Mergers and Acquisitions: Characteristics Map, Private Equity Firms, Successful Examples, and Failure Reasons

This article discusses mergers and acquisitions, including a characteristics map for Future Treasures and Tomorrow’s Classics, private equity firms, successful examples like the Mauritius telecom company merger with the French telecom company, and failure reasons like overestimating strategies and approaches and cultural differences. It also provides expert advice on acquisitions.

MERGERS AND
ACQUISITIONS

TABLE OF CONTENTS
QUESTION 1...................................................................................................................................3
QUESTION 2...................................................................................................................................5
QUESTION 3...................................................................................................................................7

QUESTION 1
You are required to draw a characteristics map comparing Future Treasures and
Tomorrow’s Classics. Based on this mapping, you are required to advise Jack Humphrys
whether to proceed or not.
Characteristics map
Characteristic map for the Future treasures and Tomorrow’s classic are as follows:-
Characteristic Future treasures Tomorrow’s
classic
Comments Assessments
SIZE
Turnover
UK € Million
£10 million £16 million Both the
organisation are
well equipped.
Future treasures
are leading
company and
their major clients
are tomorrow's
classic.
Their is no huge
difference can be
seen in their
turnover, so
merging is
possible.
Total employees 100 80 It can be seen that
tomorrow's
classic do not
design their own
product they sell
other client's
product.
Same comments
as above for the
turnover.
Financial
position

Profitability Positive UK £2
million
Positive UK £1.6
million
Both positive Both companies
are independent
and do not have
any debt.
Capital employed Unknown Unknown
Summary Powerful
financial spot
Powerful
financial spot
No problem in
finance resource
Cost of the
acquiring is high
Organisation
function Small
professional
administrative
Small
professional
administrative
Same for both Therefore might
not cultural
clashes occur
Senior
management
Professional Professional As tomorrow's
classic are the
client of FT, but
still have different
management so
issues might
encounters
Possibly face the
problem as Who
will lead the team
or to retain their
key employees.
New Products
Sources Internal
development, as
they prepared
their item by their
own.
Do not made the
product they sold
other's product.
Therefore,
company 's policy
is in external
development.
Different
perspective
Might produce
the opportunities
as one design the
product and other
will handle the
marketing of the
products.
For the merger there is no huge difference can be seen between both the companies, as
both have professional organizational body. Also, the turnover of both the companies are quite

same. Dina already told jack to purchase her company, it will be beneficial for the FT company
to increase their revenues. If Tomorrow's classic goes for the trade than it will be difficult for FT
to acquire the company. From the above map it can be seen that both have the same properties
whether in number of employees or profitability rate, only minor difference can be seen.
Therefore, Jack can proceed to merge both companies, as it will give them better opportunities,
they might seen problem in the operational task but the better strategy can help to solve them.
They can proceed to follow the hierarchical structure which helps employees of both company to
manage their work.
QUESTION 2
A)
Private equity firms are generally categorized by their total assets. They are the capital
investor companies which invest in the business of the organization. Their main task is to
estimate the complete value for the companies. Private equities are completely skilled, they
know all the business dynamics, their knowledge helps them to find the relatable buyers who can
pay high for the goods. In fact, they also made their exit planning for every business in the
running of the acquisition process. Their ability to pay more for the target companies can be
understood through their strong powered incentives which is for both the PE manager and for the
Business operating manager.
Aggressive approach for using debt:
Private equity uses the aggressive approach in debt process, as they recapitalize the
businesses, in which they generally use the debt financing. It also helps them in a tax or the
finance advantages. PE usually takes high risk, their attempts are related to maximise their
return amount for which they acquired the potential business. Therefore, this is also the reason
which makes the PE to pay more.
Determinant concentrate on the cash flows:
As PE company usually have the best employees which helps them out in order to
manage all their work. Their concern over the cash flow enables them to track the company's
cash position, which means they know the inflow and outflow of the cash. Their concept in such
allow them to control over their transaction, it helps them to save more cash for futuristic
properties.

As PE pays more as compare to the listed rivals due to their effective strategy as they
make maximum of their revenues by leaving their investments. Their major aim is to sell the
company at much higher price than what they have usually invested for purchasing the company.
This is the reason as why these firms pay more than other firms.
Advantage for the PE firms in takeovers:
As private equity firms mainly generate their revenues by charging the management fees
from the investors. From the takeover they get the major benefit in terms of economic scale, also
helps them in greater research so that they can proceed for further investment in the market.
For the regulatory changes Private equity firms must need to acquire the authorisation
unless they will be exempt. Therefore, the legal implication for the private equity can be
financial services act 2007. Usually Industry sets the extra additional regulatory which is mainly
for increasing the demands of investors.
With the bidding war between three PE firms for the UK food retailer Morrison, there has
been experienced a huge impact on the debt equity ratio of the target where the equity worth of
the target has increased by 48% by keeping the debt of the company constant. The following
changes can be explained with regard to the change in debt equity ratio of the target (Morrison).
Debt equity ratio before bidding Debt equity ratio after bidding
Debt = 3.2bn
equity = 4.5bn
Ratio = 3.2 / 4.5 = 0.71
Debt = 3.2bn
equity = 6.7bn
ratio = 0.47
It is seen that the before and after bidding there is no change can be seen in debt, but the
changes are seen in the equity. Before bidding equity was low and after bidding it is slightly
higher.
B)
For an example Mauritius telecom company merger with the French telecom company, as
the company was incorporated in a 1988 and it renames its brand name after merger with the

overseas telecommunication company. In 2000 company enter into the strategic agreement with
the France telecom, in which France acquired the 40% shares of the business. Their merger was
successful as in the year 2006 both launched their product as IPTV service as My.T which gives
the world recognition to both country's business. Also, makes the Mauritius to be the first leading
country who launched the IPTV services. The factors which lead to successful merger is that,
both company shows the trust in their services, They always works by making strategies it
enables them to launch a best product for which they have get huge market advantage. Takeover
bid define as the corporate action which is usually makes by the businesses to raise the offer for
buying the other companies. Therefore, France telecom acquire the 40% share in the Mauritius
telecom due to the better opportunity to enter into the international market.
They follow all the procedures and legal regulations which makes them a strong powerful
brand. Because of their coordination in the work they are liable to launch the unique and
qualitative product. As Mauritius country allows the cross border deals, but they might impact by
their changing budget amendments, therefore inbound as well as the outbound mergers are
allowed in the country. Country track the situation of the cross border or acquisition deal in
every six month of the year, as it will give them complete analysis so that if problem encounters
they can easily cope with it. Therefore, for driving the good changes in the economy country
allow the cross border deals, as well as it helps them to develop their community and to provide
the employment to their citizens.
QUESTION 3
A)
Principle rationale for the Macbeth coaches to acquire the Trollsbuss company as due to
the increasing competition in their country's market. As per the case study it is seen that Robbie
Macbeth's business were well organised, it set by his grandfather during that time all their three
subsidiary were working properly and able to generate the maximum revenues for their business.
But due to the increase of competition their revenues were started decreasing gradually, also they
face the threat of loosing their good position in the market.

After Robbie's trip from the Sweden his friend suggested him about the Trollsbuss which
is growing rapidly in the Sweden country. Another reason is that the rate of the Swedish Krone
also decreasing at that time, so Robbie found it as benefit of investment. As to appraise the
rationale major element is to give the feedback, it will be benefit for the Robbie's Macbeth coach
to acquire their position back in the market by making the acquisition over the Trollbuss
company.
B)
The reason which lead to fail the acquisition are as follows:
 Overestimating strategies and approaches
 Insufficiency because of diligence
 Ambiguity in understanding the market of the other country
 Lacking aspects in culture
 Wrong time to enter into the market
These are the major reason which affects the acquisition deal, as for this case study the reason of
failing in acquisition may be wrong time entry in the market. As it is already seen that Swedish
krone were gradually decreasing, it is good for the short term period. If Macbeth coach can
acquire the Trollbuss then they might get profit due to the low economy, but it is not good for the
long term aspect. Another reason can be cultural change as it leads the communication failure
between the management which will able to give negative impact over the business.
The steps should Robbie takes in order to reduce the occurrence of failure:
For the wrong time entry cause, Robbie can proceed to seek for the right time to enter into the
Swedish market. For that they can proceed to make suitable strategies or to did complete
research on the international market, or if they are in hurry they can also proceed to make the
agreement of acquisition which consists of exiting deadline.
Therefore for cultural issue both company can proceed to conduct the meetings on the
regular basis or to allow the employees from both side to communicate or understand each other.
It will be beneficial for achieving of their successive goals and objectives.