General Holding

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.

Suggested 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

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

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

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.

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.

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.