organic growth by improving its operations and strategic growth through mergers and acquisitions, which helped the company to diversify its risk by increasing its product range as the acquisition of the Pennsylvania Optical helped the company to enter the reading glasses market. Moreover, it also helped the company to attract more non-seasonal customers which results in increase in revenue streams of the company.
It is expected that the company’s sales would reach to $46 million which would make the company to become a leading market player of the mid-price range sun glass industry. However, the management of the company is considering expanding its product range as sun glass industry is typical seasonal industry, therefore the management of the company is evaluating other sun glass companies that are operating in other industry along with the sun glass industry.

Currently, the management of the company has the option to acquire Foster Grant which is operating in both sun glass and plastic industry. It is expected that Foster Grant is a large player of sun glass industry and it is known for producing high quality products however, several and back to back acquisitions affect the operations and financial health of the company.Moreover, the management of the Foster Company is looking for an investor so that it could help the company to overcome the financial distress that the company is facing currently.Nonetheless, the management of the Bonneau Company is considering that whether acquiring Foster Grant will help the company or this acquisition will prove wrong due to having problems associated with the proposed acquisition plan.

Performance of the Foster Grant

Foster Grant was among the largest market players in the year of 1970 s and was considered as the quality producers of sunglasses by having 35% market share at that time. In addition to making sunglasses, Foster Grant is also producing plastic materials, which shows that Foster has well established the risk management department, which will help the company to diversify the risk by expanding product range.

It is expected that previous good performance and positive financials of the company would result in several and back to back hostile take overs which would affect the performance and financial health of the company as the current sales of the company are just $39.4 million which declined by 33% in last six years.
The decrease in sales affects the profitability of the company also the current gross profit margin ratio of the company is just 35%, which was 56% six years ago. Moreover, the increase in operating expenses with the decrease in sales and gross profit margin results in significant amount of losses.

In addition to this, the current ratio and quick ratio of the company are very low as compared to its competitors and as compared to the industry norms as the current ratio of the company is just .44 times and quick ratio of the company is just .23 times, which shows that company is unable to meet its short term obligations and instant obligations.Due to this, the company is highly liquidated.....................

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