LANDMARK FACILITY SOLUTIONS Harvard Case Solution & Analysis


Question 1

Does Broadway benefit from acquiring Landmark?  How can Harris justify $120 million bid for Landmark?

            There could be many benefits, which could be identified by the acquisition of Landmark Facility Solutions Company. The acquisition of the company would provide the management of Broadway to provide its customers with bundled services and increase its market share given the current rapid growth and the consolidation trend in the industry. New customers could also be approached by the company as a result of the energy and engineering solutions on the East Coast.

This opportunity would also fulfill other long term goals of the company such as entering the pharmaceutical, bio technology and the high tech industries in its home market. A huge share of the market could be attained in these specific industries in the eastern United States. The acquisition would also facilitate the penetration in the West Coast market so that an integrated management company could be created on a large scale.

Furthermore, Harris also had the expertise and knowledge of this industry and he had the capability to turnaround the current situation for Landmark Facility Solutions Company by proper cost management. He would also be able to increase the operating margins of the company to 3%. Once this acquisition has been completed, there would also be elimination of common expenses such as the corporate overheads and there would also be significant reduction in the net working capital to sales ratio of the company.

Finally, since the Landmark Facility Solutions Company was considered as a reputable company and it had established a strong brand name in the light of the high quality services and the expertise of its management, therefore, the management of Broadway would be able to market its services under the brand name of Landmark at a premium price, thus increasing the operating margins of the combined entity.

In order to justify the bid of $ 120 million for Landmark Facility Solutions Company which is the minimum bid asked by the owners of the company, the valuation of the company has been performed for the optimistic and the pessimistic assumptions regarding the forecasted cash flows of the company. First of all, if we consider the first set of optimistic assumptions, then the value of Landmark Facility Solutions Company would be $ 1489 million.

Based upon the bid of $ 120 million, the owners of Broadway would be able to achieve an internal rate of return of about 75% on this investment. On the other hand, assuming a pessimistic scenario as provided in the case the company value and IRR would be $ 620 million and 47% respectively. Therefore, Harris is able to justify the bid of $ 120 million for acquiring Landmark Facility Solutions Company. The bid of $ 120 million is justified under the best and the worst case scenarios after the acquisition..............

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