Keane’s Acquisition of Metro Information Services Harvard Case Solution & Analysis

Keane's Acquisition of Metro Information Services Case Solution

How these factors are reflected in in Keane’s and Metro Information Services financial statements?

I.T industry is a service based industry. The service is provided by an individual, I.T professional. The industry majorly depends on the I.T professional and skillful workforce which hasexpertise in providing competent services. In the I.T industry, firms compete based on their services quality and this quality is intrinsic to the employees. The more developed and expert the employee is the more competent and effective services the employeecan provide to the client. The key success factor in the I.T industry is thus the I.T professionals. Firms compete to secure and employ the competent and skilled I.T professional so that to achieve competitive advantage. These professionals should be retained and work for the company in the long run so that the company grows and make progress. Moreover, the customer base is also another success factor such that if a client receive services for a particular activity, then the company might find synergy in providing its services if the additional activities are also outsourced to the company from the same client.

Keane’s and Metro information services have adopted the policy of growth through acquisition and mergers. This policy incorporates the factors that are essential to remain competitive in the business. Through these acquisitions, the company acquires not only the company but primarily its working human force consist of professional I.T experts and skilled workforce. The combined business results in increase business through the customer base and contacts. The cost also reduced as a result of synergy thus the overall competitiveness increases significantly. The financial statements of both companies show the company’s investment oriented policy. In the balance sheet of both the companies,the highest valued intangible asset is the goodwill. Goodwill is only recognized when it is acquired, since internal generated goodwill is not allowed to be recognized. Thus this shows that both companies has acquired businesses and recognized goodwill thereof. Furthermore,there is a descriptive note on the business acquisitions in the financial statements that clearly depict the strategy of the company.

(B). could you explain why the price paid by Keane from the acquisition of Metro is calculated as described in Exhibit 4 of the case? What is Keane buying with the acquisition of Metro?

The acquisition is agreed to be made through the stock option. As per the page five information of the case the merger was organized as a tax free restructuring. This gives incentive to the shareholders of the Metro to get exemption from the recognition of gain or loss for federal income taxes. As per the note there are two requirements, by law, for this tax free reorganization that are the consideration price should only covers the value of stock of voting rights of the acquired company and in this way the acquirer company should enjoy statutory control over the acquired company. Thus, in order to meet these requirements the consideration paid was calculated as per the exhibit 4. The average value of stock is taken so that it defines a better value rather than opening or closing stock values. It was also agreed upon to gives bonuses to the Metro executives thus this is also incorporated in the consideration price.

The Keane buying with the acquisition is explained as follows:

I.T Professionals

Metro has experienced and talented I.T professional and well-motivated workforce. It has been providing quality services through its competent workforce. The company has placed great importance on its staff and through which the staff development and retention is quiet high. Keane, after the acquisition,would receivethis pool of expertise...................

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