Infrasource Harvard Case Solution & Analysis

Q1.)    Is this more a market base opportunity or a company/target-based opportuinty? Why?

Infrasource is more like a market based opportunity andthis opportunity was created by the Exelon Corporation when it decided to divest its unrelated operations and InfraSource was one of the business operations that was opened for bidding. Therefore, it can be termed as a market based opportunity because InfraSource did not become an acquisition target until it was decided by Exelon Corporation and it provided an opportunity to the market in order to acquire this company. Meanwhile, it is not a target based opportunity because InfraSource was already in the market but it was being targeted for the acquisition and it only became a target when the market situation created this opportunity and the parent announced to divest InfraSource in order to smoothout their operations.

Q2.)    How might the ownership of this business complicate this transaction?

Since, InfraSource is a wholy owned subsidiray of Exelon Corporation, therefore, Infrasource comprises of three segments and each segment has different conpanies that are operating independently. However, this business is owned by Exelon Corporation but still each company has previously been operating as an individual business unit and if the parent company decides to sell the business then the existing management may adopt some sort of strategies in order to stop the bidding process because they will be concerned about the new owner, who may follow a centeralized strategy in order to controll all the individual companies. Therefore, the complexity of ownership and controll within the InfraSource’ subsidiary companies may create complication in the successful completion of this acquisition transaction.

 

Q3.)    What are the potential merits of this investment?

Since, the existing transmission and distribution infrastructure had been installed around 25 to 50 years ago and it needed to be replaced, which will lead to increased spending on building infrastructure; therefore, the T&D Segment is supposed to grow by 10% to 15%, which will create an opportunity for Infrasource to increase its revenues. Furthermore, previously the regulations regarding the utilities were vague and it was not clear that the expenses would be recoverable from customers or not, therefore, the investment in capital projects had been delayed until the conditions turn in favour of utility providers and now when the conditions have tyrned to settle down so the utility provider will invest in capital projects, which will also increase the market size and Infrasource will be able to reap the benefits of increasing market size.

In addition to this, the overall fashion is moving towards using the underground development of infrastructure, so the investment in building the underground infrastructure will increase and Infrasource is already in a competitive position in the underground segment of the market, which will alow Infrasource in order to increase its revenues. Meanwhile, the world is moving toward the use of electronic items and telecommunication devices, which increases the need for energy resource, therefore, new generation plants will be installed that will be a potential merit for investment in Infrasource. Additionally, customers of Infrasource are more frequntly using the outsource services in order to cut the unprofitable services and during their peak hours this will also provide a potential opportunity for Infrasource to increase its revenues through undertaking these outsource contracts.

The management of Infrasource is highly skilled and are very well in manageing the business operations, which will be used by the new acquirer for the successful running of this business and the new acquirere will not need put more of its time in finding the right person for the right job. Furthermore, the entry to this market was very low because of the extensive investment needed in the business and long established relationships with customers and suppliers and low entry chances will limit the market in this industry. Furthermore, Infrasource is a leading company with huge level of production and due to this the company will be able to achieve the economies of scale advantage over its competitiors.

Meanwhile, when customers are cutting their cost, so Infrasource will have the benefit that its revenues in relation to the previous committed contracts will be a significant part of revenues and will enable Infrasource to remain profitable.

Q4.)    What are the risks of this investment and how might they be mittigated?

However, the revenues from construction segment is $45 million but revenues are expected to decline that will have a negative impact on the value of Infrasource in future. For the meantime, the impact of decline in these revenues has been incorporated into the valuation fo Infrasource but the impact and magnitude of fall in revenues is a potential risk.

Furthermore, the Infrasource has not performed well in non IPP segment of the business which has reduced revenues by 8%, meanwhile, the impact of this segment can not be calculated in isolation; therefore, it is difficult to incorporate this decline in Infrasource’s valuation, hence, the valuation of Infrasource will not represent the true and fair value ......................

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