Case study Analysis of Milagrol LTDA

Introduction3

Discussion3

Reason for Acquisition:3

Manufacturing Cost4

Diversification4

Economies of Scale5

Principle Risks of Acquisition5

Financial Risk5

Business Risk6

Market Risk7

Recommendations8

References9

Case study Analysis of Milagrol LTDA

Introduction

The paper examines the issue of cross border acquisition by analyzing the case study of Milagrol Ltda which is being acquired by Peterson Valve a privately owned US company. The company Peterson Valve aims to diversify their business operations across the globe and in order to enter the Brazilian market, they are making final decision for acquiring Brazilian plumbing manufacturer Milagrol Ltda, who manufactures bathroom fittings and fixtures to conserve water whereas Milagrol Ltda needs capital for enhancing their research and development activity. The case study has provided comprehensive information in regard to valuation procedures through which price for offering will be easily determined as the management of Peterson is interested in driving the value which will be gained from synergies. The case study has articulated certain challenges being face by Peterson Valve: firstly, from forecasting perspective the issue of inflation has to be catered when calculating exchange rates, secondly two approaches have been mentioned when dealing with country risk which includes sovereign risk and other is scenario analysis.

Discussion

Reason for Acquisition:

There could be several reasons that Peterson Valve is interested in acquiring Milagrol Company. However, the three main reasons that is depicted from the case study is being discussed below in detail.

Manufacturing Cost

The primary reason is that Peterson Valve wants to get an easy access to the processes of manufacturing from this acquisition which is otherwise difficult to develop. Starting of the manufacturing process requires a lot investment and time duration which becomes a cost for the company. The company has gain fame with their development of shut off valves that has helped leading to eliminate and in reduction of PVC pipes. In addition to this, the company has even manufactured faucets that are vandal proof, flow control system that is foot operated and the ceramic cartridge value systems. Peterson valve will save their cost of producing these inventions and systems from their end by acquiring Milagrol, furthermore they will keep continue to utilize these innovative processes by not incurring a direct cost themselves. Such innovative processes will help their workers to gain more skills and acquire further experience. And the Company Peterson Valve will eventually be having a competitive advantage among the rivalry firms.

Diversification

The other reason for acquiring Peterson valve is penetration into another market and expansion of their business from United States of America to Brazil through diversification of firms operations, hence this will help the company in gaining huge market share. Though, Milagrol has been trading with other countries as well like Mexico, Columbia, Ecuador, Paraguay and several other Central American countries by exporting their products. But this platform will provide Peterson with an easy access to these aforementioned markets by acquiring Milagrol. The company will be able to generate more revenue from their sales and profits will even increase by attracting potential customers from the new market. Such an expansion will increase the size of ...