Without merger and acquisition, most of the well-known brands and companies would not be where they are today. Some of the companies are so successful til a point that we can't even remember a time when two were distinct. Where would Disney be without Pixar? Famous movies such as Cars, Toystory, The Incredibles may not even exist!! Oh now I thank God the merger happened.
However, merger and acquisition may not always be the case of success. There were also companies that merged together and ended up bankrupted. Wise decisions must always be made and it is also not an easy task. Sometimes, some companies are better off without another.
Recently I came across a news regarding Samsonite, an American luggage manufacturer and retailer, announced that it would acquire Tumi, a South Plainfield, New Jersey-based luggage manufacturer, in an all-cash transaction worth US$1.8 billion (Financial Times, 2016a). Of course Tumi's shareholders would get something out of the merger request. I didn't know that Samsonite approached Tumi last year but have failed to reach an agreement (Financial Times, 2016b). Well, turned out that Samsonite has gotten what they wanted. It can be seen that they really wanted Tumi to be a part of them.
According to Financial Times (2016a), Tumi's shareholders will receive $26.75 per share in an all-cash transaction, a 38% premium on the volume-weighted average price of the US company's stock up to March 2, before news of the deal broke, which, in my opinion, is quite a good deal. The price represents an enterprise value to the previous year's adjustment earnings before interest, tax, depreciation and amortisation multiple of 13.6 times. Aaron Fischer, the analyst at CLSA said that was above Samsonite's own EV/Ebitda of 11.7 times but it was considered reasonable considering the revenue-boosting opportunities and costs savings.
"Acquiring Tumi will help the Hong Kong-listed company re-balance its portfolio since it has focused more on producing mid-market products" (Financial Times, 2016a) and I think it would be great for them to expand their presence in this competitive market. According to the news, they segment their products on global business bags, travel luggage and accessories market. Samsonite has already expanding its presence in Asia. Therefore the brand is more popular in Asia than US and Europe.
The acquisition of Tumi would help to strengthen their business. Would it? From what I know, Tumi's net sales were $548 million and Samsonite's were $1.2 billion in year 2015 (Financial Times, 2016b). Tumi was considered one third of the size of Samsonite. Is the acquisition really a good idea? However there is also one good advantage of the acquisition, that is to expand the market further with the combination. Within the past weeks, Samsonite and Tumi's share prices were up, which shows good signs (Financial Times, 2016b). With such a huge news of their M&A, I don't think Samsonite's share prices would go up for long. However, it would probably help Tumi's share price to rise.
In my opinion, I think it is not a bad idea of their M&A. Samsonite wanted to expand their product to more market. Tumi is also considered a known brand to some countries. It would be easier for them to reach more of their target markets. I think it is not a bad idea because they could achieve synergies to save the cost of sourcing, distribution, retailing, administrative costs and so on. Also, to be more well known to more countries is one of the synergies that Samsonite can achieve.
Personally, I have never used Samsonite or Tumi's product, but would like to purchase one of their product someday. Though the price ranges were quite high, if the quality is worth the value then I would.
Sources:
Financial Times, 2016a http://www.ft.com/cms/s/0/7a5d1ff2-e198-11e5-8d9b-e88a2a889797.html#axzz45pGnf2lI
Financial Times, 2016b http://www.ft.com/fastft/2016/03/03/samsonite-shares-halted-amid-reports-of-tumi-takeover/?ftcamp=engage/capi/widget/client/openft/b2b
Do you think the acquisition would work out and achieve the benefit they aim? As I know, most acquisitions don't work out.
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ReplyDeleteIs there any other synergy they can get out of the M&A?
ReplyDeleteTo Charmaine: It actually depends on whether they have common vision/ common goal that they could work together to achieve (having common goal is very important), whether there is proper communication between both of the companies (communication is also very important) and other factors such as the leadership as well.
ReplyDeleteTo Joanne: I think that other than cost synergy and market synergy, there can also be revenue synergy as the merger of both the companies could attract more individuals by creating more products or raise prices due to the deal.