Posted: September 13th, 2017

International Finance

Paper, Order, or Assignment Requirements

1. Evaluate the commercial logic of acquiring Mandrake Footwear, and discuss whether it is an appropriate target for Gear Sportive?

Mandrake Sports Footwear (MSF) target market is mainly the youth with a focus of providing them with branded sports and casual footwear.MSF’s four main segments of operations include: men’s sports footwear, women’s sports footwear, men’s casual footwear and women’s casual footwear. MSF was largely associated with extreme sports which explains why it related well with its youth market. On the other hand, Gear Sportive has a slightly different approach which targets a special segment of the market by focusing on golf and tennis players. The firm has also broadened its product offering to include casual and recreational footwear. Fundamentally, Gear Sportive’s acquisition of MSF would not in any way cannibalize its current operations but rather would serve to broaden its market. This is because Gear Sportive currently targets the higher income segment of the market through offering exclusive products at higher price points while MSF targets the low to middle income segments of the market with mid-range prices tailored to suit this market. However, the two firm’s differ in their retail strategy with Gear Sportive selling its products through its own department and retail stores which further helped in preserving margins but also limited sales. On the other hand, MSF sold its products through department stores and large discount retailers, a strategy that boosted sales for its footwear products.

In terms of productions and operations, Gear Sportive and Mandrake Sports Footwear sourced virtually all of their productions from independent contractors in Asia. In terms of financial performance, Mandrake experienced higher growth in terms of its revenues which have significantly increased from £340.6 million in 2012 to £431.1 million in 2014. This growth is expected to continue in the future for nearly all segments except the women’s casual footwear segment which is likely to be discontinued due to its poor financial performance. Notably, despite the high revenue numbers, MSF also has high operating expenses which are approximately 89% of total revenues unlike for Gear Sportive whose operating expenses are nearly 60% of total revenues. This can mainly be attributed to MSF’s mid-range pricing system but this presents an opportunity for synergy where Gear Sportive can implement its some of its operating measures to increasing MSF’s margins in the event of a merger.

2. What modifications (if any) do you feel should be made to Linton’s projections. Justify any further assumptions you make, and suggest how your figures could be verified.
3. What value does Mandrake have as an acquisition candidate?
4. How would you analyze possible synergies or other sources of value not reflected in Linton’s base case assumptions?