Monmouth Case Study
Monmouth, Inc.
- Case Study -
Strategy
1) Describe briefly Robertson’s business and the key factors to succeed in it. How well is Robertson doing from an operational standpoint? What KPIs should one consider?
Robertson is one of the largest domestic manufacturers of cutting & edge hand tools and a leader in its two main product areas: * Clamps and vises: the company holds a 50% share of a market estimated at $75-million, with a reputation for high-quality and a very strong brand name * Scissors and shears: the company holds a 9% share of a market estimated at $200-million, with an equally high reputation for quality
From an operational perspective, the annual sales growth of 2% is behind the industry average of 6% per year, and profit margins are a third of other tool manufacturers. In Table 1 we compare Robertson’s efficiency ratios to the industry average: Efficiency Ratio | Robertson | Industry Average | Collection Periods | 69 | 52 | Inventory % Sales | 15% | 5% | Operating Margin % Sales | 17% | 33% | Return on Capital | 13% | 6% |
As the comparison suggests, there is considerable margin for improvement in Robertson’s inventory management and operating margin. However, even in these circumstances, the company has an above average Return on Capital and collection period; as such, there is considerable potential for upside under a new management team with tighter, more efficient controls.
2) In general, how might an acquisition benefit the acquiring firm’s shareholders (give four or five generic ways)? In the specific case of Robertson: Why is Robertson an acquisition target? Why are Monmouth and the other parties interested?
Usually, an acquisition is pursued for some or all of the following reasons: * Increasing market share and geographical reach * Realizing revenue (cross sales / up sales) and expense synergies (redundancies, rents) * Diversification of products (or conversely, divesting to focus on core
- Case Study -
Strategy
1) Describe briefly Robertson’s business and the key factors to succeed in it. How well is Robertson doing from an operational standpoint? What KPIs should one consider?
Robertson is one of the largest domestic manufacturers of cutting & edge hand tools and a leader in its two main product areas: * Clamps and vises: the company holds a 50% share of a market estimated at $75-million, with a reputation for high-quality and a very strong brand name * Scissors and shears: the company holds a 9% share of a market estimated at $200-million, with an equally high reputation for quality
From an operational perspective, the annual sales growth of 2% is behind the industry average of 6% per year, and profit margins are a third of other tool manufacturers. In Table 1 we compare Robertson’s efficiency ratios to the industry average: Efficiency Ratio | Robertson | Industry Average | Collection Periods | 69 | 52 | Inventory % Sales | 15% | 5% | Operating Margin % Sales | 17% | 33% | Return on Capital | 13% | 6% |
As the comparison suggests, there is considerable margin for improvement in Robertson’s inventory management and operating margin. However, even in these circumstances, the company has an above average Return on Capital and collection period; as such, there is considerable potential for upside under a new management team with tighter, more efficient controls.
2) In general, how might an acquisition benefit the acquiring firm’s shareholders (give four or five generic ways)? In the specific case of Robertson: Why is Robertson an acquisition target? Why are Monmouth and the other parties interested?
Usually, an acquisition is pursued for some or all of the following reasons: * Increasing market share and geographical reach * Realizing revenue (cross sales / up sales) and expense synergies (redundancies, rents) * Diversification of products (or conversely, divesting to focus on core