Harvard Case - Deaver Brown and Cross River, Inc.
"Deaver Brown and Cross River, Inc." Harvard business case study is written by Amar V. Bhide, Deaver Brown. It deals with the challenges in the field of Entrepreneurship. The case study is 4 page(s) long and it was first published on : Aug 19, 1993
At Fern Fort University, we recommend that Deaver Brown pursue the acquisition of Cross River, Inc. This strategic move will allow Deaver Brown to leverage Cross River's expertise in financial markets, particularly in fixed income securities, and expand its investment management capabilities. This acquisition will position Deaver Brown as a leading player in the asset management industry, with a broader range of offerings and a more diversified client base.
2. Background
Deaver Brown is a successful investment management firm with a strong track record in equity markets. However, they are facing increasing competition and a need to diversify their offerings. Cross River, Inc. is a smaller firm specializing in fixed income securities and financial analysis, with a strong reputation for risk management and financial modeling.
The case study focuses on Deaver Brown?s evaluation of a potential acquisition of Cross River, Inc. The main protagonists are:
- Deaver Brown: A seasoned investment manager, responsible for evaluating the acquisition.
- Cross River, Inc.: A firm with specialized expertise in fixed income securities.
- The Board of Directors: Responsible for approving the acquisition.
3. Analysis of the Case Study
This case study can be analyzed using the Mergers and Acquisitions framework, considering the following factors:
Strategic Fit:
- Diversification: The acquisition will diversify Deaver Brown?s portfolio of services, expanding into the fixed income market. This will attract new clients and reduce reliance on equity markets.
- Expertise: Cross River?s expertise in financial analysis, risk management, and financial modeling will complement Deaver Brown?s existing capabilities, enhancing their overall service offerings.
- Market Access: Cross River?s client base and network in the fixed income market will provide Deaver Brown with access to new opportunities and markets.
Financial Analysis:
- Valuation: Deaver Brown needs to conduct a thorough valuation of Cross River, Inc. to determine a fair purchase price. This will involve analyzing financial statements, cash flow, and profitability ratios.
- Capital Structure: The acquisition will impact Deaver Brown?s capital structure, potentially requiring debt financing or equity financing. This requires careful analysis of the cost of capital and financial leverage.
- Synergies: Deaver Brown needs to identify potential synergies from the acquisition, such as cost savings from combined operations and increased revenue from cross-selling.
Risk Assessment:
- Integration: Integrating Cross River?s operations into Deaver Brown?s existing structure presents significant challenges, including cultural differences and potential conflicts.
- Market Risk: The fixed income market is subject to fluctuations and volatility, which could impact the acquisition?s success.
- Regulatory Risk: The acquisition may require regulatory approvals, which could involve delays and uncertainties.
4. Recommendations
- Pursue the Acquisition: Deaver Brown should pursue the acquisition of Cross River, Inc. The strategic fit, potential synergies, and market opportunities outweigh the risks.
- Conduct Thorough Due Diligence: Deaver Brown should conduct a comprehensive due diligence process to evaluate Cross River?s financial health, operations, and potential risks. This will involve a detailed financial analysis, including balance sheet analysis, income statement, and ratio analysis.
- Develop a Clear Integration Plan: Deaver Brown should develop a detailed integration plan that addresses potential challenges, such as cultural differences, operational integration, and technology compatibility. This plan should be communicated clearly to both companies? employees.
- Secure Financing: Deaver Brown should secure adequate financing for the acquisition, considering various options such as debt financing, equity financing, or a combination of both. The chosen financing strategy should minimize the cost of capital and ensure financial stability.
- Focus on Value Creation: Deaver Brown should focus on maximizing shareholder value by leveraging the synergies from the acquisition. This includes identifying opportunities for cost savings, revenue growth, and profitability improvement.
5. Basis of Recommendations
The recommendations are based on the following considerations:
- Core Competencies: The acquisition aligns with Deaver Brown?s core competencies in investment management and expands its service offerings.
- External Customers: The acquisition will attract new clients in the fixed income market, increasing Deaver Brown?s customer base.
- Competitors: The acquisition will position Deaver Brown as a stronger competitor in the asset management industry.
- Attractiveness: The acquisition is financially attractive, with potential for synergies and increased profitability.
- Assumptions: This recommendation assumes that Deaver Brown can successfully integrate Cross River?s operations and manage the risks associated with the acquisition.
6. Conclusion
The acquisition of Cross River, Inc. presents a significant opportunity for Deaver Brown to expand its market reach, diversify its service offerings, and enhance its competitive position in the asset management industry. By conducting thorough due diligence, developing a clear integration plan, and focusing on value creation, Deaver Brown can successfully execute this acquisition and achieve its strategic goals.
7. Discussion
- Alternatives: Deaver Brown could consider alternative strategies such as organic growth, joint ventures, or strategic partnerships instead of an acquisition. However, these options might not provide the same level of market access and expertise as an acquisition.
- Risks: The acquisition carries significant risks, including integration challenges, market volatility, and regulatory hurdles. Deaver Brown needs to carefully assess these risks and develop mitigation strategies.
- Key Assumptions: This recommendation assumes that Deaver Brown can successfully integrate Cross River?s operations, manage the risks associated with the acquisition, and achieve the projected synergies.
8. Next Steps
- Due Diligence: Deaver Brown should immediately begin due diligence on Cross River, Inc., focusing on financial analysis, operations review, and risk assessment.
- Integration Planning: Deaver Brown should develop a detailed integration plan, including communication strategies, operational integration, and technology alignment.
- Financing: Deaver Brown should secure financing for the acquisition, considering various options and their impact on the cost of capital.
- Negotiations: Deaver Brown should engage in negotiations with Cross River, Inc. to finalize the acquisition terms, including price, structure, and integration details.
- Regulatory Approvals: Deaver Brown should initiate the process of obtaining necessary regulatory approvals for the acquisition.
By following these steps, Deaver Brown can successfully acquire Cross River, Inc. and position itself for continued growth and success in the asset management industry.
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Case Description
Cross River makes and sells an innovative, folding baby stroller to the U.S. market. The company has broken even in its first year, selling mainly to small retailers. CEO Deaver Brown urgently wants to expand distribution to national chains and has secured appointments with the buyers of Macy's and K-Mart. What pitch should he make?
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