Case Overview

Three Companies

Active Gear, INC (AGI) – The Firm considering the acquisition. You work for this firm as an analyst

West Coast Fashions, Inc. – The firm looking to sell off its footwear division

Mercury Athletic, Inc – The division apparently on the market

The Task

Take on the role of AGI analyst John Liedtke and evaluate Mercury’s business and financials. Answer these questions:

-What is the appropriate value (or set of values) to pay for Mercury?
-Does the acquisition make economic sense?

Good Context for Valuation

Purchase offer at stake, company’s financials are mostly clear and separate from parent company. Great sets of financials for getting to growth rates and cash flows.

Set up and narrative are reasonably brief: 7 pages.

Bunch of work getting to the right cash flows. After that, the valuation mechanics are kind of easy.

Another graduate level case. That means:

Ambiguity. Lack of all info. Need for good critical thinking about assumptions. As always, give some attention to formatting and communicating in a spreadsheet model.

Mercury Athletic: Valuing the Opportunity

Abstract

In January 2007, West Coast Fashions, Inc., a large designer and marketer of branded apparel, announced a strategic reorganization that would result in the divestiture of their wholly owned footwear subsidiary, Mercury Athletic. John Liedtke, the head of business development for Active Gear, a mid-sized athletic and casual footwear company, saw the potential acquisition of Mercury as a unique opportunity to roughly double the size of his business. The case uses the potential acquisition of Mercury Athletic as a vehicle to teach students basic DCF (discounted cash flow) valuation using the weighted average cost of capital (WACC).