Economic Settings Of The Buyers Industry †MyAssignmenthelp.com

Question: Discuss about the Economic Settings Of The Buyers Industry. Answer: Economic Settings Of The Buyers Industry Mergers and acquisitions today in figures speak for themselves: after years of failed attempts, the total value of mergers and acquisitions between January and July around the world now reaches 2.27 trillion dollars (1.7 trillion euros), the highest level high since 20013, when it added 3.14 billion, according to MA reports. The jump is even more remarkable if one takes into account that it is 43% more than in the first seven months of 2015, when it was 1.58 trillion dollars(Nussbaum, Andrew J et al.9).Mergers and Acquisitions have become so common in industries where competitions and industry rivalry is the in thing. The coffee industry is becoming highly demanding as bigger companies aim at solidifying their positions as market leaders. The food and beverage industry has seen astronomical increase in MA in the last couple of years especially in the United States of America. In the US the consumers are not only hungry for quality food but also quality beverages which includes bevera ges like coffee (Rickertsen and Gunther23-25). Exceptional coffee does well in restaurants and cafes in the US and across the globe. People are willing to pay an extra dollar for just to get premium and quality coffee products. There are many characteristics of this industry that makes it more competitive than most of the industries in the US. JAB has been aggressive in the mergers and acquisitions in the sector as well as Farmer Bros. this are two of the leading brands in the food and beverage and are looking to expand their respective brands(DEPAMPHILIS, DONALD.16). Farmer Bros Company which trades as FARM in Nasdaq recently completed a acquisition of $42 million for Boyd Coffee company a coffee roasting company (Sherman and Sherman16-18). Boyd Coffee is the leading distributor of coffee products in the industry and distributes to restaurants, healthcare and the convenience stores or supermarkets. Other buyers are strategically looking for acquisitions to bolster their space in the industry. Nestle is also looking for a strategic acquisition of Blue Bottle Coffee a leading manufacturer of coffee and roast for an amount that they are not willing to disclose (Brown.108). This strategic acquisition is aimed at opening new cafes and roasters where the company operates a chain of cafes. Blue Bottle Company operates 29 cafes and begun in 2002, after its acquisition, Nestle wants to open up 25 more cafes by the end of 2017. This is a 25% increase in growth which will see it among the leading companies in coffee production, distribution and sales(DEPAMPHILIS, DONALD.23-27). JAB holding on the other hand is on a roll of acquisition to increase its market visibility. It is an investment vehicle of Austrias billionaire Riemann and his family. It has been growing its coffee outlets through mergers and acquisitions with acquisitions of Peets coffee Tea, Stumptown Coffee Roasters and finally Intelligentsia Coffee. If the coffee is right, the money will flow as consumers are demanding for more in the tasty industry (Feldman and Dresner15-19). The characteristics of this industry are as follows; it is extremely competitive and any slip up in quality of coffee produced will lead to severe damage of the brand. Near similar products but different varying to make them to be differentiated to make the company more differentiated. The industry is also characterized by a desire to expand and to outdo the competitors in a lot of ways (Dreher, Maximilian, and Dietmar Ernst112-116.). There are various challenges that occur before the mergers and acquisition transaction. Most of these companies know very little in conducting MAs. The challenges that are involved include valuation of the company that is being acquired. A lot of valuers either undervalue or overvalue a company. This is even pronounced in valuation of a brand. Although most of the companies acquiring are multinationals like Nestle with a lot of financial muscle, it possible that overvaluation may lead to dip in profits. There are four types of transaction opportunities, the first is companies that sell or reduce their businesses, the second is, expansion of the company and the third is opportunity to buy public companies that are being privatized(Joint Ventures.96). The industry is also facing challenges of mushrooming cafes that are popping up to compete for space. It is a lucrative business that is meant to lure so many business people to open the cafes and hotels. Venture capitalist finally is acq uiring more companies that can barely survive. Financial challenges are also challenges that face mergers and takeovers where the company been acquired is overridden by debts and potential collapse (Dreher, Maximilian, and Dietmar Ernst.16-24). Competition for coffee beans has led to wars in the market where prices have shot upwards due to demand for the best coffee beans. The various types of transactions means that it is more difficult nowadays to purchase a companies. For the acquirer or the buyer, the biggest challenge understands what can be adopted, changed and harmonized within the company. Other challenges include retaining the staff or costs related to the employees and the benefits to be paid after retrenching some of the employees (Gutterman12). The industry trends that are applicable prior to the transaction are emergence of expansion strategies that are indeed going to take the expansion strategy. Business Economics Reasons For The Transaction Reasons stated in the annual report and the deal announcement. The reasons given for the transaction in the merger and acquisition of Farmer Bros Company to acquire Boyd Coffee Company is to increase its presence in the industry. Increase in its presence is an expansion strategy which equals to increase in revenues for Farmer Bros. Creating a leading strong brand in mergers and acquisition is a way to increase the shareholders dividends through profits. It was also stated in the financial statement that the need for mergers and acquisition is because the leading brand had started expanding too (Reiter, Shishler and Prichard 65). The deal announcement was made in the annual general meeting (AGM) and is sent to every shareholders through the annual statements of finance. The financial press is also a good platform for announcing the deal. Eliminating of a competitor is another reason why the company acquired the coffee roaster as it had a lot of stores (Dreher, Maximilian, and Dietmar Ernst 24.). Reasons stated in financial press. The reasons given for mergers and acquisition in this MA transaction is the need to have a sharpening focus on business and creation of synergy between the coffee roasting business and the seller. Farmers Bros Company is the seller while Boyd company is a roasting company. Another reason given is growth, as food and beverage industry is highly competitive and requires a lot of growth (Dreher, Maximilian, and Dietmar Ernst. 87). Additionally, increase in supply chain pricing power through eliminating the levels of costs. It lowers the cost of distribution and purchase of coffee beans. Strategy How did this particular transaction fit into the broad strategy of the acquiring firm (Reason to buy)? The selling firm (Reason to sell)? A merger is the combination of two companies to form a third, completely new. Both merged companies cease to exist, and shares of those are exchanged for shares in the new company. For its part, an acquisition is the combination of two companies of which one disappears; the other company acquires the assets and liabilities of the acquired company (Gaughan 44-45). In recent weeks the business environment has seen large mergers and acquisitions. Farmers bros bought Boyd and the alliance was approved. Why do big companies merge or buy others? This type of mechanisms is not exclusive of the large ones; also the medium ones do it when they think about making a great qualitative leap (Mu?ller-Stewens, Gu?nter et al 87.). Normally companies large have two ways to grow, one organically, with resources own or through mergers and acquisitions According to the merger analyst, who participates in approximately five or six merger processes each year, he explains that mergers help companies grow much faster than organically, without However, it does not recommend carrying out this type of process if it is not convinced that the transaction will generate value for shareholders (Tobin and Parker 87). The sum of one plus one it must be 3, not 1.5. The objective of any merger is to create value, but, on the terrain has to analyze each process to achieve it. Farmers bros. is one of the companies that have grown through mergers and acquisitions. Boyd recently has been carrying out mergers with bottlers in regions contiguous and has managed to save in the logistics processes. Nestle also has been acquiring companies in the United States and other regions of the world. There are several American players active in mergers and acquisitions (Mu?ller-Stewens, Gu?nter et al.89). Was the acquisition of a company in the same sector of the buyer or acquisition of a company of another sector? Reasons? Top management, the CEO and the shareholders are the ones who normally have the vision to carry out a fusion ", explains the expert, who points out that they are the heads of different areas of the company that should participate in the processes of merger and acquisition to take advantage of the specific synergies of each area of the business once it has been decided to carry out this type of process (Wu 35). As for the chain of events that must be overcome by companies that decide to enter a merger or acquisition the first consists in starting from a thesis, that is, An idea to generate more value by buying another company. Later, you have to negotiate the transaction. This is followed by the execution, the taking of possession of the acquired company and the application of the strategy to increase the benefits of the acquiring company(Gregoriou, Greg N, and Luc Renneboog 75). Post integration transaction is also part of the chain. The integration of human resources is one of the most important parts, you have to determine who are left, who will leave and what will be the salary ranges, and so it is with every process, for example, systems. Terms Of The Transaction Describe deal structure. As coffee roasters, both companies Farmer Brothers and Portland Boyds coffee company have an easy merger and acquisition deal. The structure requires Farmer Brothers to pay $42 million in cash and a further 21,000 shares that will be created on a new series of preferred stock. As the deal closes, the preliminary value of estimated cost will be $16.6 million at the end of closure of the deal. This is also equivalent to $789 per share and would eventually put the value of the estimated deal worth at $ 58.6million. This is a high profile acquisition deal that will define the industry in years. How large was the premium paid to the target? The premium paid to the target company in this case, Boyd coffee company is $ 42 million as the initial cost of acquisition and a further preferred stock of 21000 shares. The preliminary value of the estimated deal is around $ 789 per share making it worth $ 16.6 million at the end of the deal. This is the total premium that will be paid as the company finally is taken by the Farmers Brothers. The total estimated worth of the deal in the coffee industry is $58.6 million. The transaction will close at the fourth quarter of this year. The company was founded in 1912 and has over the years grown in stature and profit (Gregariou and Renneboog 36). In 2014, the company recorded a profit of $90 million down from $120 million in the previous year (Gregoriou, Greg N, and Luc Renneboog 84). The acquisition process in this case will be simple. This is because, both companies are coffee roasters. They are manufactures, distributors and wholesalers of branded and private labeled coffee. How was the deal financed? The deal wasfinanced through normal equity of the company and the retained profits. As a company that is publicly trading in the Nasdaq (FARM), the funding must be approved by the shareholders and the board of directors through the annual general meeting or the extra ordinary general meeting (Howson79). However, it is unclear how Boyds 280 workers will be affected by the acquisition. Initial Reaction To Deal Stock market reaction (sharp rises or declines in security prices upon announcement of the deal require additional discussion). In a deal like this, normal reaction to the market is bullish symbolizing an increase in prices of the stock. Farmers Bros stock jumped into a bullish 7 % in the wake of the companys announcement that it would acquire the Portlands Boyd Coffee company. This helped 1% boost in the companys profit although marginal (Dougherty and Fairpo.9). According to the companys CEO, Mike Keown, there was a growth of 5 % in value of the companies share and a big boost in the companys pre-tax operating earnings. The price per share of the company is at $ 789 dollars which shows that the company is doing well financially. The acquisition of Boyds is meant to accelerate growth of the company leading to a rise in the companys share price (Brown, Meredith M 36). Financial press (WSJ, Business Week, Forbes, etc.) reaction. The wall street journal, Business week, the financial times and Forbes are all very optimistic about the transaction. WSJ terms the deal as the deal of the year; they are however a little bit critical of the deal saying that Boyd was stronger on its own and should have survived. Forbes estimates the deal to be worth more than $100 million at the conclusion of the deal. The business week is skeptical in the deal although it praises the management and the board of the two companies in their effort of finalizing the deal. The financial press is however of the opinion that the acquisition of Boyd coffee will stir growth of Farmers bros and the coffee industry as a whole (Dougherty and Fairpo.33). Value Creation How did buyer expect to create value? As a coffee roaster, Farmers Brothers Company is expected to create value by acquiring the Boyds coffee and enhancing the value of the company. As a manufacturer, distributor and wholesaler of both private and branded coffee, the value is created when the prices are increased. The supply chain is enhanced as suppliers are consolidated to one focal point. The coffee roasted will meet the quality of the industry. Describes sources of value creation. The sources of value creation start from the coffee farms itself. Farmers bros has a big farm in Portland and there is where value is created initially. The second part for value creation is the factory when the coffee is being roasted (Cooper and Finkelstein.58). Roasting takes professionals who are conversant with their work. Value creation is then transferred to manufacturing and distribution of the coffee beans. The final stage of value creation is at the restaurants, cafes and hotels where the customers indulge in the sweet taste of purely blended coffee from the farms (Brown, Meredith M.86). Another reason given is growth, as food and beverage industry is highly competitive and requires a lot of growth. Creating a leading strong brand in mergers and acquisition is a way to increase the shareholders dividends through profits. It was also stated in the financial statement that the need for mergers and acquisition is because the leading brand had started expanding too (Brown, Mere dith M.99). References Brown, Meredith M.Takeovers. New York, Aspen Publishers, 2010.Print Cooper, Cary L, and Sydney Finkelstein. Advances In Mergers And Acquisitions. Bingley: Emerald, 2011. Print. Depamphilis, Donald.Mergers, Acquisitions, And Other Restructuring Activities. [S.L.], Elsevier Academic Press 2017.Print. Dreher, Maximilian, and Dietmar Ernst.Mergers Acquisitions. Print Dougherty, Nigel, and Anne Fairpo. Company Acquisition Of Own Shares. Print. Feldman, David N, and Steven Dresner. Reverse Mergers. New York: Bloomberg Press, 2006. Print. Gaughan, Patrick A. Mergers, Acquisitions, And Corporate Restructurings. Print. Gregoriou, Greg N, and Luc Renneboog.International Mergers And Acquisitions Activity Since 1990. Amsterdam [U.A.], Elsevier AP, 2007.Print. Gutterman, Alan S. Short Course In International Joint Ventures. Petaluma: World Trade Press, 2008. Print. Howson, Peter. Commercial Due Diligence. Farnham: Ashgate Pub., 2007. Print. Reiter, Barry J, Melanie Shishler, and J Robert S Prichard. Joint Ventures. Toronto: Irwin Law, 2015. Print. Rickertsen, Rick, and Robert E Gunther. Buyout. New York: AMACOM, 2001. Print. Sherman, Andrew J, and Andrew J Sherman. Mergers Acquisitions From A To Z. New York: American Management Association, 2011. Print. Tobin, James B, and Lawrence R Parker. Joint Ventures, Mergers And Acquisitions, And Capital Flow. New York: Nova Science Publishers, 2009. Print. Wu, Fan. Implicit Incentives In International Joint Ventures. Wiesbaden: Springer Fachmedien Wiesbaden, 2012. Print.