How would you solve this case? What would your approach be? Would you consider doing an NPV calculation and would that be something you would expect to have to calculate by hand?
“Citibank is considering purchasing another credit card company If the acquisition is made, Citibank will gain access to 100,000 new card holders. What is the estimated value of this acquisition?”
I would need to clarify what is meant by value of the acquisition. I am assuming it is how much that company will be worth after the acquisition (not how much value the acquisition will create to Citibank)
1. How much are those card holders worth now? (revenues, costs, churn rate, client acquisition costs) → look at what I am doing here, I am asking for acquisition costs because I want to know how much does it cost me to keep that 100,000 stable, as otherwise I will have to do calculations with an ever decreasing client base… which is much harder (or use customer lifetime value, calculated using the churn rate, but I am not sure how common it would be to use multiples on that value).
2. What is the impact of the acquisition:
3. Integration costs (I am separating these from (2) as those have a long term impact, and these are one-offs)
4. Valuation: (1) + (2) and then apply industry multiples (or citibank's current P/E ratio) as those are much easier in a case than NPV.
(edited)
Hi there,
It entirely depends on how the case evolves! They may want a breakeven, ROI, or NPV. The most likely would be an NPV
I would need to understand the following:
Got it. I was under the impression that they were asking to price it by saying "value of the acquisition".
Hi!
Do you only have the case prompt?
If you know how the case evolves we can help you solve it.
Best,
Anto
Unfortunately, I only have the prompt. I've seen it in so many case books but never found an actual answer, so I thought I would ask here.
If you only have the prompt it can be a nice drill, but it is not really a case.
