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

Keane’s Acquisition of Metro Information Services Case Solution 

KEANE INC

 The company was founded in 1965 and since then it has helped 2000 companies globally and government agencies to plan, build, and manage application software to optimize business performance.

METRO INC

 With the motto of “Metro is people” the company started in 1979 as a single office in Virginia Beach, Virginia. The company focused primarily on the application development. With serious efforts, the company quickly succeeded in opening 46 offices and approximately 2,700 consultants from major parts of the world with an annual revenue of about $ 300 million.

KEANE’S ACQUISITION OF METRO INFORMATION SERVICES

 Keane acquired all the voting shares of Metro Information Services in a stock for stock transaction, accounting for using the purchase method. The total purchasing price which Keane paid for acquiring the business of Metro Information Services is $ 162 million including the assumption of debt.

What are the Key Success Factors in this industry? How these factors are reflected in in Keane’s and Metro Information Services financial statements?

 The key success factors in the IT industry are the quick adoption to the rapid advancement in the technology and the availability of the large customer database. However, both these factors are constrained by some other factors. In order to adopt the rapid advancement in the technology, the skilled labors are required but there is endemic shortage of qualified labors in the market which is a biggest constraint for an IT company. On the other hand, the other key success factor i.e. the availability of large customer database is tensed with the presence of heterogeneous set of competitors playing the market.

In order to compare the above situation with transaction between Keane and Metro Information Services, it can be seen that with the merger Keane will be able to acquire a larger customer database of the Metro Information Services by adding hundreds of customers and approximately 1,700 billable consultants which can ensure the future revenues and the growth of Keane. Moreover, by merging two into one,Keane will be in a better position to compete effectively in the market with increased capabilities.

 As described in Exhibit 4,the acquisition of Metro is performed by using the Purchase accounting instead of pooling accounting, and in it instead of merging Keane and Metro, Keane is buying the net assets of Metro and also assuming Metro’s liabilities, which requires following three steps.

In order to come up with the price paid by Keane from the acquisition of Metro, firstly, Metro has to be revalued at its fair value, then the assumed liabilities must also be revalued at their fair value, lastly any excess of amount paid over the net amount of Metro would be considered as goodwill.............

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