Case Type: mergers & acquisitions.
Consulting Firm: Monitor Group 2nd round job interview.
Industry Coverage: Building Materials; Manufacturing.
Case Interview Questions #00027: Your client CEMEX (NYSE: CX) is the world’s largest building materials supplier and the third largest cement producer. Founded in Mexico in 1906, the company is based in Monterrey, Mexico. CEMEX has operations extending around the world, with production facilities in 
50 countries in North America, the Caribbean, South America, Europe, Asia, and Africa.
Recently, the senior management of CEMEX USA is considering acquiring Miami Cement Company, a small local firm in southern Florida. You have been hired to advise them on the possible acquisition. What factors should be considered? After considering these factors, would you recommend the acquisition or not?
Additional Information: (to be given to you if asked)
The target firm Miami Cement Company is currently profitable, with margins of 5%. Your client CEMEX USA’s margin is 15%. Your client attributes its higher profit margin to economies of scale in trucking and mixing, and a stable labor force.
Both companies compete in the same geographical market, the Southeastern U.S. Your client’s customers are large construction firms and contractors generally in the office and commercial building construction business. The smaller firm Miami Cement Company sells mainly to other small businesses and contractors, such as swimming pool installation firms, patio builders, etc.
Additional research shows that the smaller customers for concrete are growing, while the major office building construction market is stagnant. The smaller firm Miami Cement Company has strong contacts with many local customers, and is often the preferred supplier due to their customer responsiveness.
Your client is not able to fund the acquisition internally, but could obtain bank financing at a rate of 10%. Similar acquisitions generally are made for two to three times current sales of the target firm.
Possible Answer:
From a simple financial point of view, the acquisition is not attractive if there are no synergies between the two firms.
I think there is one major topic to be discussed at the begining of the case: CEMEX goals to be achived through the acquisition.
One this topic has bee covered, the next one should be Product Mix of the targeted company, as well as Customer segments, its Market Share/Competitors and future situation. A big topic to discuss here should be also the growing of the geographical areas in which the targeted company operates.
The third point would be considering possible sinergies (Costs, Dist. Channels, Cross-selling/sales, customers and Products)
The final topic should be finantial funds for covering the operation, as well as the finantial health status of CEMEX.
I think maybe just only a couple of these topics have been discussed, we he have a little information to determine if the operation should be a good idea. As commented previously, cemex core business is declining and maybe with a money-injection to the targeted company several costs and economies of scale can be optimized.
On the first instance the deal seems negative in terms of financial of a target company. As a target company achieves only 5% of sales however for acquirer it costs 20-30% (tax shield not included) of sales, it destroys value of acquirer.
However acquirer need to see how much operational efficiency it can achieve by merging with the target and what is the financial condition of the target company? How much cost reduction can be made by merging and restructuring the financial of the target company?
This is all about financial but this deal is very important from strategic point of view. As mentioned, major office building construction market is stagnant however small market is growing very fast.
It requires finding out how big the small market is & what rate is it growing & how much % it carries to total market? What will be the % in next 5 years?
What will be the position of the acquirer if competitors acquire the same company? How much is it costs to the competitor and how much synergy competitors achieves?