Report on the Acquisition of J Barbour by JD Sports Fashion PLC

This report provides a comprehensive analysis of a potential acquisition scenario, focusing on JD Sports Fashion PLC's plan to acquire J Barbour and Sons Limited. The executive summary outlines the key aspects of the report, including company overviews of both JD Sports and J Barbour, financial analyses of their profitability, liquidity, capital structure, and market ratios. The report delves into the cost of capital for JD Sports and calculates the purchase consideration for acquiring J Barbour using a discounted cash flow method. It also assesses the impact of the acquisition on JD Sports' financial statements and share price. The analysis suggests that the acquisition could strengthen JD Sports' financial performance and market position, with detailed calculations of purchase consideration and the potential sources of funding. The report concludes with a summary of the findings and recommendations regarding the acquisition, emphasizing the potential benefits for JD Sports, including market expansion and diversification. The report also contains detailed financial calculations and appendices supporting the analysis.

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Executive summary
The report explains about the acquisition concept. The report focuses on 2 companies,
J D fashion limited and J Barbour and sons limited. The report identifies and evaluates
various aspects related to both the companies and it evaluated that whether the JS should
acquire the J Barbour and sons limited or not. The report evaluates that JD sports fashion plc
wants to diversify its product and expand the market and that is why it is planning to acquire
J Barbour and Sons limited which is operating its business in British market. It would assist
the company to run its business in British market as well. The report explains about the total
purchase consideration which would be required by the company to pay J Barbour and Sons
limited. And it also evaluates the impact of acquisition on the financial statement of JD sports
and on the share price of JD sports.

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Contents
Introduction.......................................................................................................................3
Company overview...........................................................................................................3
JD sports fashion plc.....................................................................................................3
J Barbour and Sons Limited.........................................................................................4
Financial analysis of both companies...............................................................................4
Profitability position.....................................................................................................4
Liquidity position..........................................................................................................5
Capital structure ratio...................................................................................................6
Market ratio..................................................................................................................7
Cost of capital...................................................................................................................8
Purchase consideration.....................................................................................................9
Impact on financial statement of JD sports.....................................................................10
Share price movements...................................................................................................11
Conclusion......................................................................................................................12
References.......................................................................................................................13
Appendix.........................................................................................................................15

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Introduction:
When a company take over the other company and clearly established that the
operations and the business of buying comapny would be operated under the name of the
company which has acquired it, than this process is called acquisition. Acquisition is a
corporate process in which an organization bought a firm’s ownership stock to make a control
over the firm and run the business of the company under the name of acquiring company.
Usually, the acquiring company buys the assets and the stock of acquired company to make
decisions about the company and its operations (Madhura, 2011). There are various reasons
due to which the acquisition process is performed by the companies. The few reasons of
acquisition are increased synergy, greater market share, economies of scale, cost reduction,
new niche offering, diversification and expansion of market etc. (Williams et al, 2005).
In the report, JD sports fashion plc is making a plan to buy J Barbour and sons
limited, a British private company. This evaluates that JD sports fashion plc wants to
diversify its product and expand the market and that is why it is planning to acquire J Barbour
and Sons limited which is operating its business in British market. It would assist the
company to run its business in British market as well. The report explains about the total
purchase consideration which would be required by the company to pay J Barbour and Sons
limited. And it also evaluates the impact of acquisition on the financial statement of JD sports
and on the share price of JD sports.
Company overview:
The history, mission, objectives, products and services of both the companies, JD
sports fashion plc and J Barbour and sons limited are as follows:
JD sports fashion plc:
JD sports fashion plc is mostly known as JD. It is a sports fashion company which
retails the sports clothes and it is mainly based in Bury, England. It sells its products and
clothes throughout the UK market. The company is listed on London stock exchange and the
company is FTSE 2520 index’s constituent. The company has been founded in 1981 at Bury
in England (JD sports, 2018). The main products of the company are clothing and sportswear
accessories. The main mission and vision of the company is to offer the best quality clothing
sportswear to its customers as well as diversify and expand the market at international level.
The main competitor of the company is sports direct international plc.

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J Barbour and Sons Limited:
J Barbour and sons limited is a luxury fashion brand which retails the fashion clothes
and it is mainly based in South Shields, England. It manufactures and sells its products and
clothes throughout the UK market (J Barbour, 2018). The company has been founded in 1894
at South Shield in England. The main products of the company are water proof outwears,
ready to wear, shoes, leather goods and accessories for children, women and men. The
company has not listed itself on any stock exchange and thus it is a private company. The
study explains about the financial position and purchase consideration for the company.
Financial analysis of both companies:
Financial analysis is process that identifies and evaluates the business, projects,
investment opportunity, budgets and various other financial transactions of the company to
determine the suitability, position and performance of an organization. Financial analysis is
mainly used by the financial analyst, financial manager and the investors to evaluate that
whether the organization is suitable, liquid, solvent or profitable (Weygandt, Kimmel and
Kieso, 2009). The financial analysis of JD sports fashion, J Barbour and sons limited and the
competitive company, sports international direct plc has been evaluated to determine the
financial performance and evaluation of the company. Ratio analysis study has been
conducted on all the three companies to determine the suitable, liquid, solvent or profitable
position of the companies.
Profitability position:
Firstly, profitability ratios have been calculated. Profitability ratios are kind of
financial metrics which are used by an organization to assess the ability of a business to
generate the earnings that are compared to the expenses and other cost of the company at a
particular time period. Profitability ratios are of many types such as net margin and return on
equity. Net margin ratio explains about the total net profit of the company in context with the
total revenue (Kinsky, 2011). Through the analysis on the net margin of companies, it has
been evaluated that the profit margin of J Barbour and sons are quite better than other
companies though the profitability margin of JD sports is also better in concern of the
industry.
Further, return on equity of the company has been calculated. Return on equity
expresses about the total net profit of an organization in context with the total equity of the

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company. Through the analysis on the return on equity of companies, it has been evaluated
that the profitability position of J Barbour and sons are quite better than other companies
though the profitability margin of JD sports is also better in concern of the industry.
Descrip
tion Formula J.D. Sports
J Barbour and
Sons
Sports Direct
International Plc
201
7
201
6
201
5
201
7
201
6
201
5 2017
201
6
201
5
Profita
bility
Net
margin
Net
profit/rev
enues
7.76
%
5.52
%
3.55
%
13.0
7%
9.74
%
3.55
% 7.14%
9.61
%
8.52
%
Return
on
equity
Net
profit/eq
uity
31.8
9%
25.1
1%
17.4
1%
21.7
3%
21.8
8%
17.4
1% 18.71%
20.1
5%
20.7
8%
(Morningstar, 2011)
Liquidity position:
Further, liquidity ratios have been calculated. Liquidity ratios are kind of financial
metrics which are used by an organization to assess the ability of a business to pay the short
term debt obligation of the company at a particular time period. Liquidity ratios are of many
types such as current ratio and quick ratio. Current ratio explains about the current assets and
current liabilities of the company (Kaplan and Atkinson, 2015). Through the analysis on the
current ratio of companies, it has been evaluated that the liquidity position and shot term debt
obligation of JD sports are quite better than other companies as the company is managing the
minimum resources at its maximum.
Further, quick ratio the company has been calculated. Quick ratio expresses about the
total quick assets and current liabilities of the company. Through the analysis on the quick
ratio of companies, it has been evaluated that the liquidity position of JD sports are quite
better and it is according to the industry ratio.
Desc
ripti
on
Formu
la J.D. Sports J Barbour and Sons
Sports Direct
International Plc
2017 2016 2015 2017 2016
201
5 2017 2016 2015
Liqu

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idity
Curr
ent
ratio
Current
assets/c
urrent
liabiliti
es 1.33 1.47 1.22 5.67 5.93 1.22 1.72 2.43 2.30
Quic
k
Ratio
Current
assets-
Invento
ry/curr
ent
liabiliti
es 1 1 1 4 4 1 1 1 1
Capital structure ratio:
Further, capital structure ratios have been calculated. Capital structure ratios are kind
of financial metrics which are used by an organization to assess the ability of a business to
manage and measure the debt, equity and interest level of the company. Capital structure
ratios are of many types such as debt equity ratio and interest time ratio (Deegan, 2013). Debt
equity ratio explains about the debt and equity and the capital structure of the company.
Through the analysis on the debt equity ratio of companies, it has been evaluated that the
capitals structure position of sports direct international plc are quite better than other
companies as the company is managing the optimal capital structure.
Further, interest times earned ratio of the company has been calculated. It expresses
about the total interest and the cost of the company. Through the analysis on the interest
times earned ratio of companies, it has been evaluated that the capital structure position and
cost position of JD sports are quite better and it is according to the industry ratio (Higgins,
2012).
Desc
ripti
on
For
mul
a J.D. Sports J Barbour and Sons
Sports Direct
International Plc
2017 2016 2015 2017 2016
201
5 2017 2016 2015
Capi
tal
struc
ture
ratio

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Debt
Equit
y
Ratio
Deb
t/
Equ
ity 1.04 0.97 1.20 0.28 0.00 1.20 1.98 1.70 0.53
Inter
est
Time
s
Ope
ratin
g
prof
it/
Inte
rest 7.63 21.17 2.52 400.66 182.54 2.52
17.0
3 14.59 39.48
Market ratio:
Lastly, market ratios have been calculated. Market ratios are kind of financial metrics
which are used by an organization to assess the ability of a business to manage and enhances
the market position. Market ratios are of many types such as earnings per share, price
earnings ratio and book value per share (Garrison et al, 2010). EPS explains about the
earnings of the investors in context with the total profit of company in the market. Through
the analysis on the EPS ratio of companies, it has been evaluated that the market position of
sports direct international plc are quite better than other companies as the company is offering
the highest revenues to the stockholders.
Further, PE ratio and market value ratio of both the companies have been evaluated to
analyse the performance of the companies. Through the analysis and the calculations, it has
been identified that the performance of J D sports plc is quite better in the market and the
investors are more attracted towards the J D sports plc.
Descriptio
n Formula J.D. Sports
J Barbour and
Sons
Sports Direct
International Plc
201
7
201
6
201
5
20
17
20
16
20
15 2017 2016 2015
Market
Ratio
EPS
Total
profits
available to
shareholder
s/No of
4.4
4
5.2
3
4.6
5 4.38 5.37 7.40

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equity share
P/E Ratio EPS/MPS
0.9
6
1.0
2
0.8
34 0.50 0.59 1.89
Book to
market
Shareholder
s
equity/Mar
ket
Capitalizati
on
20.
48
14.
06
17.
39 32.06 21.09 16.41
(Appendix)
The financial performance analysis of all the three companies explains that the
financial position of J D sports plc is quite better in the industry as the position of J D sports
is way better than sports direct international plc. Further, it has been found that the J Barbour
and sons limited’s financial performance is also better and it explains that if the J D sports
would acquire the comapny than huge profits would be generated by the company (Hillier,
Grinblatt and Titman, 2011).
Cost of capital:
Cost of capital is the total required return which is quite necessary for a business to
make a capital budgeting project, for instance building a new factory, purchasing a new
equipment etc. Cost of capital is the combination of total cost of an organization to raise the
funds such as cost of debt, cost of equity, cost of preference equity, cost of treasury funds etc.
Damodaran, 2011)
In the case, cost of capital of J D fashion plc has been calculated to identify the total
cost which is given by the company to its stakeholders against the funds. Firstly, the cost of
equity of the company has been evaluated. It explains that the market return of the company
is 12% whereas the risk free rate is 4.25%. On the other hand, the beta of the company is
1.89. It explains that the cost of equity of the company is 18.90% (FT, 2018).
Calculation of cost of equity
(CAPM)
RF 4.25%
RM 12.00%
Beta 1.89
Required rate of return 18.90%
(Bloomberg, 2018)
Further, cost of debt of the company has been evaluated. Cost of debt explains the
total cost which would be occurred in an organization against the total debt amount of the

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company (Horngren, 2009). The cost of debt calculation of the company explains that the
interest rate of the company is 14%, tax rate of the UK market is 21% and thus the cost of
debt of the company is 11.06%.
Calculation of cost of debt
Outstanding debt 32,996
interest rate 14.00%
Tax rate 21.0%
Kd 11.06%
(Gapenski, 2008)
Lastly, the cost of equity of the organization has been calculated and it has been found
that the total cost of capital of the company is 12.36%.
Capital structure of J D sports fashion plc
Price Cost Weight WACC
Debt 32,996 11.06% 0.645855 0.071432
Equity 14,092 18.90% 0.275833 0.052126
51,089 Cost of capital 12.36%
(horngren et al, 2005)
The above calculation briefs that the total discount rate of the company is 12.36%
which means the discount amount and the new cost of capital of the comapny against the new
funds would be calculated on the basis of 12.36%.
Purchase consideration:
Purchase consideration is the total agreed amount which is given by the acquiring
comapny to the acquired company against the exchange of shares and the ownership of the
company (Hogarth and Makridakis, 2011). Purchase consideration could be in the form of
cash or assets or shares. It should be agreed by both the companies. There are various ways to
calculate the purchase consideration such as net assets method, net payment method,
discounted cash flow method etc.
The purchase consideration of J Barbour and sons limited has been calculated on the
basis of discounted cash flows. Discounted cash flow method explains that it is crucial for the
values to evaluate the profit as well as the past cash flows of the company to identify the
future profitability level of the company (Bierman, 2010). The discounted cash flow method
has been analyzed by considering the last 5 year’s cash flow of the company. The average

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cash flow of the company from last 5 years is $ 5,39,95,420. On the other hand, the growth
rate of cash flow of the company is 11.07%. It explains that the terminal cash flow of the
company is 15,42,85,333 (Appendix).
On the basis of calculations, it has been calculated that the total purchase consideration
of the firm is $ 1,53,36,93,097 out of which the debt position of the company is $
18,72,03,390 (Brigham and Ehrhardt, 2013). Through the evaluation, it has been found that
the purchase price per share of the company would be $ 1,346.49 (Appendix).
Present value of terminal cash flows
Terminal cash flows 15,42,85,333.05 1,02,66,86,628.16
Total value of Firm ($M) 1,53,36,93,097.86
Less: Value of Debt 18,72,03,390.00
Total value of Equity 1,34,64,89,707.86
No of Shares Outstanding 10,00,000.00
Per share value of value of equity 1,346.49
(Arnold, 2013)
It explains that if J D fashion plc wants to acquire J Barbour and sons limited then
company has to acquire 10,00,000 shares of the company at the rate $ 1,346.49. The
evaluation on the purchase consideration of the company explains that the financial position
and the performance of the company are quite strong (Bromwich and Bhimani, 2005).
Further, it has been evaluated that the comapny could raise the funds through debt and
equity to acquire the J Barbour. The company could raise the 60% funds through debt and
rest 40% funds could be acquired by the company on the basis of equity of the company as
the cost of equity of the company is quite lower than the cost of debt of the company and
further, the risk position of the company is also lower. Thus the company is suggested to
enhance the fund through 60% debt and 40% equity.
Impact on financial statement of JD sports:
The financial statement and position of JD sports has been evaluated further and it has
been analyzed that how would the financial position of the company be affected if the J
Barbour and sons would be acquired by the company. The calculation and the analysis

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expresses that the financial performance and financial position of J Barbour was quite string
and if the J D acquire this company than the financial position and performance of the
company would be stronger. The net profit level of the company would be enhanced as the
company would be able to capture the new market and thus the market share and revenue of
the company would be enhanced (Baker and Nofsinger, 2010). Further, it has been found that
the total assets level of the company would also be higher and the company would have
enough funds to invest into new projects or resources.
The evaluation and the analysis on financial statement explains that the profitability
level, solvency level, efficiency level and the capital structure position of the organization
would be strong after acquiring the company. The profitability level of the organization
would be around 13% after the acquisition. Further, it has been found that the capital
structure position of the company would also be better after raising more funds for the
acquisition (Ackert and Deaves, 2009). The financial strength of the company would be
better. On the other hand, the cash flow position of the company would also be better.
Share price movements:
Further, the stock price of the company has been evaluated and it has been found that
the current market share of the company is $ 1004.24 which explains about a better position
of the company in the market. The stock price and position of JD sports has been evaluated
after acquisition and it has been analyzed that how would the stock price of the company be
affected if the J Barbour and sons would be acquired by the company. The calculation and the
analysis expresses that the J Barbour was quite strong limited was a private company though
the market share and the position of the company were quite strong (Brewer, Garrison and
Noreen, 2005). And if the J D acquires this company than the stock price and performance of
the company would be stronger. The MPS and EPS level of the company would be enhanced
as the company would be able to capture the new market and thus the investors would be
attracted towards the company (Companies house 2018).
The company would be able to meet the investor’s exceptions by offering them high
dividend. Further, the corporate governance of the comapny would also be changed which
makes it easier for the other people to invest into the organization (Brown, Beekes and
Verhoeven, 2011). The risk level of the company would also be lower and eventually, the
growth exceptions of the company would also be higher which makes it easier for the