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Case Interview Preparation

PRACTICE SESSION 5

The ADC Consulting Club

March 21th, 2017

1 adcconsultingclub.wordpress.com/for-beginners/
So far….
Scenarios discussed
 Profitability
 New market entry
 Pricing strategies

Concepts
Market share, break even, profit margin, cannibalization, CAGR
Today
PST
Mergers and acquisitions scenario
Case Practice
 Packaging Operations Integration
 Accountware
 House of Pizza
PST PRACTICE
20 MINUTES

Test your math proficiency!

Mergers and Acquisitions (M&A)
Merger is a combination of two or more companies where one corporation
is completely absorbed by another corporation

Acquisition means to acquire or take over.

YouTube link

Ultimate Goal
Increase shareholders
value
Cultural fit
Why M&A
Growth

Reduced
Diversifi
competi
-cation
-tion

Scaled
Acquire
talent M&A Econo-
mies

Adopt
Monopol
techno-
y
logy
Market Synergy
Entry
Types of Mergers and Acquisitions

Same
Same industry
industry but
but different
different fields
fields e.g.
e.g.
Vertical
Vertical
supplier
supplier acquisition

Horizontal Acquisition
Acquisition of
of competitor
competitor

M&A
Complementar
Complementar Companies
Companies related
related by
by technology,
technology,
y production
production process
process or
or business
business

Two
Two companies
companies that
that have
have no
no common
common
Conglomerate
business
business areas
areas
Risk in M&A
Increase
Impact
in
on
business
employe
complexi
e
ty
Clash of Debt
corporat acquisitio
e culture n

Inaccurat Risk
e Lack of
valuation in synergy
of firm
M&A
Steps to M&A: Analyze client company
 Determine the goal and objectives? Is it a good strategic move
 Existing synergies across all clients businesses Customers
 Company values and culture
 Experience with integration Distribution
 Market share channels
 Customers segments Strategy
Marketing
 Strengths and weaknesses
strategy
 Finance option if acquisition
Culture
Client

Finances
Steps to M&A: Analyze Industry
Size of industry What is the market size?
Are customers segmented?

Growth rate
What are the potential areas of
growth?
Opportunities

Merge, acquire or new market entry?

Barriers to entry
Government regulations
Legal ramifications
Barriers to exit
Steps to M&A: Analyze target company
 Culture
Customers
 Market share
 Growth potential Distribution
 Profitability channels
 Synergies Identify
 Customers Marketing potential
 Valuation
strategy synergies
Target
Competitor
firm
s

Profitability

Valuation
Diving Deep
Objective Diversification, market entry,
synergy…?
Client
firm Operation Product, customer, distribution,
marketing

Finances Indebted, shares/stocks, profitable

Market Performance and potential reaction

M&A Industry Competito Performance and potential reaction

rs
Barriers Govt regulations, laws, debt,
technology

Finances Cost, future growth, current

profitability
Target Operation Customers, marketing, distribution
firm product

Synergies Should address objective @ minimum

Case Practice
Packaging Operations Integration
 pg 61-69 Columbia Casebook 2012
Accountware
 pg 70-80 Columbia Casebook 2012
House of Pizza
 Pg 116 Case in point
 BREAK INTO PAIRS
P I C K W H O S TA R T S F I R S T

15
Interviewer: Read the question
 Listen to the question
 Take notes
 Summarize the question

 Make sure it is not verbatim

 It is spoken clearly
 It captures all the essential information

 Ask for clarification

 Clarification if asked should be meaningful
Concluding the Case
 Recap the objective
 Make the recommendation directly
 Use data to explain briefly why the recommendation was made
 Say how the recommendation will be carried out
› Give a timeline, if possible
 State any secondary implication
 Give any additional insight or future anticipated work
During the practice, did you
 Physically draw a framework from the first question?
 Write down the math?
 Speak through the math?
 determine who the competitors were easily?

How did it feel to speak out? Were you

› Coherent?
› Concise?
› Confident?
Packaging Operation Integration
Tricky!!!!!!!!!!!!!!

Answer in casebook is right. Solution path is not clear/ potentially wrong

The key was to work in pounds/mile/miles not in total dollar values

Packaging Operation Integration – Math Answers
Packaging Operation Integration

Packaging Inc Aluminum Inc

Truckload 92  92 36  24
pounds/mile pounds/mile
Less than 4  2 pounds/mile 10  5
truckload pounds/mile
Intermodal 26  35 4  4 pounds/mile
New Freight Expense on Combining
Packaging Inc Aluminum Inc Total $
Truckload 92 pounds/mile 24 pounds/mile 116 * 1 = 116
Less than 2 pounds/mile 5 pounds/mile 7 * 2 = 14
truckload
Intermodal 35 pounds/mile 4 pounds/mile 39 * 0.75 = 29
Small Package 1 pounds/mile 4 pounds/mile 5 * 2 = 10
Total = $169

On merging, pick the cheapest price to calculate the total cost

New Freight Expense in Total
Packaging Inc Aluminum Inc Total
Truckload 92 pounds/mile 24 pounds/mile 116+0.5*(7)
Less than 2 pounds/mile 5 pounds/mile 7 – 0.5*(7)
truckload
Intermodal 35 pounds/mile 4 pounds/mile 39
Small Package 1 pound/mile 4 pounds/mile 5

On merging, pick the cheapest price to calculate the total cost

New Freight Expense in Total
Packaging Inc Aluminum Inc Total
Truckload 92 pounds/mile 24 pounds/mile 116+0.5*(7) –
0.25(116)
Less than 2 pounds/mile 5 pounds/mile 7 – 0.5*(7)
truckload
Intermodal 35 pounds/mile 4 pounds/mile 39 + 0.25(116)
Small Package 1 pound/mile 4 pounds/mile 5

On merging, pick the cheapest price to calculate the total cost

New Freight Expense in Total
Packaging Inc Aluminum Inc Total
Truckload 92 pounds/mile 24 pounds/mile 116+0.5*(7) –
0.25(116) = 90.5
Less than 2 pounds/mile 5 pounds/mile 7 – 0.5*(7) +
truckload 0.3(5) = 5
Intermodal 35 pounds/mile 4 pounds/mile 39 + 0.25(116) =
68
Small Package 1 pound/mile 4 pounds/mile 5 – 0.3(5) = 3.5

On merging, pick the cheapest price to calculate the total cost

New Freight Expense in Total
Packaging Inc Aluminum Inc Total $
Truckload 92 pounds/mile 24 pounds/mile 90.5 * 1 = 90.5
Less than 2 pounds/mile 5 pounds/mile 5 * 2 = 10
truckload
Intermodal 35 pounds/mile 4 pounds/mile 68 * 0.75 = 48.5
Small Package 1 pound/mile 4 pounds/mile 3.5 * 2 = 7
Total = $156

On merging, pick the cheapest price to calculate the total cost

Back Up
28
Difference between Merger and Acquisition
Merger
 Merging of two organizations to
one
 Mutual decision
 Higher legal cost
 Merger shareholders can increase
net worth
 Dilution of ownership
 Can be time consuming with
multiple legal issues
Acquisition
 Buying one organization by
another
 Friendly or hostile
 Less expensive than merger
 Buyers cant raise enough capital
 Faster and easier to transact
 Acquirer does not experience
dilution of ownership
 M&A Process
Preliminary assessment
 Current financial performance examined
 Future market value is estimated
Proposal
 Proposal for M&A is given to the target firm
Exit plan
 The target firm is involved in exit planning when it agrees to be bought out
Structured Marketing
 Target firm tries to achieve the highest selling price
Integration
 The two firms are integrated

Praful
Why M&A
Growth – increased market share
Economies of large scale business
Portfolio diversification
Elimination/Reduction of competition
Monopolistic control of market
Adoption of modern technology
Lack of technical and managerial talent
Faster market entry
31

Merger: Pros and Cons

Pros
 Increased market share
 Economies of scale
 Profit for R&D
 Benefits on tax shields like carried
forward losses or unclaimed
depreciation
 Reduction of competition
Cons
 Clash of corporate culture
 Increase business complexity
 Resistance to change by
employees
32

Acquisition: Pros and Cons

Pros Cons
Increased market share Inadequate valuation of target firm
Faster market entry Loss/ lack of synergy
Lower risk of developing new Finance acquisition through debt
products
Increased diversification
Avoid excessive competition
Problems
Lack of synergy / integration difficulties
Large debt

*Failure
Layoffs
Cultural difference
Flawed intention
Poor investigation
Poor stakeholder outreach