Comprehensive Analysis of AP Eagers' Merger and Acquisition Strategy

This report provides a detailed analysis of AP Eagers' acquisition of Automotive Holdings Group (AHG) in 2019, the largest automotive dealer group merger in Australia. The report begins with an introduction to the merger, followed by a Porter's 5 Forces analysis of AP Eagers, evaluating competitive r...Read More

Running head: MERGER AND ACQUISITION
Merger and Acquisition
Name of the Student
Name of the University
Author Note

1MERGER AND ACQUISITION
Table of Contents
Introduction......................................................................................................................................2
1. Porters 5 Forcers Analysis of AP Eagers.................................................................................2
2. Company Analysis...................................................................................................................3
3. SWOT Analysis of AP Eagers Limited....................................................................................4
4. Company Strategy....................................................................................................................5
5. Merger Strategy........................................................................................................................5
6. Rationale behind the Deal........................................................................................................6
References........................................................................................................................................7

2MERGER AND ACQUISITION
Introduction
AP Eagers successfully executed its acquisition of the Automotive Holdings Group
(AHG) in 2019. The merger became the largest of automotive dealer groups in the country of
Australia. This was the very first merger authorization that was taken into consideration by
ACCC following recommendations made by Harper Review, as implemented in the month of
November in 2017 (Bakir 2019). The process of a merger is one that entails public application as
well a consultation process that comes with statutory time frames and which involves the right of
review on the part of the Competition Tribunal in Australia (Abidove et al. 2019). This
assignment analyzes the merger by undertaking a Porters 5 Forces analysis of AP Eagers,
company analysis, SWOT analysis after which the company strategy and the company’s merger
strategy in particular is analyzed. The paper concludes with an analysis of the rationale behind
the deal.
1. Porters 5 Forcers Analysis of AP Eagers
Competitive Rivalry – AP Eagers operates in an industry where rivalry among competitors
happens to be quite intense. This in turn, is something that drives the prices down at times, while
decreasing the profitability overall, of the industry, at the same given time. The long term
profitability of this organization is something that is impacted by competitive rivalry (Bhuiyan
and D’Costa 2020).
Bargaining Power of Suppliers – AP Eagers operates in the retail industry, where raw materials
are procured from an extensive base of suppliers. The suppliers that are in a dominant position in

3MERGER AND ACQUISITION
the market are sufficiently capable of decreasing the company’s profit margins. The bargaining
power of suppliers is high (Ibid).
Bargaining Power of Buyers – Buyers in the retail industry wish to avail the best products by
paying the most minimum of prices for the same. The bargaining power of buyers is high and
this also impacts the profitability curve of AP Eagers, quite significantly (Ibid).
Threat of Substitution – At present AP Eagers is a company that is simply product oriented,
and the switching costs for customers are also quite low. This implies that threat of substitution
is high (Bugeria et al. 2020).
Threat of New Entry – There are plenty of new entrants in the retail industry that bring new
ways or innovative forms of doing business, while introducing low pricing strategies, reducing
costs and offering new value propositions for the target clientele. The threat of new entry is high
and is a challenge that AP Eagers must manage over and above all other challenges that it faces
by virtue of its presence in the retail industry (Ibid).
2. Company Analysis
On an average, AP Eagers, over the period of the last three years, has shrunk its earnings per
share quite considerably, that is, by a rate of 2.4 percent in every year. The revenue of the
company over the last year and a half has been down by 1.2 percent. The company has not been
in a position to grow its earnings on a per share basis in the last three years and the revenue of
the company by as much as 1.2 percent shows that the company is not doing so well on the
business and notably on the financial front. With respect to its shareholders, AP Eagers as a
company has not been doing too badly for itself. The shareholder returns in the last three years is

4MERGER AND ACQUISITION
estimated to be at 9.4 percent. The company’s performance in the last three years has neither
been too good nor too bad and it would not be overstating it to say that shareholders would
definitely want to witness an improvement in the performance of the company in the coming
months, and years (Faff et al. 2019).
3. SWOT Analysis of AP Eagers Limited
Strengths – AP Eagers Limited is a company that has quite a few outlets operating under its
purview, in each and every Australian state. The cost structure of the company is also fairly low
which allows it to make its products available to customers at affordable prices. In the past, the
company has been able to generate returns of a positive nature n its capital expenditure and the
company is serviced by a skilled labor force as well, investing quite heavily in the training and
development of its employees (Kim et al. 2020).
Weaknesses – AP Eagers is not spending too much on research and development activities. This
is the reason why it is not able to offer products that are as innovative or as unique as those that
are being offered by its rivals and competitors. Most of the property on which AP Eagers
Limited is seen to conduct its operations is rented instead of owned. The large amount of money
that the company has to pay in terms of rent, keeps adding to its overall expenditures (Segal et al.
2019).
Opportunities – The use of the internet is something that has increased by a considerable degree
in the last few years. There is every scope and opportunity for a company like AP Eagers to
expand the presence of the business online and interact with its customers via the medium of the
internet. Social media and e-commerce platforms can be made use of a business like AP Eagers

5MERGER AND ACQUISITION
Limited to make its products available to a large customer base in a limited span of time (Kim et
al. 2020).
Threats – Suppliers have very high bargaining power when it comes to the retail industry, where
AP Eagers conducts its operations. The rivals and competitors of the company are also making
extensive use of technology developments to expand and grow, posing a huge threat to AP
Eagers and its business operations in Australia (Faff et al. 2019).
4. Company Strategy
The company strategy when it comes to an enterprise like AP Eagers Limited is to offer
products at an affordable or competitive price for its customers, so as to ensure high sales. The
price penetration strategy is something that the company is making use of to attract the interest of
its target audience but there is little effort being end in the area of advertising and promotion to
boost the appeal of the business in the target market. The company’s weak strategy, is also
allowing it to lose out to key competitors and rivals in the retail industry, who are far more adept
at marketing and promotion and who don’t hesitate to make use of technological innovations to
introduce new and interesting products in the market at competitive prices (Yang et al. 2019).
5. Merger Strategy
The merger strategy of AP Eagers is to expand its presence in the Australian retail
industry. By acquiring Automotive Holdings Group, the company intends on catering to a wider
target audience, offering a wider and more diverse range of products for competitive prices, but
with greater prospect of profitability in sight (Yang et al. 2019).

6MERGER AND ACQUISITION
6. Rationale behind the Deal
The sources of synergy and the sources of value creation in the deal is that AP Eagers
now acquires the assets of Automotive Holdings Group. There are no bad reasons behind the
deal. The objectives behind the deal, are quite sound. AP Eagers has not been doing too well in
the retail sector in the last three years, and has been losing out steadily to its competitors. By
acquiring Automotive Holdings Group, the company gains access to the financial assets of the
latter, using which it can expand its presence in the retail sector in Australia and take on its
competitors in a more firm manner (Faff et al. 2019). The deal was reasonably priced and
correctly timed, given that AP Eagers was otherwise on its way out of the retail sector (Yang et
al. 2019).

7MERGER AND ACQUISITION
References
Abidoye, R.B., Junge, M., Lam, T.Y., Oyedokun, T.B. and Tipping, M.L., 2019. Property
valuation methods in practice: evidence from Australia. Property Management
Bakir, C., 2019. How do mega-bank merger policy and regulations contribute to financial
stability? Evidence from Australia and Canada. Journal of Economic Policy Reform, 22(1), pp.1-
15.
Bhuiyan, M.B.U. and D’Costa, M., 2020. Audit committee ownership and audit report lag:
evidence from Australia. International Journal of Accounting & Information Management.
Bugeja, M., da Silva Rosa, R., Izan, H.Y. and Ngan, S., 2019. Choice of acquisition form in
Australia and the post‐takeover employment of target firm directors on the acquiring firm
board. Accounting & Finance, 59(4), pp.2235-2271
Faff, R., Prasadh, S. and Shams, S., 2019. Merger and acquisition research in the Asia-Pacific
region: A review of the evidence and future directions. Research in International Business and
Finance, 50, pp.267-278.
Kim, Y., Su, L.N., Zhou, G.S. and Zhu, X.K., 2020. PCAOB International Inspections and
Merger and Acquisition Outcomes. Journal of Accounting and Economics, p.101318.
Segal, S., Guthrie, J. and Dumay, J., 2019. An Australian case study of stakeholder relationships
in a merger and acquisition process. Advances in Mergers and Acquisitions (Advances in
Mergers & Acquisitions, Volume 18). Emerald Publishing Limited, pp.65-81

8MERGER AND ACQUISITION
Yang, J.Y., Segara, R. and Feng, J., 2019. Stock price movements and trading behaviors around
merger and acquisition announcements. International Journal of Managerial Finance