Rival Lbo

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Analysis of Purchase of Rival Company

Analysis of Purchase of Rival Company

08
Fall
08
Fall

I. “Good Business” Analysis of Rival Criterion | Rival | Market position | Major competitor | Market growth | Around 1% | Market share | Holding share | Business cycle risk | Average cyclical risk | Flow cash flow generation | Positive cash flow in most years | Return on capital | ROCE above 15% | Market Stability | Stable |

* Market position:
Three firms (Hamilton Beach/Proctor Silex, Black & Decker/Windmere, and Sunbeam) dominated the kitchen market, capturing approximately 60% market shares. So Rivals is just a one of major competitors in this market. * Market growth:
The kitchen product sector totaled $2.3 billion in sales in 1997 and was expected to grow 1% annually. * Market share:
Rival didn’t perform well in the recent years is related to the depreciation of Asian currencies following the Asian Financial Crisis in 1997. So after this crisis, their performance would recover and hold the market share. * Business cycle:
Sales of Rivals were dominated by The Crock Pot, the best-selling slow cooker in the U.S, which accounted for 24% of the company’s revenue and 47% of its EBIT. Slow cooker and its other products are influenced by the income of its customers. In addition, Rival outsourcing only 30% of its production in Asia, while competitors used Asian manufacturing for a greater share of their production. So as the economy goes down, the element of cost will have bigger negative effect on Rival. * Flow cash flow and Return on capital
Based on calculation, positive cash flow and a ROCE beyond 15% indicate that Rival is a good business to run to get enough cash flow and returns. * Market stability:
The kitchen market is quite stable and may maintain a stable growth in the future. High…...

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