Mercury Case Analysis

West Coast Fashions, Inc has decided to sell off one of their segments; Mercury Athletic. John Liedtke, head of business development for Active Gear, Inc see’s this as a potential opportunity for AGI to acquire Mercury. The footwear industry is very competitive, with low growth and stable profit margins. Liedtke knows that acquiring Mercury would roughly double Active Gear’s revenue, increase its leverage with contract manufacturers, and expand its presence with key retailers and distributors.

Problem Statement

Liedtke has started his evaluation of the Mercury and needs to know if AGI should acquire Mercury from WCF and at what price. Essentially in order for Liedtke to know if AGI would be making a wise long-term investment by acquiring Mercury he has to know:

1. What are the free cash flows?

2. What are the discounted cash flows?

3. What is the NPV of the cash flows?

4. What is the Terminal Value?

5. What is the Acquisition Price for Mercury?

6. Will the synergies work for what AGI is trying to accomplish?

Analysis

In order for Liedtke to get a clearer picture on the acquisition of Mercury, he needs to compare and evaluate financial data from 2006 to 2011 and by doing so he can identify the strengths and weaknesses of this acquisition. By reviewing the summary of the operations of AGI and Mercury using data from the last year given in exhibits 1 & 4, I can see that Mercury appears to be a smart investment because they have mostly the same revenues as AGI. The percent revenue product compensates for the lack in both companies. For example, whereas AGI is 42% athletic and 58% casual, Mercury is 79% athletic and 21% casual. Therefore,