Landmark Facility Solutions Harvard Case Solution & Analysis

Case Background:

Broadway Industries was formed by Mr. Harris in 1992 and it is located in USA. Broadway industries has specialized in providing janitorial, floor and carpet maintenance services. The company has earned the confidence and satisfaction of its customers by facilitating its customers with excellent quality services as well as exceptional customer care services. The company has recently expanded its operations in New England and Canada in order to fuel the overall growth of the company.

The top management of the company is recently considering diversification of their product/services line in order to support and enhance the overall expansion and growth of the company. The diversification that the top management of the company is seeking is to build engineering and energy solutions along with the current facility services provided by the company. In order to provide such solutions efficiently and effectively, the top management of the company is considering to acquire Landmark Facility Solutions.

Landmark facility solutions was founded in 1954 in USA, which has specialized in providing commercial building, engineering and energy solution services to its customers. The top management of Landmark has made its back breaking efforts since its inception to perform the operations of the company efficiently and effectively. This has led the company to earn the confidence and satisfaction of the customers, which has further allowed the company to secure a leading position in the entire market.

Landmark’s strong financial health has attracted the top management of Broadway as they are of the view that acquiring Landmark would certainly allow them to introduce commercial building, engineering and energy solution services along with the current service stream of the company efficiently and effectively.

The main problem arose when the top management of Landmark was unsatisfied with the price they were offered by Broadway as they are of the view that the company has much more potential to generate future economic benefits as compared to the price they are offered. Moreover, the top management of Broadway is unable to identify the most suitable option between the available two options for financing the acquisition efficiently and effectively.

Does Broadway benefit from acquiring Landmark? If so how and based upon what? Can the $120 mil bid be justified and if so what justifies or does not justify the bid?

The top management of Landmark is unwilling to accept any offer less than $120 million. In order to identify that whether Broadway would benefit by acquiring the landmark at a price of $120 million, a comprehensive calculation has been made in exhibit which shows that Landmark has a high potential to generate positive incremental cash flows as well as the sales of the company are expected to increase up to $441 million.

Furthermore, in order to identify the viability of acquiring Landmark at a price of $120 million, the WACC of both the companies has been calculated in order to calculate the NPV of the company. The NPV of Landmark as per the calculations in exhibit is $33.64 million as well as the company also owns a total assets of $94.64 million.In addition to this, the incremental benefits that Broadway would get by the acquisition of Landmark are$12.67 million. These benefits total to $140.95 million which is far greater than $120 million. Therefore, it is certain that Broadway would get benefit from the acquisition of Landmark at a price of $120 million, as the benefits associated with the acquisition exceed the cost of acquisition at a wide spread scale.

If Broadway proceeds with the acquisition which financing alternatives should be chosen, and why? Be sure to discuss how and if Broadway will be capable of servicing its debt after the acquisition.

Broadway is currently considering two options to fund the acquisition.The first option that the top management of the company is considering is to fund the acquisition through exclusive debt financing and the second available option is to finance the acquisition through the combination of debt and equity.

In addition to this, if the top management of the company opts for the first option .i.e. financing the project through debt, then it would increase the overall debt ratio of the company from 50% to 114%.On the other hand, if the company opts for the second available option i.e. financing the project by a combination of debt and equity, then it would enhance the overall debt ratio of the company by 31% i.e. the debt ratio of the company would be increased to 81%.

Furthermore, exercising the second option would also would also dilute the wealth of shareholders, as it would yield up to 40% holding to the investors. Thus, the shareholders’ wealth would be diluted and the investors would be earning more than they have invested.........................

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