Lockheed Martin’s Acquisition of NationScape Harvard Case Solution & Analysis

Lockheed Martin’s Acquisition of National Scape, Inc.

Background

The report presents a case where Lockheed Martin, a global defense firm is looking to acquire NationScape, Inc. (NSI), a company that provides peace-keeping and support service around the world. The potential acquisition could increase the acquirer’s (LM) existing operations, so a detailed analysis is carried out to examine the strategic and financial aspects of the company and also evaluate whether the acquisition would be a good strategic and cultural fit for Lockheed or not.

Problem Statement

The report discusses the strategic, operational and financial aspects of acquisition. The main areas discussed in report includes

  • Comparison of NSI with its competitors
  • Expected strategic and potential synergies
  • Goal of acquisition, consolidation and market expansion
  • Integration of NSI- Continue as stand alone or integrate into LM’s operations
  • Weighted Average Cost of Capital (WACC) and Discounted Cash Flow (DCF)
  • NSI valuation using multiple valuation techniques
  • LM offer price if it desire to acquire NSI
  • Value of potential synergies from the acquisition

Comparison of NSI with its competitors

In order to facilitate better comparison of NSI with other players in the industry, average of NSI’s three year financial data is compared with its competitors at three distinct levels.

(a.)   3 years average of top 3 companies

(b.)  3 years average of bottom 3 companies

(c.)  3 years average of 5 companies

It is noted that ESSI is excluded because it is a loss-making company; KBR and DynCrop are also avoided because limited information is available.

The following graphs present an effective comparison of various financial aspects of NSI with other companies in the industry. Such comparison could benefit LM to measure the operating performance of the target.

Based on our analysis in Exhibit 1, NSI has much low EBIT and Net Income as compared to the average of other players in the market but such results shows an absolute measure because the comparable companies vary in size, turnover and market share.

NSI is a growing organization and the latest innovations in security equipments and prestigious customer care increases the chance to gain new contracts.

The graph itself shows that the NSI’s volume is small as compared with other players in the market. It is evident by the LM’s strategic policy to acquire small players with huge

potential growth at a relatively low price and to enjoy strategic, operational and financial advantage.

 

 

The above graph shows a relative measure and ignores any effect which it causes due to the size of the company. The analysis in Exhibit 1 shows that the company has managed to maintain EBITDA, EBIT and NP Margin above other players in the industry, which indicates that company has long-term growth perspective and could benefit LM to achieve synergies.

Expected strategic and potential synergies

The potential acquisition could provide strategic, operational and financial advantages to both the companies and enable them to achieve synergies in the long run. Some of the potential synergies which could result from the acquisition are:

  • It enables Lockheed Martin to diversify its defense operations and expand across the globe. LM has a customer base particularly in developed nations, whereas the NSI is growing in developing countries which provide an opportunity to expand its customer base to emerging markets and countries.
  •  NSI has experienced rapid growth in recent years and had operations in around fifty countries, so LM can benefit from it by cross-selling its product to NSI’s customers.
  • The industry is growing due to recent security threats and modern security instruments are highly-recognized. This can further be justified that the government and other agencies are turning towards private contractors to produce safety instruments, which provides a hands on opportunity to both the companies to achieve strategic success in the long run.
  • In order to support defense and civilian infrastructure, the DoD and O&M spending budget had been increased from 53% to 62%, which could increase sales of NSI because more than half of its revenue is generated from DoD and O&M division.
  • There are still some untapped market for NSI and LM which needs to captured, if both the companies combine their capabilities then, they  can enjoy long term strategic success by providing same products and services.
  • The potential acquisition of NSI could also benefit LM to improve its supply chain management because NSI has the ability to mobilize rapidly in emerging and remote environment.

Goal of acquisition, consolidation, market expansion

The long-term strategic goal of Lockheed Martin is to create value for shareholders through growth and return of cash. NSI offers a unique position within the defense industry, making it a potentially good strategic fit for LM and also providing it an opportunity to grow horizontally. Although, NSI is a growing organization and has achieved tremendous success over last few years, acquiring such an organization will reduce the chance of facing future potential competition..............

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