A Case Study Review of Strategic Acquisitions of Synergic PLC Staff Development Unit Faculty of Commerce and Management Studies University of Kelaniya © Staff Development Unit, Faculty of Commerce & Management Studies, University of Kelaniya Authors: Mr. P.S.Morawakage Ms. K.M.K.N.S.Kulathunga Ms. W.B.M.D. Basnayake Mr. M.R.P.Wijesinghe Ms. S.M. Chandrasena Ms. S.D.P.Piyananda Published by: Staff Development Unit, Faculty of Commerce & Management Studies, University of Kelaniya Telephone: +94-112903553 Website: http://www.kln.ac.lk/fcma/dep/dfin Email: [email protected] Fax: + 94- 112917708 ISSN 2424-6239 Synergic PLC is a hypothetical name proposed for this real life scenario as to satisfy information disclosure principles and ethics. Acknowledgment This case study has been mainly developed to assist the undergraduates in their learning process to gain practical experience aligned with the theoretical background. The authors of this case study have written this document with the goal of providing undergraduates the guidance needed to functions with skills and confidence in their role of synergic learning. In addition this case study provides several helpful links and examples for those instructors may need to be complete in their responsibilities. The authors of this case study wish to acknowledge and thank all the dignitaries in the University of Kelaniya who supported to initiate and continue the new concept of faculty level Staff Development Unit (SDU) including Professor Sunanda Madduma Bandara, Vice-Chancellor, University of Kelaniya, Dr.D.M.Semasinghe, Dean, Faculty of Commerce and Management Studies, Dr.P.N.D.Fernando, Head, Department of Finance and Ms.U.L.T.P.Gunasekara, Deputy Director, Center for Management Research, Faculty of Commerce and Management Studies. Further our special thanks and appreciation is due to Mr. D.M.R.Dissanayaka, Coordinator, Staff Development Unit, Faculty of Commerce and Management Studies. Without his benevolent, encouragement, and the endless upkeep this would not have been materialized. His guidance, kind support and constant inspiration immensely supported us in preparation of this case study. Finally we acknowledge the persons who saw us through this book to all those who provided support, talked things over, read, wrote, offered comments, allowed us to quote their remarks and assisted in the editing, proofreading and design. i Preface This case study on “A Review of Strategic Acquisition of Synergic PLC” is presented to the reader comprising largely the undergraduate student community in Sri Lanka with the expectation that it will make the undergraduate students aware on the practical experience in the real world with reference to different theoretical aspects attributed to their relevant subject areas in the curriculum. In undertaking an extensive analysis of this case study we were mindful of the need to address some of the gaps in relation to theoretical explanations as well as practical application. With that we have taken the initiative to include strategic models including SWOT analysis, value chain, Ansoff Matrix with its application to the company together with relevant industry reports. Analysis of this case study is about the application of theoretical models which are applicable in different situations suitable with regard to strategic acquisition of Synergic PLC as well as analyzing the future prospects of the company. The primary objective of this case study review is to make available to our readers a comprehensive analysis of a selected company with a Sri Lankan Flavor. ii Executive Summary Synergic Holding PLC initiated operations in 1991 as a software development company. It was incorporated as a private limited company in 1998 and obtained a listing in the Colombo Stock Exchange in June 2011. Soon after the incorporation they became the sole authorized distributor for DELL Computers in Sri Lanka. Gerrys Synergic (Pvt) Ltd started as a joint venture with Gerrys Holdings (Pvt) Ltd in Pakistan, fulfilling Mr. Alok Pathirathne’s (the founder of Synergic Holdings PLC) dream of ‘going global’. Synergic Company’s move towards furniture retail, from IT related activities was the first instance they adopted the diversification strategy. At present the Synergic Holding PLC is rated as one of Sri Lanka’s most energetic and aggressive conglomerates. The diversified key sectors are Information and Communication Technology, Healthcare, Retail, Financial Services, Automobiles and Leisure. This case study specifically underlines the strategic acquisition of Rovel PLC which took place in the year 2014. Rovel PLC initiated its operations in 1989, in a small retail outlet. Today, Rovel’s flagship department store is a 36,000 square foot, lavishly appointed store and it owns 20 other outlets in many strategically important locations. Rovel operates at the top end of the retail fashion market, where it has carved out a niche through a highly focused approach targeted at the upper-middle and higher-income groups, Rovel has maintained its leadership position by providing a modern, world-class retail environment that has become the standard for the South Asian region. Rovel is not only Sri Lanka’s leading fashion brand, but with a wide array of products, it is also Sri Lanka’s only genuine department store. Rovel has achieved the iii status of an iconic brand with its tireless ability to reinvent itself at regular intervals. The recent acquisition of Rovel PLC by Synergic Holdings has created a major upheaval amongst the business community and the media. One main intention behind the said acquisition was Synergic’s motive of working with Parkson, the largest shareholder of Rovel. However the withdrawal of Parkson from Rovel PLC left Synergic’s efforts futile. Also after the said acquisition, Synergic’s excessive borrowings have resulted with its Fitch Rating being downgraded by two notches. The boards of directors now are contemplating about the survival of the company with its existing structure. iv Table of Contents Acknowledgment ………………………………………………. i Preface …………………………………………………………...ii Executive Summery ……………………………………………..iii Table of Contents ………………………………………………..v 1. Overview of the Company……………..……………….….…...…. 1 1.1 The Strategic Keys of the SH………………………... 1 1.1.1 Vision ……………………………………………………..1 1.1.2 Mission. ……………………………………….……....…. 1 1.1.3 Values………………………...…………………..…..…... 1 2. Synergic Holding PLC- Environmental Analysis……................… 4 2.1 Internal Environment……………………..………………... 4 2.1.1 SWOT Analysis……………………………........…… 4 2.1.2 Value Chain Analysis……………… .………….….…..5 2.2 Industry Analysis………………………………….…...…... 5 3. The Unpretentious Beginning of Synergic Holding PLC…….…... 7 4. Initial Expansion of the Business (1998 to 2005)…………..........… 8 5. Diversifying the Business………………………………..…….……. 10 5.1 Rationale for Diversification……….………….…….…..…. 10 5.2 Types for Diversification……….………….…….……..…... 10 5.3 Ansoff Matrix………………………………………….…… 11 6. Hostile Growth Begins (2006 to 2009)…………….……………….. 12 7. Synergic Sprints (2010)…………………………………………...… 13 8. Endless Journey of Growth (2011- 2012)…………..…………....… 15 9. Synergic Stable thinking forward belief continues (2013)…..…... 17 10. Period of 2013- 2014…………………………………..……….….. 20 10.1 Background of Rovel PLC Acquisition………………....… 21 10.2 Analysis of the Acquisition of Rovel PLC…………....….. 21 10.2.1 Investment Analysis……………………………..…..22 10.2.2 Strategic Analysis………………………………..…. 23 10.2.3 Marketing Analysis………………..…………….…..28 10.2.4 Operational Analysis………………………….…… 29 v 10.2.5 Management Analysis……………………….……….… 29 10.2.6 Financial Analysis…………………………………..….. 30 10.3 Post Acquisition Phase of Rovel PLC………………………… 32 11. Future concerns for Synergic PLC……………………………..... 34 Annexures……………………………………………………………… 36 vi 1. Overview of the Company Synergic Holding PLC initiated operations in 1991 as a software development company. At present the SH is rated as one of Sri Lanka’s most energetic and aggressive conglomerates. SH has diversified its position in several domestic growth oriented business sectors. The diversified key sectors are Information and Communication Technology, Healthcare, Retail, Financial Services, Automobiles and Leisure. The SH currently provides employment to over 6,000 individuals generating a turnover of more than USD190mn. The SH was incorporated in 1998 as a private limited company and obtained a listing on the Colombo Stock Exchange in June 2011. The SH’s representations and strategic alliances with reputed global institutions and large multinational corporations confirm its unparalleled local stature across its diverse fields of operation. 1.1 The Strategic Keys of the SH 1.1.1 Vision To be the most preferred and trusted product and service provider delivering high quality solutions to the corporate and retail sector with a view to enhancing shareholder value and revolutionizing industry competencies. 1.1.2 Mission To be the best, employ the best and reward the best with a view to reaching the highest market expectations and becoming the most valued corporate enterprise. 1.1.3 Values SH employees are the value drivers. The key value drivers are reliability, trust, constructive conservatism, esprit de corps and integrity among members, business partners, and community in the company. The SH have created a transparent organizational culture through high performance culture, innovation, integrity, human capital, success, accountability, corporate responsibility 1 and simplicity in ideas flourishing, people thriving