How to analyze the current market trend regarding the merger and acquisition in UK and the present situation of British Home Stores (BHS) Ltd? Explain.
The purpose of this report is to analyze the current market trend regarding the merger and acquisition in UK and the present situation of British Home Stores (BHS) Ltd. It is a very popular departmental store founded in the year of 1928 (bhs.co.uk, 2016). At the beginning of the report, the business description of the company BHS is given. In the first section of this report, the current policies regarding the mergers and acquisitions in the UK market has been analyzed and then the scope of the company regarding this has been analyzed. In the later section of the report, the internal environment, competitors and external environment of BHS have been analyzed with the help of McKinsey 7s framework, Porter’s five forces framework and PESTEL framework.
British Home Stores (BHS) is a popular departmental store in UK. The branches of the departmental chain are located in mostly in the street side or shopping malls. Main business of the organization is about the household items and clothing. Some U.S. entrepreneurs established the company in the year of 1928. Currently the business of the company is not limited in the clothing and household items (bhs.co.uk, 2016). They are expanding their business in electronic goods, furniture, entertainment items, beauty products and some other groceries. At present, the parent company of the business organization is the Retail Acquisitions Ltd (BBC News, 2016).
At present, the company has near about 163 stores across the United Kingdom and other 18 different stores in some other countries. The company became one of the members of the Green’s Arcadia Group in the year of 2009. Currently almost 8000 employees are working with the organization in the different sectors of the business. The company has the slogan of “Modern Living, Made Easy” (ITV News, 2016).
In this year, the company entered administrations putting almost 11000 jobs in high risk. In this risky situation the company has high amount of debts which requires mergers and acquisition to be sustain in the future and give security to the jobs of the employees working with the company (the Guardian, 2016).
At present, mergers and acquisitions are gaining high popularity for the aspiring foreign companies who are interesting to invest to the companies in UK. Foreign companies are showing high interests in the mergers and acquisitions for different types of reasons like gaining the intellectual properties, captured market and market knowledge of the existing companies in the UK market (Lee, 2015).
Current mergers and acquisitions policies in UK
In order to choose a company for the mergers and acquisitions, the foreign investor companies should be concerned about the following areas:
Strategy and financial analysis: In this context, the company needs to review the market capitalization, total asset value and revenues of the target company. The net margin of the profitability and free cash flow of the target company also needs to be considered by the company wants to invest in the target company. The shareholders over the operations of the company should be analyzed in the primary level, i.e., whether the shareholder’s control will be minor or major (Kioko, 2013). The acquisition of the shares against the sales of the company is also important in this case. In the management area, the leadership style, expertise, compatibility of the organization towards new changes, organizations cultures need to be assessed in the primary level of investigation for taking the decisions regarding mergers and acquisitions (Ghosh and Dutta, 2014).
Operational analysis: The product lines of the company and available distribution channels of the company should be analyzed in this section. After analyzing these basic facts, the R&D activities of the company and current portfolio of the buyers and sellers should be assessed for understanding the competitive position of the company and the future status of the company in the target market (Di Maria, 2015).
Synergy expectations: The ability of market expansion and scope of asset utilization are the important factors of this case. The return of the investments and cost saving synergy are analyzed in this section. Other important synergy expectations are avoidance of duplicity, expenditure avoidance, practices adaptation, streamlining the processes, realignment of the performance and economics of sale (Chang, 2016).
In case of the mergers and acquisitions in the overseas companies,, the organizational culture is one of the most important facts needed to be considered. In most of the cases, it has been found that the overseas companies are found difficulties in handling the organizational process due to the different culture. In UK, the Labour Law UK, 1981 have to be followed by the company (Verbeke, 2013). In this area, the Competition Law and European Union Merger Law are also need to be considered by the companies.
BHS is an established company in the current UK market which is conducting their business successfully throughout a long time period. At present the company is facing some serious financial problems. According to the report of ITV News (2016), the company needs an investment of £60 million in the business for handling the critical situation. The product line of the company is vast and it has already captured a wider area in the target market. Therefore, it can be said that the company has a good future if it is able to handle this critical situation. At present, many of the companies are showing interests in the mergers and acquisition with the company, but there is a big question about the profitability of the company (the Guardian, 2016). In order to understand the sustainability issues and current status of the company, the internal and external environment analysis of the company is required. These analyses are given in the following sections of this report.
Acquisitions of BHS
In order to understand the internal environment of the company, McKinsey 7s framework has been used in this report. The 7 Ss are connected to each other and represents how an organization is performing the different types of business activities. The 7s need to be analyzed for understanding the internal environment of the business organization and what are required changes for improving the status of the organization (Johnston and Bate, 2013). The 7 Ss of BHS have been analyzed in the section below:
(Source: Gawankar, Kamble and Raut, 2015)
Strategy: This refers to the way of getting competitive success by the company. The company is expanding the product lines for capturing a wider market throughout the whole world. They are also trying to introduce new technical tools in the business of the company.
Structure: The business of the company is distributed among many sections such as clothing, electronic items, groceries and beauty products. Depending on these different product lines, the production units of the company are different. There are four types of management in the organization. They are operation, human resource, production and sale.
Systems: The HR management of the company controls the employee management system. The employees are rewarded on the basis of their performances. The HR management of the company used to measure the performances of the employees depending on some performance indicators.
Skills: The best skill of the company is to understand the market demand and develop best product line for the target customers. The company is expanding their business by introducing new updated technical products for the customers. However, the company failed to use the latest technology for understanding the customers’ perception and offering them the most superior product and services to them. This is one of the major reasons of facing this critical situation in their business.
Style: The management style of the company is distributed leadership style. The overall management activities are divided into the different management levels. The sectional managers are the responsible persons for taking the decisions regarding the business activities in their sections.
Staff: Huge amounts of staff are currently working within the company in different sectors. They are well trained about their job responsibilities in the workplaces of the organization.
Shared value: The organization used to share the values with the internal stakeholders. At the time of higher profits, the company gives extra rewards to the employees. The shareholders of the company also get the fair part of the profit earned by the company.
Internal environment analysis
The industry competition faced by the company can be understood by the use of the Porter’s five forces model. The five forces affecting the competitive situation of the company are given in this section.
Threat of new entrants: Threat of the new entrants is high for the business operations of the company as it is operating on many products. The product of the company are very general, which can be easily replaced by other companies products. New companies can come up with new products, which can negatively affect the business of the company (ITV News, 2016).
Threat of substitutes: There is no such big uniqueness of the products of the company, which cannot be replaced by other products. New types of products can easily substitute clothes, electronic goods and general groceries. Therefore, the threat of substitutes are also very high for the company.
Bargaining power of the buyers: As there are many options available in the current UK market. The buyers have the high power of bargaining while purchasing the products of the company (the Guardian, 2016). This is not good for the health of the company. This may affect the sustainability of the company in the future.
Bargaining power of the suppliers: The bargaining power of the suppliers is dependent on the availability of the suppliers. If the number of the suppliers is less, then the bargaining power of them are high and if the number of the suppliers high then the power is low (Goleman, Boyatzis and McKee, 2013.). In this case, there are many suppliers available for the production of the different product lines of the company. It is good for the sustainability of the company.
Industry Rivalry: The industry rivalry is high for the company as there are many competitors available in the current market. Tesco, Zara, Sainsbury’s are the potential competitors of the company. Therefore, the company is in intense market competition with these companies.
The macro environment of the company has been analyzed with the help of the PESTEL framework (Werbach, 2013). The different external factors affecting the business of the company are analyzed in the section below:
Political and Legal: In the area of the political influences, the tax law of the country is the most important factor. People of the age group 40-65 years have a propensity to be oversized, which is a potential influence for boosting the oversized clothes. These clothes are of high price, which is the reason of paying more costs as tax to the government (McGrath, 2013). The cost of handling with the consequences has become a popular topic in the political environment. This is also affecting the business operations of the company. Another big issue is the wage law of the country. As an example, a minimum wage law may affect the company directly if the employees are getting payment at the minimum rate.
McKinsey’s 7 Ss
Economic: Government plays a vital role at both the local and international level of the business operations of the company. The economic condition of the country has direct effect on the profitability and sale of the company. Mostly the section of the clothing items are affected by the economic factors of the country. The tax rate of the business operations are influenced by overall economic condition of the countries in which the company is currently operating.
Social: The social and cultural factors of the target market have a major effect on the business of the company. Especially the choices of the clothing products are highly dependent on the local culture of the area where the business is currently operating (Goleman, Boyatzis and McKee, 2013).
Technological: Technical factors are also very important in the business activities of the company as it has started the business of many technical instruments such as mobile phones and some household electronic goods (BBC News, 2016). The technology is also using for handling the business activities of the company.
Environmental: The increased cost of the raw materials for the clothing products is the most important environmental factor of the business of the company. The cotton price are rising and the global environmental changes are the cause of changing in the operational strategy of the company (bhs.co.uk, 2016). The company needs to conduct the business operation by utilizing the energy and water at the minimum level without any wastage.
(Source: Goleman, Boyatzis and McKee, 2013)
Conclusion and recommendations:
After conducting the market research on the internal and external environment of the business organization, it can be concluded that the current situation of the company is not so good. It has been also found that the company has high amount of debt. In the present situation, the company needs some investor who can take the imitative of handling the critical situation of the business.
In order to take initiative of investment or merger and acquisitions, the current situation of the company need to be understood by the investors. This report may be helpful for this purpose. The investment in the technical sections will be very helpful for the profit through the business operations.
The mergers and acquisitions with this company will be profitable as the company has a good reputation in the market. The foreign companies, which want to conduct business in the UK market, can invest in this company. It will be easier for them to conduct business in already developed market rather than capturing new target market.
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