Strategic Choices in a Dynamic Market Harvard Case Solution & Analysis

Strategic Choices in a Dynamic Market Case Study Solution

Zoomlion is the leading manufacturer of construction machinery in China.Since its establishment the company has been growing at an incredible pace with a growth rate of 60% annually. The success of company is supported by a huge real estate boom in China and it has revenues of 1.6 billion RMB.Given the future growth of the company the investors have good understanding of the market butthe recent financial crisis has changed the opinions of investors because, the financial crisis has affected the whole world at once.

Meanwhile, Zoomlion is controlled by aprivate equity firm Honey Holdings.Honey Holdings was considering an exit from the company.The exit strategy was being discussed with the management and the executive body.But at the same time an opportunity came for Zoomlionto acquire  CIFA anItalian manufacturer of machinery and construction equipment.

Zoomline’s vision was to go international and the presence of CIFA in the international market would help become Zoomlion a global leader in the industry. So,it is a concern for Honey Holdings that what should it pursue among the two as in the prevailing economic conditions the exit option is the best.However, Honey Holdings should invest additional funds in the company to let it acquire the CIFA given the competitive advantage and the opportunity to become the leader in the global market of construction machinery.

Strategic Choices in a Dynamic Market Harvard Case Solution & Analysis


So, talking about Zoomlion, the company’s industry is construction machinery. The current situation for the company is not good enough due to the financial crisis that has created economic chaos around the globe. However, these crises were influenced by the collapse of real estate in the United States. The financial crisis would have a negative effect on the construction industry, because the real estate bubble has busted into the market that has stopped the real estate progress. So, it can be determined that the company’s option of acquiring the CIFA might not prove to be a good one. But if we take a look at numbers then company has 18% growth in revenues, but the net income has decreased by -93%. The next yearnet income reduced to -35% indicating the industry is recovering from the major financial crisis. So, there is future growth in the market.

The free cash flow analysis of the company shows that initially Zoomlion free cash flows are declining but the important matter is that it has been recovering very fast. Because free cash flow in 2008 were $953, and after a huge financial crisis free cash flows of the company are positive. So, Honey Holdings should invest additional equity into the company to let it acquire the CIFA, and become an industry leader.. Meanwhile, the deal of CIFA was attractive option due to the future growth of the company, its international presence, and its synergetic relation makes deal worthy

The recent financial crisis into the market would slow down the growth of the company into the international market but given the strong position of the CIFA, it would have huge revenues growth into the market. See Spreadsheet for set of assumptions. The WACC was also assumed at the 15%. So, the value of CIFA is 551 million Euros, and terminal value of the CIFA is 484 million Euros. So, the total enterprise fair value is 1.035 billion that Zoomlion has to pay for acquisition of the CIFA. Assuming that company has 50 million outstanding shares into stock market so the price per share to Zoomlion would be 20.71 Euros per share...................

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