Financial performance analysis of Fastpack delivery services

Aquisition Proposal

Acquisition Analysis

Financial Performance Analysis

Fastpack is the second largest company activating on the courier, express, and parcel delivery market in Ruritania. The company's financial information is proof to Fastpack's outstanding position on the market.

For the past five years, Fastpack has continued its ascending trend. Of the past five years, 2003 was the least financially profitable year. Since 2003, the company has continuously increased its turnover, profits, and assets.

The company's fixed assets have increased from €10,166 in 2003 to €36,315 in 2007. The annual current assets growth rate over the past five years was the following:

90% in 2004

52% in 2005

% in 2006

27% in 2007

As one may observe, 2006 was not a good year for the company's fixed assets that increased from €28,557 in 2005 to €29,128 in 2006. It is expected that the company's assets will follow an ascending trend (Summary Balance Sheets, 2008).

The company's stocks experienced significant growth over the past few years, increasing from €190 in 2003 to €1,224 in 2007. The annual growth rate for the company's stocks over the past five years was the following:

80% in 2004

70% in 2005

71% in 2006

50% in 2007

The highest growth was registered in 2004 compared to 2003, while the least important growth in the company's stocks was reported in 2007 compared to 2006. It is expected that the company's stocks' value will slightly increase over the following period of time.

The evolution of the company's cash level has followed an interesting direction over the past few years, with significant changes in the situation. For example, the company's cash level reached €254 in 2003, but in 2004 the cash level drastically reduced to €26. In 2005 the company recovered, reaching a €130 value in cash. The company's recovery continued in 2006, when the cash level reached the value of €199.

However, the biggest increase in the company's cash level was registered in 2007, when the company's cash was reported to be €647. Given the circumstances of the domestic courier, express, and parcel delivery market and the company's position on this market, it is expected that Fastpack's cash level will increase over the following period of time.

The company's liabilities have significantly increased over the past five years, from €4,864 in 2003 to €23,680 in 2007. The annual growth rate of liabilities during this period of time was the following:

97% in 2004

54% in 2005

18% in 2006

19% in 2007

The highest increase in the company's liabilities was reported in 2004 compared to 2003, while the lowest increase can be observed over the past two years. Given the recent evolution of the company's liabilities over the past two years, it is expected that the liabilities annual growth rate will not exceed 18% over the next few years.

The shareholders' funds that financially support the company have doubled during the past five years, from €11,503 in 2003 to €22,770 in 2007.

The company's borrowings have significantly increased during the five years period analyzed here, from €1,242 in 2003 to €32,943 in 2007.

The company's issued shares were maintained at a constant number of 3000 during the years of 2003, 2004, and 2004, but their number was increased to 5000 in 2006 and 2007. It is expected that the number of issued shares to be increased after one year, depending on the company's situation at the time.

In order to properly valuate this company, it is necessary to analyze other financial information also, like the evolution of turnover, cost of materials, salaries, operating profit, and retained profits.

The company's turnover has significantly increased over the past five years, from €36,578 in 2003 to €223,408 in 2007. The company's turnover evolution durin this period was the following:

95% in 2004

97% in 2005

50% in 2006

40% in 2007

It is expected that the company's turnover annual growth rate will not exceed 45% over the next few years.

The cost of materials required in this industry has increased from €2,651 in 2003 to €14,968 in 2007.

The salaries level has increased from €9,571 in 2003 to €52,501 in 2007. Although these numbers represent only Fastpack, the salaries level is similar in other courier companies in Ruritania.

The company's operating profit has increased from €-1,082 in 2003 to €19,031 in 2007. The evolution of Fastpack's operating profit annual growth rate over the past five years was the following:

270% in 2004

620% in 2005

200% in 2006

30% in 2007

The company's retained profits have increased from €-1,136 in 2003 to €4,134 in 2007.

TNT Express Benefits

The benefits of TNT Express from a prospective acquisition of Fastpack are related to TNT's current position on the market. The comparison between the current situation of TNT and that of Fastpack is the following:

Local market: TNT is not present, Fastpack owns 75% market share

Domestic market: TNT owns 4%, Fastpack owns 25%

International market: TNT owns 14%, Fastpack owns 5%

If TNT were to acquire Fastpack, the market share currently controlled by Fastpack would be transferred to TNT. In other words, TNT would implement its presence on the Ruritanian market. Even more, by acquiring Fastpack, TNT would gain the impressive position that Fastpack holds on the local market through its 75% market share.

As mentioned in the executive summary, it is quite difficult for foreign courier companies to enter the Ruritanian market. Therefore, acquiring such a well-positioned local courier company would guarantee TNT's future success on the Ruritanian market.

Furthermore, TNT's benefits from a prospective acquisition of Fastpack can reach an international level also. Given the fact that Fastpack owns 5% market share of the international courier market, compared to TNT's 14% owned on the international market, TNT could improve its position in the international market. With a more solid position on the international market, TNT would be able to expand its activity in other regions across the world.

The situation would change for Fastpack also if it were to be acquired by TNT. Fastpack has an impressive, solid position on the Ruritanian courier market. The company does not necessarily need to be acquired by TNT. In my opinion, Fastpack would have more to gain if it were not acquired by TNT. Fastpack has a market share base on the international market that the company can further exploit and expand, leading to overall growth for the company, both locally and internationally.

TNT however, needs to acquire Fastpack. As mentioned above, it is quite difficult for foreign companies to enter the Ruritanian courier market. The best way of succeeding would be to acquire a well-known local company. Therefore, it might be a better solution for both companies, and especially for Fastpack, to decide upon a merger between the two companies rather than on an acquisition of Fastpack by TNT.

Initial Valuation of the Company Acquired by TNT

Objective: the purpose of the acquisition of Fastpack where TNT is concerned consists in entering the Ruritanian courier market. As mentioned above, the only solution that guarantees success for foreign companies entering Ruritania's courier market consists in acquiring a local, well-positioned courier company like Fastpack. Also, this would help TNT to consolidate its position on the international market.

The environmental context

The current macroeconomic conditions recommend this acquisition of a courier company by TNT. The Ruritanian courier, express, and parcel delivery market is in full development process. This is a great moment for investing in this market. There is still room for new investors on this market and TNT should exploit this opportunity.

The internal context

Fastpack is organized in a very flexible manner. This allows the company to move fast on the market and to satisfy as many customers and as fast as possible. Such a flexible organization allows for an easy takeover by TNT.

Fastpack is owned by individuals. This would make the transition easier and the acquisition could take place in a shorter period of time than usual. The objectives of the company management includes: upgrading the existing billing system, developing billing applications for branches, developing software for settlement with branches, developing software for settlements with couriers, introducing electronic archiving, supporting the customer data base (Executive Summary, 2008).

These objectives of the company's actual management do not interfere in any way with TNT's objectives. Even more, this would help TNT to attain its objectives regarding the Ruritanian courier market.

Recommendations

Given the analysis provided in the previous pages it is recommended that TNT acquires Fastpack as soon as possible. Entering the Ruritanian market would be a great opportunity for TNT to expand its activity worldwide. If TNT were to acquire a solid position in this country, it would allow the company to expand its business in Ruritania's neighboring countries in Eastern Europe.

Ruritania present tremendous growth opportunities regarding the courier market. TNT would have difficulties on entering this market as a foreign company. This is why TNT needs to acquire Fastpack. By acquiring Fastpack, TNT is acquiring its position on the Ruritanian market. Even more, TNT would benefit on international level from this acquisition, given the 5% market share owned by Fastpack on the international market.

This acquisition would follow a trend established in the global economy, since "the level of cross-border acquisitions doesn't seem to be related at all to the level of various currencies. The number and value of international transactions doesn't rise or fall depending on whether the dollar is weak or strong. Companies usually pursue cross-border acquisitions for strategic and competitive reasons" (Platt, 2004).

This acquisition is recommended in order to avoid problems like rival bidders, cultural and language barriers that can generate uncertainty, and other subjective matters that affect negotiations in such situations (Finkelstein, 2008). If TNT does not start the negotiations for acquiring Fastpack, it is expected that other bidders that want to enter the Ruritanian courier market will manifest their interest in Fastpack, which will probably result into more difficult negotiations.

Reference List

Summary Balance Sheets (2008). Retrieved January 22, 2009.

Executive Summary (2008). Retrieved January 23, 2009.

Platt, Gordon (2004). Cross-Border Mergers Show Rising Trend as Global Economy Expands. Global Finance. Retrieved January 23, 2009 at http://findarticles.com/p/articles/mi_qa3715/is_200412/ai_n9466795.

Finkelstein, Sydney (2008). Cross Border Mergers and Acquisitions. Dartmouth College. Retrieved January 23, 2009 at http://mba.tuck.dartmouth.edu/pages/faculty/syd.finkelstein/articles/Cross_Border.pdf.