An industrial equipment supplier was evaluating the merits of making an acquisition. The acquisition candidate of interest manufactured complementary products to the Client’s and marketed them to a strategic, underserved market segment. The acquisition price, however, appeared quite high. In order to justify the merger premium, the Client needed assistance in evaluating the potential product and marketing synergies that could accrue from the acquisition.
Given the client’s limited knowledge of the markets for the acquisition candidate’s products, the Client turned to RSR Marketing Solutions (“RSR”) for a fact-based assessment of the market and competitive landscape for the potential product line additions.
Overview of RSR Engagement
Project Objective:
To provide a fact-based assessment of an acquisition target’s market and competitive landscape, enabling the client to make a confident, informed decision relative to the value of the potential
Approach
Market Analysis
1. Quantify the current and potential future market opportunity for the specific product-market pairs of interest
2. Identify growth opportunities and barriers to growth that would likely arise from acquiring the targeted company
Customer Analysis
1. Understand the buying influences throughout the supply chain in the market segment
2. Determine the potential purchasing synergies that customers believe could accrue from buying multiple products from the same vendor
3. Assess the receptiveness of customers to evaluating another supplier
Results
Key Study Findings
- Found the primary target market to be very fragmented, served by competitors who did not view the market as highly strategic
- Found the acquisition candidate to have a well- entrenched position in the market, with strong brand equity among specifying engineers
- Discovered less product and channel synergy with the Client’s business than was anticipated
- Found significant unexpected upside market potential for a related product line recently introduced by the acquisition candidate
RSR Recommendations
- Recommended the Client proceed with the acquisition, but cautioned them not to overestimate the potential synergies that would likely arise from the acquisition
- Recommended the Client pursue the new product line recently introduced by the acquisition candidate, and consider the upside potential of this opportunity in the acquisition valuation model