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GREENFIELD VS ACQUISITION

GREENFIELD VS ACQUISITION. Presented To The CIM Capstone Students at Middle Tennessee State University by William B. Allen Allen & Associates. WHY DO IT ?. EXPAND YOUR MARKET COMPLIMENT YOUR MARKET CONSOLIDATE THE MARKET MAKE MORE MONEY INFLATE EGOS

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GREENFIELD VS ACQUISITION

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  1. GREENFIELD VS ACQUISITION Presented To The CIM Capstone Students at Middle Tennessee State University by William B. Allen Allen & Associates

  2. WHY DO IT ? • EXPAND YOUR MARKET • COMPLIMENT YOUR MARKET • CONSOLIDATE THE MARKET • MAKE MORE MONEY • INFLATE EGOS • REVENGE (GET EVEN WITH THE BASTARDS) • SOUND BUSINESS DECISION

  3. TYPES OF DECISIONS • MANAGEMENT (WHY) • FINANCIAL (MONEY) • MANAGEMENT (GOOD BUSINESS)

  4. ESSENTIAL STEPS • MARKET RESEARCH STUDY • ECONOMIC FEASIBILTY ANALYSIS • ANALYSIS OF MARKET & MONEY

  5. MARKET STUDYY • SIZE • TRENDS • PLAYERS • CAPACITY • DEMAND VS SUPPLY • OPPORTUNITIES • FORECAST • PROFITABILITY

  6. PLAYERS • STRATEGIES • STRENGTHS • WEAKNESSES • MANAGEMENT

  7. READY MIX MARKET • YARDS (PRODUCTION & SP LAST 5 YRS-NEXT 10) • PLANTS (NUMBER &CONDITION) • TRUCKS (NUMBER & CONDITION) • LABOR (WAGE RATES/UNION/NON UNION) • RAW MATERIALS (AVAILABILITY/COST)

  8. AGGREGATES • TYPE • QUALITY • TONS & SP (LAST 5 YRS-NEXT 10YRS) • PLANTS • CAPACITY • RESERVES

  9. CEMENT • NUMBER OF SUPPLIERS • COST • AVAILABILITY

  10. SOURCES OF INFORMATION • PCA/CEMENT COMPANIES • ADMIX COMPANIES • CHAMBER OF COMMERCE • POWER COMPANIES • EDUCATIONAL INSTITUTIONS • INTERNET • PLAYERS

  11. GO - NO - GO DECISION BASED ON MARKET

  12. ECONOMIC FEASIBILTYGREENFIELD COSTS • LAND • PERMITING • EQUIPMENT • CONSTRUCTION • PERSONNEL • STARTUP • LOSSES

  13. GREENFIELD VS ACQUISITION Presented To The CIM Capstone Students at Middle Tennessee State University by William B. Allen Allen & Associates

  14. GREENFIELD VS ACQUISITION Presented To The CIM Capstone Students at Middle Tennessee State University by William B. Allen Allen & Associates

  15. WHY DO IT ? • EXPAND YOUR MARKET • COMPLIMENT YOUR MARKET • CONSOLIDATE THE MARKET • MAKE MORE MONEY • INFLATE EGOS • REVENGE (GET EVEN WITH THE BASTARDS) • SOUND BUSINESS DECISION

  16. TYPES OF DECISIONS • MANAGEMENT (WHY) • FINANCIAL (MONEY) • MANAGEMENT (GOOD BUSINESS)

  17. ESSENTIAL STEPS • MARKET RESEARCH STUDY • ECONOMIC FEASIBILTY ANALYSIS • ANALYSIS OF MARKET & MONEY

  18. MARKET STUDYY • SIZE • TRENDS • PLAYERS • CAPACITY • DEMAND VS SUPPLY • OPPORTUNITIES • FORECAST • PROFITABILITY

  19. PLAYERS • STRATEGIES • STRENGTHS • WEAKNESSES • MANAGEMENT

  20. READY MIX MARKET • YARDS (PRODUCTION & SP LAST 5 YRS-NEXT 10) • PLANTS (NUMBER &CONDITION) • TRUCKS (NUMBER & CONDITION) • LABOR (WAGE RATES/UNION/NON UNION) • RAW MATERIALS (AVAILABILITY/COST)

  21. AGGREGATES • TYPE • QUALITY • TONS & SP (LAST 5 YRS-NEXT 10YRS) • PLANTS • CAPACITY • RESERVES

  22. CEMENT • NUMBER OF SUPPLIERS • COST • AVAILABILITY

  23. SOURCES OF INFORMATION • PCA/CEMENT COMPANIES • ADMIX COMPANIES • CHAMBER OF COMMERCE • POWER COMPANIES • EDUCATIONAL INSTITUTIONS • INTERNET • PLAYERS

  24. GO - NO - GO DECISION BASED ON MARKET

  25. ECONOMIC FEASIBILTYGREENFIELD COSTS • LAND • PERMITING • EQUIPMENT • CONSTRUCTION • PERSONNEL • STARTUP • LOSSES

  26. WHY DO IT ? • EXPAND YOUR MARKET • COMPLIMENT YOUR MARKET • CONSOLIDATE THE MARKET • MAKE MORE MONEY • INFLATE EGOS • REVENGE (GET EVEN WITH THE BASTARDS) • SOUND BUSINESS DECISION

  27. TYPES OF DECISIONS • MANAGEMENT (WHY) • FINANCIAL (MONEY) • MANAGEMENT (GOOD BUSINESS)

  28. ESSENTIAL STEPS • MARKET RESEARCH STUDY • ECONOMIC FEASIBILTY ANALYSIS • ANALYSIS OF MARKET & MONEY

  29. MARKET STUDYY • SIZE • TRENDS • PLAYERS • CAPACITY • DEMAND VS SUPPLY • OPPORTUNITIES • FORECAST • PROFITABILITY

  30. PLAYERS • STRATEGIES • STRENGTHS • WEAKNESSES • MANAGEMENT

  31. READY MIX MARKET • YARDS (PRODUCTION & SP LAST 5 YRS-NEXT 10) • PLANTS (NUMBER &CONDITION) • TRUCKS (NUMBER & CONDITION) • LABOR (WAGE RATES/UNION/NON UNION) • RAW MATERIALS (AVAILABILITY/COST)

  32. AGGREGATES • TYPE • QUALITY • TONS & SP (LAST 5 YRS-NEXT 10YRS) • PLANTS • CAPACITY • RESERVES

  33. CEMENT • NUMBER OF SUPPLIERS • COST • AVAILABILITY

  34. SOURCES OF INFORMATION • PCA/CEMENT COMPANIES • ADMIX COMPANIES • CHAMBER OF COMMERCE • POWER COMPANIES • EDUCATIONAL INSTITUTIONS • INTERNET • PLAYERS

  35. GO - NO - GO DECISION BASED ON MARKET

  36. ECONOMIC FEASIBILTYGREENFIELD COSTS • LAND • PERMITING • EQUIPMENT • CONSTRUCTION • PERSONNEL • STARTUP • LOSSES

  37. ECONOMIC FEASIBILTYACQUSITION COSTS • PURCHASE • PROFESSIONAL FEES • EQUIPMENT CHANGE/UPDATE • PERSONNEL CHANGES • SYSTEMS CHANGES/UPDATE • SYNERGIES

  38. DETERMINE THE VALUE OF EACH METHOD • CASH FLOWS GENERATED • NPV OF CASH FLOWS

  39. VALUE • THE TRUE VALUE OF ANY COMPANY IS THE NET PRESENT VALUE (NPV) OF THE FUTURE CASH FLOWS GENERATED BY THE COMPANY’S ASSETS

  40. SOME BASIC ANALITICAL METHODS USED • METHODS • PAYBACK • INTERNAL RATE OF RETURN (IRR) • PROFITABILITY INDEX • NET PRESENT VALUE (NPV)

  41. PAYBACK • -Co+ C1 + C2 + C3 + C4 = 0 • -10,000 + 5,000 +5,000 =0 • Payback = 2 years • Weaknesses: • Time value of money • Future cash flows past payback

  42. DICOUNTED CASH FLOW RATE OF RETURN OR INTERNAL RATE OF RETURN(DCFRR OR IRR) • DISCOUNT RATE THAT MAKES NPV = 0 IS THE IRR

  43. PROFITABILITY INDEX(BENEFIT-COST RATIO) • Profitability Index = PV ÷ (-Co) • If index is greater than 1 project is acceptable

  44. NPV-(DISCOUNTED FREE CASH FLOW) METHOD • LOOKS AT BUSINESS AS A POOL OF UNENCUMBERED ASSETS • SEPARATES THE FINANCING DECISION OF ASSETS FROM THEIR INTRINSIC VALUE • DISCOUNTED PRESENT VALUE OF CASH FLOWS EARNED BY THOSE ASSETS

  45. FREE CASH FLOW • FREE CASH FLOWS CONSIST OF EBIAT PLUS • DEPRECIATION & DEPLETION & ITC PLUS • TERMINAL VALUE OF THE ASSETS LESS • CAPITAL EXPENDITURES AND • CHANGES IN WORKING CAPITAL

  46. SCHEDULES REQUIRED • REVENUE FORECAST • EQUIPMENT DEMAND • CAPITAL EXPENDITURES • DEPRECIATION • EQUIPMENT SOLD • RAW MATERIAL COST/PIT COSTS • PLANT & DELIVERY VARIABLE COSTS • FIXED COSTS • PROFORMA INCOME STATEMENT • WORKING CAPITAL • TERMINAL VALUE

  47. CONTRIBUTION & PROFIT SUMMARY REQUIRED INFO: • SALES & YARDS • VARIABLE COSTS • MARGIN • FIXED COSTS • PROFIT • EBITDA

  48. SUMMARY • DO YOUR HOME WORK • TOUCH ALL THE BASES • MARKET • ECONOMICS • ANALYZE MARKET & ECONOMICS

  49. SUGGESTED READINGS • VALUING A BUSINESS by Shannon P. Pratt • REVIEWING A BUSINESS APPRAISAL REPORT by Shannon P. Pratt • BUSINESS VALUATION HANDBOOKby Desmond & Kelly • HOW TO PRICE A BUSINESS by Raymond C. Miles • PRINCIPLES OF CORPORATE FINANCE by Richard A. Brealey & Stewart C. Myers • THE ART OF M&A by Reed & Lane and Edson • VALUATION “Measuring & Managing the Value of Companies” by Copeland, Koller & Murrin

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