Asmentioned earlier, it is quite challenging for the firms to enterinto today’s new markets. Stiff competition and the entry barriershave limited the opportunity for growth to most firms in variousindustries. Firms are, therefore, opting to adopt mergers andacquisition strategies to facilitate their growth in the industry.From the market and company analysis provided in this report, it isclear that introduction of Nichols’ products can result in greatachievement in the Greggs’ menu. Nichol has got various productlines that target specific generation in the market. Nichol Companyis also capable of inventing new brands that include zero sugar andlow calories with the attempt to cope up with the debate on sugarconsumption.
Greggwould benefit more from the acquisition with not only increasedmarket share but also with the reduced operational cost and henceresulting in higher profit margins. In addition, Nichols dispensewill signify an improved way Greggs’ distribution network. Nicholproducts have got a great appeal to the young generation andteenagers, a market where the Gregg has failed to strategicallyposition itself. It could be, therefore, an added advantage to Gregggroup by entering in this market. The financial analysis has alsoshown that Nichols acquisition will also accelerate the financialgrowth of Gregg Company. A great potential for growth in the softdrink market is also guaranteed in the UK market since theconsumption of soft drinks is consistently increasing. Nichols willalso help Gregg in expanding their operations in the internationalmarket.
Theproforma accounts have also proved that Nichol has got a desirableprofit margin of approximately 60%. Going concern concept is alsoapplicable to Nichols Company which is a good justification for theacquisition. Various valuations techniques have also proved that theacquisition would add value to the Group. The Earnings per share(EPS) of Nichol is also promising, and it is even higher than theaverage in the soft drink industry. In minimizing the operating cost,the acquisition will help in cost advantages to both companies due tothe attained economies of scale and cost sharing.
Theanalysis has also shown that the offer price of Nichol Company isworth the investment. The evaluated offer price of 16p that resultsto a total acquisition cost of £589,588 value in accordance with theNichol’s share price. The recommended financing of the acquisitionis through a combination of both debt and the equity in a ratio of40% to 60% respectively (Nichols’ Annual Reports, 2015).Acquisition by cash is not recommended since it is not in line withthe company’s capital structure and hence, acquisition by cashwould increase the investment risk.
Thetwo companies will continue to match even in the long run due to thefact that they are producing products that are a complement to eachother. Bakery products and soft drinks are two product that is mostlyconsumed together and therefore, the group will always continue tomatch. However, the group will still need to invest more in theresearch and development to facilitate continuous growth. Theacquisition will also lead to increased competitive advantage to bothfirms. The group will also achieve and maintain significant marketsshare and hence boosting their profitability. It is, therefore, clearthat Nichol and Gregg would make the best partnership and acompetitive group in the market.