Sterling Household Product’s company Harvard Case Solution & Analysis

Sterling Household Product’s company Case Study Solution 


The case illustrates an importance of determining the proposed acquisition for Sterling. It was one of the most successful companies in the healthcare consumer product industry and implemented various strategies to maintain the position in the particular market. However, the sudden financial conditions indicates the poorly projected results of the company in the next few years because its sales growth in the recent scenario is quite lower than the industry benchmark and according to the consumer’s expectation.

The company has still the potential to outperform the current sales growth but could do it by looking for the activity of business expansion through acquisition or any other terms. Therefore, under the case, it seems that Sterling would acquire Montagne Medical Instrument’s particular division to boost the sales as well as operating profits over time. The reason to acquire its germicidal, sanitation and antiseptic products unit was a potential opportunity to increase the growth of the business because such businesses have little competition in the market that might be able to induce the profitability margins and allow Sterling to stand in the competitive position at some time interval.

So, according to the company’s expectations, the future cash flows would be derived from the projected revenues and the investments that could be held over the related operations. Another proposal that would make a good deal for the business operations is business expansion through investments in plant property and equipment. The research and development cost in the particular scenario would be same, but the other costs would tend to increase by the increase in the sales every year.

The proposal would likely maintain the strong position in the market and allow the business to fulfil its long-term mission and vision. So, it is concluded that if the proposal of expansion would be executed, then it can be said that the acquisition of Montagne Medical Instrument’s division would be valuable and generate higher net present value in the current period as compared to the NPV without expansion.

Moreover, the management would have the advantage to increase the cash flows over time and reinvest in the operations to increase the size of the business that could generate net present value more than the expected one. Furthermore, the analysis would allow obtaining the enterprise value that matches with the proposed one by the bidders. So, to calculate the proper value, management would decide the key assumptions that enable to reach the proposed price of the company of the related years.

Also, it would ensure that the valuation would deem proper to flow in a proper way instead to deducting or expanding the projected sales at some interval. Therefore, it shows that such enterprise value would give an idea of how to perform the business operations effectively through related benchmarks set for projections and draw the conclusion to obtain the final value matched with the proposed one. It this sort of assumptions would be set by the management, then it can be said that Sterling would achieve the offer to acquire the Montagne Medical Instrument’s division.


Business risk from proposed acquisition

From the following condition, it seems that there are various risks that would be faced by Sterling. The first risk involves the implementation of improper assumptions that would increase the operating costs of the division of the acquired business. The risk could be defined as the induction of research and development of the new products that would minimize the expected profits of the company. The cost indicates the use of product initiation, marketing and allow to expand in the particular market to benefit from higher profit margins................

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