Lifting Skyjack to New Heights. Jourdan Bousfield & Group Members

Transcription

1 Lifting Skyjack to New Heights Jourdan Bousfield & Group Members

2 Table of Contents Executive Summary... 3 The Existing Opportunity... 4 Recommendation... 4 Growth Drivers In The Middle East And Asia... 5 Sinoboom, An Accretive Acquisition... 5 Embracing Diversification... 6 Servicing As A Differentiator... 6 Alignment In Organizational Values... 7 Integrating Operations And Planning... 7 Implementation Timeline (Exhibit D)... 8 Stage 1: Present Acquisition Proposal To Sinoboom (Q3 2014)... 8 Stage 2: Acquire Sinoboom (Q4 2014)... 8 Stage 3: Introduce Servicing Department (Q1 2015)... 8 Stage 4: Co-Branding In Asia, The Middle East And Latin America (Q2 2015)... 9 Stage 5: Launch Sinoboom s Spider Lift In Existing Markets: (Q3 2015)... 9 Stage 6: Product Line Collaboration Between R&D Departments (Q4 2015)... 9 Stage 7: Increase Presence In India And The Middle East (Q1 2017) Contingency Conclusion Exhibits Exhibit A: Decision Criteria Exhibit B: Recommendation Decision Rational Exhibit C: Skyjacks And Sinobooms Markets Exhibit D: Implementation Exhibit E: Ebit As Percentage Of Revenue Exhibit F: Acquisition Price Calculation Exhibit G: Revised Organizational Chart Exhibit H: Service Department Structure Exhibit I: Spider Lift Product Catalogue Page Exhibit J: Financial Projections End Notes

3 Executive Summary Skyjack, one of North America s leading Aerial Work Platform (AWP) manufacturers is looking to pursue growth opportunities with a return of at least 20%. It is recommended that Skyjack focus its resources towards global expansion in the Middle East and Asia. In order to accelerate this process, Skyjack should pursue the potential acquisition of a company based in Asia. Sinoboom, a Chinese AWP manufacturer meets the required criteria for an ideal acquisition target. Their product line is consistent with Skyjack s, offering a variety of scissor lifts, telescopic booms and articulating booms with a focus on safety and reliability. With a strong presence in Asia and the Middle East, Sinoboom complements Skyjack s current positioning in North America and Europe. To take advantage of Sinoboom s brand equity, products in the emerging markets will be co-branded as Skyjack-Sinoboom for a period following the acquisition. The R&D teams for each company will work collaboratively to establish a common product line of AWPs. This line will include a spider lift, which is currently manufactured by Sinoboom but it is new to Skyjack. In the emerging markets, a large portion of Sinoboom s sales are through direct distribution as opposed to the rental model seen with Skyjack s customers. In order to add value for these industrial customers who own their equipment, an extensive servicing option will be made available. This option will establish Skyjack-Sinoboom as the leader in high-quality, reliable AWP equipment in the emerging markets. By 2025, Skyjack will achieve an annual return on investment of 26% through their acquisition of Sinoboom. Through pursuing this global expansion strategy and adding a servicing component to their business, Skyjack will diversify their customer base and ensure strong growth potential beyond

4 The Existing Opportunity As one of the leaders in the aerial work platform (AWP) manufacturing industry, Skyjack is currently on pace to reach its 2020 vision of $1 billion in sales and $100 million in profit. Beyond the 2020 goals, Skyjack would like to pursue further opportunities that offer a 20% return. Recommendation In order to capitalize on future opportunities, as well as maintain consistency with the decision criteria (Exhibit A), Skyjack should focus its resources towards global expansion. With the North American and European markets maturing i, there are higher growth opportunities in emerging and developing markets such as the Middle East and Asia (Exhibit B). It is recommended that Skyjack first look towards establishing a presence in the Middle East and Asia. They will then look to grow, using China as their primary geographical hub due to inexpensive labour and future infrastructure growth. In addition, Skyjack will offer an extensive servicing component, including maintenance and repairs to their AWP and telehandler products. This is a result of the direct distribution strategy in these markets where customers are not typically rental companies, but industrial users who own their fleet. This servicing option will allow Skyjack to differentiate themselves within the market and capitalize on the growth potential in the Middle East and Asia. In order to accelerate this expansion, Skyjack will look towards the potential acquisition of a company based in Asia. Hunan Sinoboom Heavy Industry Co. Ltd. (Sinoboom), a growing Chinese AWP and telehandler manufacturer represents a promising opportunity. With operations already established in these target regions, Skyjack will be able to leverage the existing synergies to integrate the two businesses and expand smoothly into Sinoboom s markets (Exhibit C). 4

5 Growth Drivers in the Middle East and Asia Cumulative growth in the Middle East for the construction industry is expected to increase to 80% over the next decade, compared to the expected global industry growth rate of 67% ii. The fastest growth will be realized in Qatar as a result of $100 billion USD in planned expenditure dedicated towards infrastructure in preparation for the 2022 FIFA World Cup. In addition, there are various growth drivers present in Saudi Arabia and the Middle East due to increasingly lenient Government regulations and a shortage in availability of affordable housing, resulting in increasing demand for construction iii. In China, the current market for AWPs is small, but there is a projected compounded annual growth rate (CAGR) of 12.2% from 2013 to 2018 iv for non-residential construction. Similarly, other civil engineering and large-scale contracts have a projected CAGR of 13.9% from 2012 to 2017 v. The majority of work-at-height is currently done using scaffolding, as it is a cheaper alternative to an AWP. Through lobbying by the Association of Equipment Manufacturers (AEM), the Chinese government has agreed to implement legislation in the next five years that will eliminate 50% of the scaffolding used vi, thereby increasing the market for AWPs. Construction growth in India is very promising with a forecasted CAGR of 15.5% from 2013 to 2017, compared to a CAGR of 1.5% vii in Europe. In addition, India s urban population is projected to grow from 331 million to 500 million in the same period viii, placing further demands on infrastructure and the construction market. Sinoboom, an Accretive Acquisition Sinoboom and Skyjack have similar characteristics, and as such there are numerous synergies. While both companies offer AWP products, Skyjack sells to rental companies while 5

6 Sinoboom largely sells directly to its end customers. Both companies have positioned themselves to provide simple, safe, and reliable AWPs and telehandlers in their respective markets. As seen in Exhibit C, Skyjack has established itself with the scissor lifts in large markets such North America, Latin America, and Europe, while Sinoboom which is based in China, has a significant presence in the Middle East and Asian markets. Through the acquisition, Skyjack can leverage Sinoboom s existing networks and facilities, as well as utilise their strengths in the boom lift industry, including the spider lift, to grow further in Skyjack s core markets. Embracing Diversification Sinoboom has established a strong presence in Asia through direct selling and supplying AWPs to a variety of customers including container shipping companies, dockyards and shipbuilders ix. Their expansion into the Middle East has been successful through customers such as Saudi Aramco, the national oil company of Saudi Arabia and the Saudi Bin Laden Group, the largest construction company in the world x. In July 2013, Sinoboom signed an exclusive distribution agreement with the Juffali group who is described as the "key to Saudi Arabia" and offers a strong business and financial network in the Middle East xi. Through the acquisition of Sinoboom, Skyjack is able to expand their customer base beyond rental companies without diverting their focus from AWPs. This fortifies Skyjack s position as a leading manufacturer of AWPs in a global market. Servicing as a Differentiator Skyjack s existing customer base in North America and Europe, predominantly composed of rental networks, already have infrastructure in place to service and support their sizeable fleets. However, many major purchasers in the emerging markets own their equipment rather than rent and do not have economies of scale to justify an internal servicing department xii. 6

7 When vital equipment, such as a boom, is out of commission for even a few of hours it can cost projects upwards of $1600 xiii. Therefore, strong product support and servicing can be used to strengthen existing relationships and establish Skyjack as the market leader in emerging markets. Alignment in Organizational Values Sinoboom s operative goal is to provide safe and reliable lifts for their clients. This is conducted through steady operations, strong R&D, high quality production and thoughtful customer service xiv. Along with being safe and reliable, there is an emphasis on their customers as they strive to be a one-stop solution by designing their lifts to meet customers specific requirements. Their slogan, Always for better access solutions xv signifies their focus on reliability, innovation and providing value to their stakeholders. As a result, Skyjack s acquisition is highly realizable due to the strong alignment in company values and culture, as well as the brand image of being simple and reliable. Integrating Operations and Planning Through Sinoboom s existing networks, Skyjack will achieve greater efficiency within its supply chain. Due to China s proximity to the Middle East and India, Skyjack can utilize Sinoboom s existing production facilities to optimize efficiency in manufacturing and delivery, as well as within the supply chain. In the long term, Skyjack can evaluate the existing production facilities in China, as well as explore centralizing their production to minimize costs and overhead. As a result of Sinoboom s strong focus on innovation and R&D, Skyjack should benefit from this innovative stance while sharing human and intellectual capital between these two previously separate organizations. If necessary, Skyjack can further optimize R&D operations as a whole through consolidation into a central location. 7

8 Implementation Timeline (Exhibit D) Stage 1: Present Acquisition Proposal to Sinoboom (Q3 2014) When presenting the acquisition to Sinoboom, their current CEO Xu Hong Xia, will be offered the VP of Asia position at Skyjack to account for the potential fear of power loss. It would also be emphasized that there would be no job loss or drastic changes to Sinoboom s current culture, values and organizational structure due to the close alignment with Skyjack. By using current employees, we can take advantage of their existing cultural knowledge of local markets. Stage 2: Acquire Sinoboom (Q4 2014) The acquisition of Sinoboom is projected for the end of 2014 for $30 million (Exhibit E/F). In order to ensure the smooth acquisition of Sinoboom, it is important that employees are well informed of Skyjack s values and how they conduct business. Skyjack will employ a task force to carry out organization development conferences at Sinoboom to promote these changes. Stage 3: Introduce Servicing Department (Q1 2015) Skyjack will introduce a servicing department for the existing Sinoboom Middle East and Asian markets, offering equipment maintenance and repairs. This service department would be placed under the VP of Asia within the organization (Exhibit G/H) and composed of certified equipment technicians that would be filled internally or hired externally. These technicians will be re-trained yearly to ensure they are servicing equipment to their highest potential and will be experts on all company equipment with the ability to conduct troubleshooting, diagnostics, technical support, and repairs. To regain the expenses of the additional mechanics, extended warranties will be offered at cost. As the mechanics service multiple customers, Skyjack should 8

9 strive to break even while achieving economies of scale thereby passing cost savings onto their customers. Stage 4: Co-branding in Asia, the Middle East and Latin America (Q2 2015) By acquiring Sinoboom, Skyjack will obtain an organization that has built substantial brand equity within the Middle East and Asian markets. Skyjack will leverage this strong brand presence and reputation with the objective of creating one global brand encompassing both Sinoboom and Skyjack products. Shortly after the acquisition, all products sold in Sinoboom's primary markets will be cobranded with promotions featuring the names "Skyjack-Sinoboom." Since Sinoboom does not have a presence in North America and Europe, equipment in these markets will solely be branded as Skyjack. As the Skyjack brand gradually becomes synonymous with the reputation and quality of Sinoboom, the Sinoboom name will eventually be phased out. Stage 5: Launch Sinoboom s Spider Lift in Existing Markets: (Q3 2015) The spider lift will be introduced to the North American and European markets to compliment Skyjack s current product line. Skyjack will sell the spider lifts to rental companies that carry their equipment. In addition, to inform potential customers of the new product, their current catalogue advertising will highlight spider lifts (Exhibit I). Stage 6: Product Line Collaboration Between R&D Departments (Q4 2015) The R&D departments of both Skyjack and Sinoboom will both leverage their collaborative resources, as well as share human and intellectual capital. These departments will incorporate the strengths of each product offering from the different brands to engineer a superior product line of AWPs and telehandlers. In addition, the communication between the 9

10 R&D teams will aid Skyjack in becoming more innovative in its existing markets as the Sinoboom R&D team has a higher level of expertise in boom lifts, the origin of their business. Stage 7: Increase Presence in India and the Middle East (Q1 2017) Due to the projected infrastructure growth in the Indian and Middle East markets, after the acquisition, Skyjack will begin to increase their presence in both of these markets. Skyjack should first look to strengthen its presence in India and later focus its efforts within the Middle East, especially in Qatar with an eye towards the 2022 FIFA World Cup. Contingency The acquisition of Sinoboom is projected to be the optimum strategy for Skyjack. However, if the acquisition is unsuccessful, similar strategies will be used to enter the emerging markets. Skyjack can develop a department headed under a new VP of Asia, while establishing a presence in China, India and the Middle East through sales offices. Skyjack will then target the various key industries (oil, shipping, construction) in this market as Sinoboom has done in the past. However, this strategy would continue to have Skyjack as a follower in these markets. To establish themselves as the leaders and quickly gain market share in global emerging markets, the acquisition of Sinoboom remains ideal. Conclusion Through the proposed acquisition of Sinoboom for $30 million, Skyjack can achieve an annual return on investment of 26% (Exhibit J). In addition, through pursuing this global expansion strategy and adding a servicing component to their business, Skyjack will diversify their customer base and ensure strong growth potential beyond

11 Exhibits Exhibit A: Decision Criteria 1. Achieve a 20% Return on Capital 2. Maintain budget of $25-$75 million 3. Maintain Skyjacks current brand image 4. Minimize Risk 5. Grow beyond $1 billion target for 2020 Exhibit B: Recommendation Decision Rational Decision 1: Which Growth Strategy? Decision 3: Which Markets To Expand To? Decision 2: Which Market Expansion Strategy? - Due to the North American and European market for AWPs saturated with competition, market penetration would not be ideal - Due to lack of knowledge of end consumer needs and the high cost and time it takes to develop a product, product development would not be ideal - For the same reasons as product development, without knowledge of end consumer needs, developing a product for an entirely new market is difficult and risky - Market expansion is ideal because the developing and emerging markets show great opportunity, which will help to expand out of saturated markets. - In South America, the construction industry has seen an overall increase in recent years however, the CAGR seen from 2008 to 2012 was only 0.3%, which indicates slow growth - Direct investment can be risky, especially when you do not have knowledge about end consumer needs in a new market - Acquiring Sinoboom, a company with growth potential that has already established itself in the emerging and developing markets allows Skyjack to leverage Sinoboom s existing presence to grow its business. 11

12 Exhibit C: Skyjacks and Sinobooms Markets Skyjack Sinoboom 12

13 Exhibit D: Implementation Stages Stage 1 Short Term Stage 2 Stage 3 Medium Term Stage 4 Stage 5 Long Term Stage 6 Stage 7 - Stage 1: Present acquisition interest and plan to Sinoboom - Stage 2: Acquire Sinoboom (Assuming they accept) - Stage 3: Introduce Servicing Department - Stage 4: Begin co-branding with Sinoboom products in Asia, the Middle East, and Latin America - Stage 5: Introduce and launch Sinoboom s spider lift in the North American Market and begin promotion for the spider lift - Stage 6: Collaboration by R&D Departments to determine which product lines to keep for each company - Stage 7: Increase presence in India and the Middle East Exhibit E: EBIT as Percentage of Revenue Company EBIT as % of Revenue Skyjack 8.6% Haulotte 5.2% Manitou 1.8% Terex (Genie) 6.7% Average 5.6% -This exhibit shows EBIT as a % of revenue for Skyjack and its competitors -JLG is not included since they were acquired by Oshkosh and financials solely related to access equipment are unavailable Exhibit F: Acquisition Price Calculation Sinoboom s Revenue $37,000,000 Average EBIT % of Revenue 5.6% Sinoboom EBIT $2,072,000 Average EBIT Multiple* EBIT Multiple Proposed** Proposed Acquisition Price $30,000,000 * As per Bloomberg average multiple for all 2013 acquisitions in Asia-Pacific within the industrial sector ** Premium EBIT multiple proposed is due to the potential for high growth 13

14 Exhibit G: Revised Organizational Chart Exhibit H: Service Department Structure 14

15 Exhibit I: Spider Lift Product Catalogue Page 15

16 Exhibit J: Financial Projections Financial Projections Realistic (In Millions ($)) % Of Rev Sales Sales Growth % 25.0% 20.0% 17.0% 15.0% 13.0% 12.0% 11.0% 10.0% 9.0% 8.0% 7.0% Total Sales Total Wages 11.0% Total Material 64.7% Total Overhead 6.9% COGS - Amortization 0.9% SG&A 7.9% EBIT 8.6% IRR 26% Skyjack CAGR of 38% and Sinoboom CAGR of 37.5% Sales Growth of 32% in 2014 Sales Growth Decay of 15.6% % Of Revenue Consistent With Skyjack NPV = $7 million 16

17 Financial Projections Worst Case (-25%) (In Millions ($)) % Of Rev Sales Sales Growth % 20.0% 16.0% 13.6% 12.0% 10.4% 9.6% 8.8% 8.0% 7.2% 6.4% 5.6% Total Sales Total Wages 11.0% Total Material 64.7% Total Overhead 6.9% COGS - Amortization 0.9% SG&A 7.9% EBIT 8.6% IRR 21% NPV = $1.2 Million Financial Projections Best Case (+25%) (In Millions ($)) % Of Rev Sales Sales Growth % 31.3% 25.0% 21.3% 18.8% 16.3% 15.0% 13.8% 12.5% 11.3% 10.0% 8.8% Total Sales Total Wages 11.0% Total Material 64.7% Total Overhead 6.9% COGS - Amortization 0.9% SG&A 7.9% EBIT 8.6% IRR 32% NPV = $15.9 Million 17

18 End Notes i Interviews with Aerial Manufacturers: Period of Growth. (n.d.). Rental Equipment Register. Retrieved July 18, 2014, from ii Middle East Construction Boom surpasses global growth. (n.d.). The Big 5. Retrieved July 19, 2014, from iii Middle East Construction Boom surpasses global growth. (n.d.). The Big 5. Retrieved July 19, 2014, from iv China - Non-Residential Construction. (n.d.). MarketLine. Retrieved July 19, 2014, from v China - Construction & Engineering. (n.d.). MarketLine. Retrieved July 18, 2014, from vi AEM Opens Door for More Aerial Work Platform Business in China. (2013, August 26). AEM. Retrieved July 20, 2014, from vii Growth of Construction in India. (2013, July). Thought leadership, July Retrieved July 20, 2014, from viii Growth of Construction in India. (2013, July). Thought leadership, July Retrieved July 20, 2014, from ix Partners - Aerial Work Platform - SINOBOOM. (n.d.). Partners - Aerial Work Platform - SINOBOOM. Retrieved July 19, 2014, from x Partners - Aerial Work Platform - SINOBOOM. (n.d.). Partners - Aerial Work Platform - SINOBOOM. Retrieved July 19, 2014, from xi SINOBOOM and JUFFALI signed official Exclusive Distributor Agreements in K.S.A - Sinoboom. (n.d.). Retrieved July 22, 2014, from xii Partners - Aerial Work Platform - SINOBOOM. (n.d.). Partners - Aerial Work Platform - SINOBOOM. Retrieved July 19, 2014, from xiii AWP equipment maintenance. (n.d.). Mason Contractors Association of America RSS. Retrieved July 18, 2014, from xiv SINOBOOM Boom Lift. (n.d.). Retrieved July 18, 2014, from 18

19 xv Red SINOBOOM under the Blue Sky of Auckland the Sidelights on Routing Inspec - News - Aerial Work. (n.d.). Sinoboom. Retrieved July 20, 2014, from html 19