General Holding

Problem Definition

Our client is a French holding company with annual revenues of about €1 billion.

Their portfolio consists of different companies that are mostly in manufacturing industries such as the oil & gas industry and the automotive industry.They do not have a specific investment focus. They prefer to buy the best companies available that are also related to their existing businesses.

They are thinking about acquiring an auto parts dealer, OTOpart, and want to know whether you think it is a good idea.

Comments

Since this is a candidate-led case, the candidate should drive the case from start to finish.

This is a typical M&A case where a holding company is deciding whether it should acquire another company.

The interviewee should develop a clear set of criteria to assess the potential acquisition. Based on the data collected, the interviewee should come up with a solid recommendation for the client.

Short Solution (Expand) (Collapse)

Detailed Solution

Paragraphs highlighted in green indicate diagrams or tables that can be shared in the “Case exhibits” section.

Paragraphs highlighted in blue can be verbally communicated to the interviewee.

Paragraphs highlighted in orange indicate hints for you how to guide the interviewee through the case.

Suggested case structure:

Case Structure

I. Feasibility

We should first determine whether it is feasible for our client to acquire the company. If it is not remotely feasible, we do not need to analyze further.

Capital available to buy the firm
Experience in the target company’s industry
Competent management for the target company

Information that you should share if inquired by the interviewee:

Available capital is 3 times more than the amount needed to acquire OTOparts.
Should the company be acquired, the holding can reallocate experienced managers from other automotive companies that the holding owns.
In the automotive sector, the holding owns the majority of voting shares of two important car and bus manufacturers in France.

Key Insights

The holding has enough capital and competences to acquire OTOparts.

II. Company

Now, the interviewee should ask relevant questions about the target company and about the holding.

Company’s profitability
Company’s market share
Company’s key customers
Can the holding use its other businesses to leverage OTOpart’s revenues and profitability
Potential synergies

 The interviewee should also pay attention to how companies are changing over time!

A company with a big market share is much less attractive if its market share has been falling drastically over the last few years. 

Share Diagram 2 if the interviewee inquires information about market share.

In Diagram 4 you will find a detailed breakdown of the competitors.

Share this in the next chapter, if possible.

Information that you should share if inquired by the interviewee:

OTOpart’s revenues and profitability have been declining slowly and steadily over the last 3 years (around 3% per year).
Their market share in France was around 28% last year.
The company does not conduct business internationally.
Historically, the company has focused on selling parts to small and brand-independent workshops in small towns.

Key Insights

The company itself is NOT very attractive. However, that may be changed with a mid-to-long-term strategic change.
OTOparts could purchase its parts from the holding’s automotive parts manufacturers. This will reduce OTOparts’ costs.
Logistics and SG&A costs could be shared among the holding’s companies. This also reduces OTOparts’ costs.
OTOparts could take advantage of the holding’s contact network to position itself more strategically in the auto parts market.

III. Market

These are the most relevant questions about auto parts industry and its future.

Segmentation
Market and segment size
Rate of change in each sector
Profitability of each segment
Threatening market trends (substitutes, etc.)
Main competitors within each segment
Market fragmentation
Market enty barriers

Share Diagram 3 with profit margins of different market segments, if the interviewee inquires such information.

Share Diagram 4 with an overview of the market competitors, if inquired by the interviewee.

Information that you should share if inquired by the interviewee:

It is estimated that the auto parts market in France will generate €400 m each year.
The national market is not growing. However, it is growing 10% per year in developing countries.
There are NO substitute products that could threaten this industry.
Auto part retail sellers are increasingly signing contracts with automotive manufacturers to take care of their customers’ vehicle warranties (maintenance at authorized workshops).
Auto part sales to small, independent workshops have been declining considerably.
There are significant barriers to entry in this industry such as brand recognition, distribution channels, contracts, and contacts.

Key Insights

The interviewee should realize that:

The market is €0.4 bn per year (equal to 40% of the holding’s own revenues). Thus, a 50% share in this new market would increase the holding’s revenues by 20%.
The information about the international market is not very useful unless the holding plans to conduct international business with OTOparts.
The market is highly profitable. It has a net profit margin of up to 8%.
Increase of sales to automotive manufacturers could be very strategic for the holding as it could buy OTOpart as part of a vertical integration move.
For example, OTOpart could be the car part supplier for the other automotive businesses the holding is involved in.
OTOpart is threatened by the decrease of sales to small and independent workshops.
The biggest player in the industry, TaVoiture, is consistently increasing its market share. This is probably because their main customers are big automotive manufacturers (an expanding customer segment).
Since OTOpart had 28% market share last year, it must be the second biggest player. This is a favorable competitive position.
High barriers to entry prevent new competitors from entering the market.

The auto parts market is quite attractive.

IV. Conclusion

The interviewee should summarize his or her findings and give a solid recommendation.

„Should the holding buy OTOpart?“

The suggested recommendation is that it should do it for 3 main reasons:

Although the auto parts market is stagnant locally, it is big (equal to 40% of today’s holding revenues) and very profitable.
Although OTOpart is less attractive now, a change in its customer targeting strategy could turn it around and allow it to achieve excellent results similar to that of its main competitor TaVoiture
Synergies could be exploited with the automotive companies within the holding. A vertical integration strategy could make OTOparts the auto parts dealer for these companies.

Difficult Questions

If you were OTOpart’s manager, how would you plan to help OTOpart acquire new customers and distribution channels?

This open-ended question tests the interviewee’s creativity.

If OTOpart’s main competitor, TaVoiture, aggressively decreases prices in order to gain market share, how would you respond?

This open-ended question tests the interviewee’s creativity.

More questions to be added by you, interviewer!

If the interviewee solves the case very quickly, you can come up with more challenging questions to ask them.

Hi Sethu,

The main player in the automotive industry are a limited number of Groups which own all the brands you may have heard of (e.g. VW, Audi, Jaguar, etc). Most of the groups use different brands to penetrate different markets in different geographies (e.g. family cars in the US, sport cars in europe...).

Behind these groups there is a multitude of OEM (Original Equipment Manufacturers) which produces the main cars components (e.g. ABS, brakes, etc...)

At the moment automation players are increasing their effort to reduce the production cost through:

- Rationalization of their product portfolio (i.e. standardization of cars components to generate sinergies among different models)

- Reduction of stored part volumes through the development of a "justy in time" supply chain

- Improvement of OEM purchasing strategies through demand aggregation and imrpovement of negotiation techinque

In addition to that there is a long lasting run for innovation on few main topics (e.g. electric cars, autonomous cars, etc). Yet no dominant design has been defined on any of these topics.

Hope this may help,

In case you have any doubt please don't hesitate to contact me,

Thanks,

Ale

Problem Definition

Comments

Short Solution (Expand) (Collapse)

Detailed Solution

I. Feasibility

Key Insights

II. Company

Key Insights

III. Market

Key Insights

IV. Conclusion

Difficult Questions

If you were OTOpart’s manager, how would you plan to help OTOpart acquire new customers and distribution channels?

If OTOpart’s main competitor, TaVoiture, aggressively decreases prices in order to gain market share, how would you respond?

Cost-Benefit Analysis

Opportunity Costs

Mergers and Acquisitions

The Value Chain

Competitive Response

General Holding

Please sign up to read this case.

Problem Definition

Comments

Short Solution (Expand) (Collapse)

Detailed Solution

I. Feasibility

Key Insights

II. Company

Key Insights

III. Market

Key Insights

IV. Conclusion

Difficult Questions

If you were OTOpart’s manager, how would you plan to help OTOpart acquire new customers and distribution channels?

If OTOpart’s main competitor, TaVoiture, aggressively decreases prices in order to gain market share, how would you respond?

Cost-Benefit Analysis

Opportunity Costs

Mergers and Acquisitions

The Value Chain

Competitive Response

Get started now - for free

Log in now