AQUA LOGISTICS LIMITED: AN ATTRACTIVE TARGET FOR ACQUISITION? Harvard Case Solution & Analysis

AQUA LOGISTICS LIMITED: AN ATTRACTIVE TARGET FOR ACQUISITION? Case Solution

Introduction

Aqua logistics Limited was established in 1989 while incorporated in 1999. The founders of the company were Rajesh Uchil and Harish Uchil. The company is one of the leading logistics and supply management companies operating in India. It has many other local branches and had foreign subsidiaries, which were then sold due to operational and liquidity issues. The company provides services to its client in different industries that includes pharmaceutical, automobile, telecom, sports, and power sectors. The company from its beginning has been operating highly efficiently and its profitability was increasing significantly. In the year 2010-11, the annual turnover amounted to 3.809 billion.

Aqua Logistics were among those rare firms that are equipped with modern technologies. It has been among few of those firms that have specialized in providing the third party logistics, 3PL model of delivery. Later on, the company faced significant issues in its operating and management, which then lead to reduction in overall profitability.

Problem statement

The company has failed to honor their various debt obligations and this resulted in lawsuits brought against the company. The court decided to liquidate the company. Aqua logistics has various internal organization issues and operating inefficiency, yet it has great potential to grow and come up as a competitive organization if these issues are resolved. Thus, investors get an opportunity to acquire this firm, especially strategic investors who want to consolidate their competitive advantage and expand its business.

It is to be considered, before acquisition what the possible key drivers of the company are. What synergies will be obtained that will create value for the acquirer organization. Moreover, the value of the company has to be determined in order to analyze the possible acquisition price.

Possible value drivers

Infrastructure and roads

In the logistics industry the primary value creation is the infrastructure. Freight cost is an issue in the industry. As per records, the freight cost is much higher in India as compared to other countries. It is about 11 percent as compared to 6 percent in developed countries. The mode of transport is the key driver of this industry and road infrastructure is quiet poor in India. This has resulted in cost inefficiency for the logistics business. Moreover, the fuel cost is too high, which makes the road transport quiet costly and less profitable to the logistic business. However, the Indian government has announced significant projects in order to improve the infrastructure and significant road development programs will be initiated. This ensures a high growth prospect for logistic industry.

Warehousing& Localization

Warehousing is another important key driver of this industry. These warehouses should be formed at a location that provides convenience and efficiency to the company to manage and control its logistics activities. This is because warehouses, which were traditionally used for merely storing purposes only, can now be used for several services such as packaging, labeling, and modern reverse logistics. The warehousing space is unorganized, but government has taken steps to promote the warehousing and is providing the industry an organized warehousing infrastructure.

Legal matters

There were different laws and regulations and different states have their own legal principles. There is over flow of documentation and verification process that makes the logistics business quiet complex and this also consumed time. Moreover, the taxation system is not developed and there are certain issues being faced. This makes hurdles in the regular transportation. In the year 2014-2015, the central government planned to revise the tax system and implement goods and services tax separately to ease the taxation implications for this industry. This will also eliminate the double taxation regime....................

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