Mercury Case Essay
Mercury is an appropriate target for AGI. AGI is looking to increase its revenue and profit by utilizing synergies. The initial aim of AGI for acquiring Mercury Athletics is to increase leverage with contract manufacturers and to boost the cooperation with the retailers and distributors. AGI was one of the most profitable and successful companies in the market segment, but the firm’s size re mained rather small in comparison with the main competitors. Therefore, with the acquisition of Mercury, AGI planned to build competitive advantage. Besides, the target company had well developed operation infrastructure, impressive labor facilities in China and numerous …show more content…
3. Estimate the value of Mercury using a discounted cash flow (DCF) approach and Liedtke’s base case projections. Justify any additional assumptions that you make. In answering this question you should provide a quantitative and detailed analysis of the following parts of the valuation:
a. Projected cash flows, including projected capital expenditures and changes in net working capital.
b. The appropriate discount rate (assume a market risk premium of 5.0%).
c. Various approaches to terminal value (growing perpetuity and multiples-based).
d. Sensitivity analysis of the parameters you consider most relevant.
a) Cash Flow Forecasts
Men's Athletic: | 2007 | 2008 | 2009 | 2010 | 2011 |
Revenue | 251,957 | 282,192 | 310,411 | 335,244 | 352,006 |
Less: Operating Expenses | 218,435 | 244,647 | 269,112 | 290,641 | 305,173 |
Operating Income | 33,522 | 37,545 | 41,299 | 44,603 | 46,834 |
| | | | | |
Men's Casual: | | | | | |
Revenue | 52,179 | 53,223 | 54,287 |