Bluepeak Logistics Acquires a Rival: Accretive or Not?
Finance
medium55 min0 submissionsMcKinsey
Scenario
Bluepeak Logistics (logistics, Southeast Asia) is considering acquiring a smaller competitor.
Acquirer. Net income of $117 M, 96 million shares outstanding, trading at $90 per share. Current EPS is therefore $1.22.
Target. Net income of $45 M, currently valued by the market at $1117 M. The board expects to pay a 22% premium to that price.
Management projects $60 M of annual run-rate synergies, roughly 77% of which are cost synergies from overlapping sales and back-office functions, with the remainder from cross-selling. One-time integration costs are estimated at $59 M.
The deal would be financed with debt at 8.2%. The marginal tax rate is 25%.
Supporting data
deal
- tax rate pct
- 25
- debt rate pct
- 8.2
- integration cost m
- 59
- run rate synergies m
- 60
target
- premium pct
- 22
- net income m
- 45
- market value m
- 1117
acquirer
- eps
- 1.22
- share price
- 90
- net income m
- 117
- shares outstanding
- 96
Your task
Advise the board on whether to proceed. Provide:
- Analysis — accretion/dilution to EPS in year one and at full synergy run-rate.
- Risks — what would make this deal destroy value.
- Recommendation — proceed, renegotiate, or walk. Specify price and structure.
Ready to move forward? Up next: Solstice Travel: Is This Target Growing, or Just Floating?Next question
How you'll be graded
100 points, 60% to pass.
- deal analysis25
- recommendation25
- risk assessment25
- synergy assessment25
Hint
Reveal suggested structure
- Purchase price = market value × (1 + premium).
- Financing cost = purchase price × debt rate, then after tax.
- Combined earnings = acquirer + target + after-tax synergies − after-tax interest.
- Combined EPS = combined earnings ÷ share count (unchanged in an all-cash deal).
- Compare against standalone EPS. Do this for year 1 (partial synergies, integration costs) and steady state.
- Sanity check the price against the target's standalone value.