LANDMARK FACILITY SOLUTIONS Harvard Case Solution & Analysis


Question #1: Does Broadway benefit from acquiring Landmark? How can Harris justify $120 million bid for Landmark?

Broadway benefit from acquiring Landmark:

Acquiring Landmark is the key to growth for Broadway.It is a cheaper and faster way to increase sales and expand the company by opening new branches. This will also help Broadway to achieve economies of scale.In addition to this,Broadway will be able to enter a new extension of business by acquiring Landmark. This opportunity of acquisition will have a huge impact on the growth of customers.Moreover, the management would provide different services to its customers.

A new extension of energy and engineering solutions would also attract several new clients for Broadway as well as they would attract the company in gaining its market share in the East Coast.The acquisition of Landmark would lead the company to expose new markets of pharmaceutical, bio technology and high tech industries. The acquisition would help Broadway to improve its services in its home town as well as it will also fulfill the long-term goals of Broadway.

The management of Broadway has the ability to facilitate both the companies together. The increase in cost of goods of Landmark is due to its poor management and landmark’s policy. After the acquisition, all the overhead expenses will be managed by Broadway as a whole, which reflects same overhead expenses of both companies. The elimination of overheads would have a huge impact on the net working capital of the company to its net sales. In addition to this, Harris stated that the operating profit can also be increased by 3% by utilizing operating expenses as one firm.

Landmark is a strong brand due to its expertise in high quality services and functionality of its management. This shows that Landmark is a reputable firm. The goal to achieve high operating profit margin can be achieved by Broadway by using the name of Landmark. Moreover, premium prices can be set by management of Broadway to achieve this goal under the influence of brand name of Landmark.

Justification of $120 million bid for Landmark

The justification provided by Harris for his $120 million bid is entirely based on the valuation of Landmark. This valuation is performed by taking the company in two scenarios. The first scenario reflects the worst condition for the Broadway and the second shows high performing Landmark. The cost of goods sold is 90 % to its sales, which can be minimized by properly handling the cost-management department of Landmark.

The best-scenario is a net present value approximately $600 million with an IRR of 53 %. The figures show that the company has the ability to come up with its initial investment. Similarly, the management also quoted the company’s figures in its worst scenario. The NPV of approximately $360 million and an IRR of 40% reflect a good opportunity for Broadway to acquire Landmark.

The profitability index of 7.85 with optimistic approach and 5.20 with a negative approach shows that $120 million of bid are worth the investment for acquisitions. It can be concluded that acquiring Landmark will have a huge impact on the growth of Broadway in terms of its market share, diversification, portfolio of services, pool of clients, revenues and its profit margin.

Question # 2:If Harris were to proceed with the acquisition, which financing alternative should be chosen and why? Would Broadway be capable of servicing its debt after the acquisition?

Financing alternate

The taskforce assigned by Harris for deal financing gave two financing alternates with two different approaches of optimistic and pessimistic views of the acquisition. The first alternative, which is total debt financing, has an impact on the company’s total reliability on loans. The second financing alternate has a mix of $60 million debt and $ 60 million of equity. The balance of both can be seen in this alternate........

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