Keaneâ€™s Acquisition of Metro Information Services (A) Case Solution
With the help of the acquisition, Keane Inc. is basically acquiring the key success factors of this industry. It can be seen that the acquisition could provide a large customer database, which could result in significant increment in the revenues of the combined company with the help of cross-selling of their services. Keane Inc. thus, could be able to further expand its business globally, which could result in higher market share and increased competitive position in the overall industry.
In addition to this, with the help of acquiring Metro Inc., Keane Inc. is buying approximately 1,700 billable consultants who can ensure the future revenues and the growth of the Keane, which could result in the competitive edge in the industry. The company could gain significant operational efficiency in this acquisition, which could result in synergies, since both the companies are dealing in the similar business.
The goodwill calculation has been made based on the case information. As per the calculation, the acquisition price consists of the total acquisition price and the assumption of debt, which has been taken and will be paid by Keane. Goodwill is the amount that is paid over the acquisition price, which is fair value of net assets acquired and liabilities assumed.
As per the calculation, net assets of the company are already in negative, after incorporating net liabilities affect. The acquisition price along with the negative net asset value, are considered goodwill. In this way, the entire amount is a goodwill amount. Another calculation is made, which is to check whether any fair value adjustment is needed to be made, so that acquisition price can be allocated to it. Nevertheless, here too, the assets are already impaired and thus, the assets have no amount as fair value over the book value. The goodwill is calculated to be $241.60 million. All the computations are shown in the exhibit given below.
What does goodwill include?
Goodwill includes all those items that could yield future cash flows for the firm and that these values are intangible, which is difficult for their computation. It generates with the strong efforts of the company throughout its history. The major components of goodwill include customer loyalty towards the business, which could not be achieved easily, too much time and sincere efforts are required from the management. The other major component includes the brand image of the company in presence of a large number of competitors in the industry. In light of the existing scenario, other types of goodwill include the retention level of those skilled professionals, who were previously hired by the company, which could provide the synergic benefits in terms of reduced cost. In addition to this, it can be seen that due to the wrong valuation, goodwill sometimes might be overvalued or undervalued, there are certain reasons as well as assumptions of these valuation and they are perfectly illustrated in the overall computation. Other components include the following:
- Customer loyalty and perception
- Brand identity
- Customer services
- General and Operational synergies
- Work staff loyalty
- Motivated work force
- Work Methods and efficient management practices
- Potential Market Segments
- Business relations and contacts
What other intangible assets acquired from Metro would investors like to know about?
It can be seen that the investors are primarily concerned about their return on investment and due to this, they are keenly interested in each and every steps taken by the management. In this overall deal, it can be seen that the value of other intangibles acquired by the business are still unknown, which include the customer base and their loyalty………………..
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