Kendle: Outsourcing and Financial Growth

This document discusses the financial growth of Kendle, a contract research organization, through outsourcing. It explores the potential for global expansion through IPO or acquisition. The document also covers the challenges and benefits of these strategies.

FINANCE
2019

kendle
Answer - 1
CRO popularly known as the contract research organization worked as an outsourcing
company. Initially, the big pharmaceuticals in the US looked towards the outsourcing process
because of the increment in the R&D department. The pricing pressure of the big companies
was taken by CRO that used to transfer the cost that is fixed in nature into a variable cost
through the process of outsourcing. As the companies used to face a huge issue when it
comes to the pressure of pricing, the CRO attained an income from the portion of outsources
of the R&D budget of the pharmaceutical clients.
Kendle is doing financially well as compared to other companies in the sector owing to the
fact that it gets the income from the outsourced portion of R&D of the big giant of
pharmaceuticals. It grew to 13 million of sales and attracted significant projects from other
pharmaceuticals company. Kendle succeeded owing to the fact that it relied on the process of
outsourcing. Other companies failed to get the in-house where they can conduct experiments.
Big companies that could not conduct clinical research depended on Kendle. However, in the
field U-gene and gmi were the major competitor. Kendle EBITDA peaked at $1505 while u-
gene had $1617 and kindle at $1505. A close financial competition was observed however,
in terms of efficiency and efficiency Kendle provided a better result. It operated by
maximization of the labor utilization and mainly took advantage of the operational level.
Moreover, Kendle uses to charge like a professional firm. The profit margins were higher
because the utilization rate was in the range of 65% to 70%. The benefit that Kendle is
deriving is owing to the benefits in the form of outsourcing (Kendle, 2000). The big business
giants are able to get their work done without having an in-house team while Kendle uses to
make a profit through this concept.
Answer - 2
It is important that Kendle should expand its horizon so that it can operate on a grand scale
even outside the US. It has done a great deal of business when it comes to the privately
owned domestic company but for the global expansion, it needs to ensure that the wings are
spread. For this, it is important that the company should go for acquisition or IPO. The
acquisition will provide it a higher capacity and will ensure that the work is done is of higher
capacity (Needles & Powers, 2013). On the other hand, IPO will invite offerings from the
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public and will lead to the generation of funds (Leo, 2011). Through, this step the company
will be able to enhance the work capacity and this will lead to more operations. Moreover,
this will provide a chance to operate as a big firm outside the US (Kendle, 2000). However,
to become a bigger firm outside the US it is essential that the company should go for
expansion of the company because a smaller firm will not be able to tackle the competition.
Furthermore, to have operations on a higher scale, it needs to grow and rise on the domain so
that it is visible on the grand platform. Having an international presence outside the home city
will provide additional advantages in terms of reach and availability. Further, more
opportunities will be unlocked once the business spreads to the US.
Answer - 3
Candace and Chris could not project strong growth initially. It failed to have a strong
movement as compared to its peers and even failed to have the necessary cash for the
acquisitions. Since there was huge pressure from both ends, the couple decided to sell the
firm to another company in early 1997 (Kendle, 2000). DCF must be used in the case
because it helps in measuring the value created by the business directly, as well as precisely.
The value is determined by the inherent value of the future cash flow to the stakeholders.
The potential sale price of the firm can be determined effectively with the help of valuation of
the assets, revenue generation and the utilization of the earnings multiples (Laux, 2014). The
discounted cash flow analysis can be said to be a complex formula that sheds light on the
yearly cash flows and then the discounting is done of the future flow today through NPV
computation (Porter & Norton, 2014). The major assumptions that are made in the analysis
are as follow:
• The business contains a strong source of cash flow
• The business will make an expansion in the future course of time
• Has the ability to discharge the obligations in the due course of time
• If the company will fail to operate then the estimation of liquidation value will be done.
Answer - 4
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The acquisition of U-Gene and gmi would make no sense because the proposed acquisition
cost humongous. For the acquisition, Kendle will require immense funds and turning to
bankers for such funds might not fetch a success result. Moreover, the acquisition will bring
a lot of challenges and financial burden on Kendle because the business needs to repay the
amount (Kendle, 2000). Hence, more profit will be diverted towards the payment of interest.
As more players entered the business hence, there would be a strong rivalry and a result of
that the profit in the business might decline.
The proposed deal was valued fairly because $25 to $28 for this acquisition is proper. When
it comes to acquisition, the deals depend on the business ability and the success it has
gathered (Kendle, 2000). Gmi provided a complete range of services from phase II to phase
IV and conducted trials in many countries that led to popularity. Hence, in all probability, the
acquisition makes sense because combining both the business will create immense benefits.
A range of service will help in the development of the company and will lead to more
services. Since the company to be acquired has a strong presence in the market and is
ensuring a high rated service therefore; the proposed deal was high in nature. Hence, going
by the entire condition, the performance and the reach of the business it can be said that the
deal is valued fairly. The deal depends on various factors such as the potential of the
company, the valuation of the company, etc.
Answer - 5
Technically, IPO can be defined as the best mechanism to raise money and this attracts
millions of people. IPO comprises of the advantage that the stock can be issued and sold on
the stock market thereby it is an easier way to draw money from the public (Power, 2017).
Another advantage that can be gained by the company is to raise the capital quickly and reach
to a high number of investors. One of the major reasons why Kendle should proceed with the
IPO work history is viable and going by the lucrative offer, it is imperative that the investors
will be attracted (Lakhi & Sinha, 2018). It is a form of a direct listing of shares and will
definitely help the public to cater to a wider audience. After IPO, Kendle can go ahead with
other forms of financing but currently, it is the most important option that needs to be
concentrated by the company. This option is better than the acquisition formula because
acquisition involves a huge sum of money at the very beginning. A full IPO process can be
done and when the money is attracted from the investors then the same can be used for the
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process of acquisition (Steinbach, 2019). It is one of the strategies that will help the company
in going forward with both the options and the benefits will be attained. The investor's money
can be used for the purpose of acquisition (Melville, 2013). Hence, in short, the company will
not require to ask every bank to lend money rather the same amount raised from the IPO can
be used.
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References
Kendle. (2000) Kendle International Inc. Available from:
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Lakhi, S and Sinha, S. (2018) Raising capital: SME IPO may be a good choice for small
businesses. Available from: https://economictimes.indiatimes.com/small-biz/money/raising-
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Laux, B. (2014) Discussion of The role of revenue recognition in performance reporting.
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Leo, K. J. (2011). Company Accounting. Boston:McGraw Hill
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Needles, B.E. and Powers, M. (2013) Principles of Financial Accounting. Financial
Accounting Series: Cengage Learning.
Porter, G. and Norton, C. (2014) Financial Accounting: The Impact on Decision Maker.
Texas: Cengage Learning
Power, T. (2017) Fund choice: Comparing super funds in 8 steps [online]. Available at:
https://www.superguide.com.au/boost-your-superannuation/comparing-super-funds-in-8-
steps [Accessed 28 April 2019]
Steinbach, M. (2019) How to give an IPO the best chance of long term success. Available
from: https://www.ey.com/en_gl/growth/how-to-give-an-ipo-the-best-chance-of-long-term-
success [Accessed 28 April 2019]
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