Monmouth Inc. Harvard Case Solution & Analysis

Monmouth Inc. Case Solution


Monmouth Incorporation is a manufacturing concerned company. It is a leading producer of engines and massive compressors. This equipment is used in forcing the natural gas through pipelines and oil from well. The company majorly supplies its equipment to oil and gas companies and majority of revenues are extracted from these customers. Heavy equipment industry is of cyclical nature and the sales are volatile in the long term.

monmouth inc case solution

monmouth inc case solution

Monmouth is dependent on few oil and gas companies for its business. The company’s performance is above par, while the share value has not had its due worth. This is mainly due to the cyclical nature of business. The company has made several acquisitions to introduce diversification in its product offerings and to address the cyclical nature of the undertaking’s business. However, All the efforts were inefficient to boost company’s business and evade the reliability on the sales from heavy machinery.

The company reviewed its acquisition strategy and introduced new criteria and objectives for such strategy implementation. In pursuance of this strategy, the company identified Robertson Tool Company to be value addition to its business, if acquired.

Problem statement

Monmouth has proposed to acquire Robertson Tool Company in pursuit of its revised acquisition strategy. The acquisition should meet the criteria that the price should justify its long-term return and future prospect of business as well as the mode of payment should be as per Monmouth policy. The company wants to increases its Earnings Per share.

The valuation has to be made based on DCF and multiples model to value the acquisition target and considering the impact of acquisition on the company’s EPS. Besides this quantitative analysis, the acquisition has to be analyzed based on qualitative analysis, risks, and issues concerned.

Revised Acquisition Strategy

The company has introduced three criteria measures for evaluation of acquisition opportunities. This revised acquisition strategy’s criteria is listed as followed:

  • The company to be acquired should be in the industry in which the Monmouth has capability to become a leader. This strategy will confirm the management’s objective of being a leader in a particular business segment.
  • The industry in which the acquisition target operates should be fairly stable. It should have a broad range of low-cost products that are saleable to a larger customer population in contrast to few major customers. Furthermore, the sales should not be of a cyclical nature in that particular industry.
  • The acquisition target should be a competitive player in its industry and a leading company in its respective market segment.

Robertson Tool Company meets all the above listed criteria and thus, it is a competitive acquisition target for Monmouth.

Taking Initiative and Control

Being Mr. Vincent, the Executive Vice President of Monmouth Incorporation, effort should be made to obtain control. The acquisition target is of great value to the company. The company has been on the radar since a long time and the offer was rejected earlier. Robertson signifies all the required measures identified as criteria for acquisition.

Several benefits and profitability potential would be realized from the acquisition of Robertson. There were several mergers benefits and synergies that will exceed the expected feasibility evaluation. The company has some inefficiency, which will be eliminated and increase the future profitability. The cost of goods sold can be reduced to 65% from 69%, which will increase the profitability of the consolidated firm and will accelerate the operating activities...........................

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