Executive Summary Considering the situation that Paragon Tool is currently in, with uncertainty regarding company’s future, management in disagreement and the lack of tangible information regarding MonitoRobotic’s acquisition it is recommended that Paragon Tool, take a week, gather all of senior management and develop a concrete and agreed upon strategy regarding Paragon Tool’s future growth strategy.
Once such a strategy is formulated, if the service business and MonitoRobotic’s fit with these plans, then Nickolas should take the next step in conducting the necessary due diligence to determine that the MonitoRobotic acquisition price and it’s culture will fit with Paragon Tools. Current Situation While Paragon Tool Company seems to be a healthy machine tool manufacturing company surviving in a tough industry, a primary concern for Nickolas Anaptyxi, CEO, is continued growth for the company.
Paragon’s current tool manufacturing line is surviving in a fairly saturated market, but not exactly thriving. Mr. Anaptyxi’s primary goal since his start at Paragon is to grow the then small company through acquisitions. The company continues to fund more and more acquisitions while continuing to show diminished profits. While the CFO continues to debate with the CEO, Nick Anaptyxi, Mr. Anaptyxi’s strategy continues to be growth for Paragon through frequent acquisitions while continuing to show poor margins to investors. His belief is that the cost now will pay off in the future.
The current situation that Paragon faces is that the recently added line of business of services (repairs, service calls, etc. ) has been experiencing losses which has been pulling down its previously well performing tool manufacturing line. Mr. Anaptyxi believed that a key way for this slow growing and cyclical company to grow and thrive in the difficult market is to expand its market base by offering a service line to complement its tooling business. The CEO has to explain to the company’s investors that it will take time for the company to see a return on its investment in the service sector.
Potential New Acquisition In the interim, Paragon has been recently courting a technology company, MonitoRobotics, that focuses on the ability to identify manufacturing malfunctions much more quickly than before through the services of software and technology. While contemplating this relationship, it is made known to the CEO that a major competitor of Paragon is going in on a hostile bid for MonitoRobotics Company. The acquisition of MonitoRobotics would essentially double Paragon’s sales revenue collaborating on remote servicing technology for machine tools.
A big plus is that this acquisition would give Paragon a presence in this type of robotic diagnostic business while at the same time, blocking a major competitor from doing the same. The CEO believes this collaboration would greatly benefit the growth of Paragon by offering this additional service to its customers. Mr. Anaptyxi now needs to step up his decision and make his next move. The company first needs to understand that this possible acquisition is more than just a move to attempt to grow sales revenue.
It is more a strategy to reposition the company into a more profitable and growing line of business that compliments its existing tool manufacturing line. The company has to make sure it is making a well researched decision with sufficient due diligence versus making a knee jerk decision based upon the threat of the competitor’s impending hostile bid. They need to consider if the company has enough management support and staff to succeed at the overhaul of the company from manufacturing to technology.
Executives need to not only be concerned about the investors’ position on the acquisition and continued diminished returns, but on the opinion and attitude existing staff has and their related motivation, whether the culture’s of the two companies can mingle into one. The top management is divided on their stance regarding the acquisition. An effort must be made to get the entire team on the same page or else, half of the team will lose their motivation regardless of the decision made. The acquisition has to be at a fair price and make business sense.
Analysis must be done to make sure that Paragon’s existing service line will become profitable in the future, if not, the acquisition of an additional service line that may be unprofitable may mean death for Paragon. Details such as the acquisition costs and performance figures would have been welcoming information in determining if MonitoRobotics’ acquisition makes business sense. However given the lack there of, it is difficult to determine what kind of hardship the acquisition would be on Paragon.
The description from the CFO makes it sound like it may be tough on the company’s capital if the deal where to go through. Although the CEO states that the CFO’s style compliments his own style, their differences in strategies and overall mindsets may prove disastrous for the company. The fact that the CFO thinks the company should consider selling of their existing services line while the CEO is talking about acquiring an entire company for their service lines makes not synergy between the two.
They may spend more time spinning their wheels arguing over viewpoints than making progress in the company’s growth. Additionally, the CEO’s concern that he may lose the CFO if the deal is finalized should not be a showstopper for the CEO if the deal is in the best interests of the company. Recommendation Before a decision with such magnitude can be made, Paragon Tool must understand its current capabilities. After understanding what it’s management, financial and production capabilities are, then after determining the company’s growth strategy, Mr.
Anaptyxi and the rest of Paragon Tool will know if MonitoRobotics is the right fit for Paragon Tool. There exists too much confusion and disagreement between management to make a decision, and even if Mr. Anaptyxi, were to force the acquisition upon his management, as it stands now, Paragon Tools lacks the management team to follow through on the merger process. While MonitoRobotics feels like a can’t miss opportunity, with the services business becoming a booming industry, there will be other opportunity to either acquire smaller service businesses or give time to grow the service business within.