Financial Acquisitions of Burberry Group PLC

Introduction

In finance, acquisition and mergers are transactions in which ownership of a particular business is transferred to another business entity and the operating units; in corporate finance, when a company purchases most shares of another business entity, usually more than 50 percent of the claims. Specific considerations have to take place for a company to acquire another company, which generally lies in its advantages. The reason for acquisitions includes seeking synergies, economies of scale, operating costs, and new niche offerings.

Burberry Group PLC is a British fashion house dealing with the design of luxurious ready-to-wear products. Some of the Companys unique products include leather jackets, trench coats, footwear, eyewear, and other fashion accessories. The Company is considered well-performing due to its net revenue of 2.63 billion as of 2020 (Statista, 2021). The Company is also listed on the London stock exchange, and in 2015 it ranked 73rd globally in Interbrand commodities, and it has stores in 59 countries. Burberry Group Plcs main reason for acquiring other stores is to unify the brand globally and increase its market capitalization to increase exposure to luxurious markets. Burberry Group PLC can acquire Padfield Company, a British company dealing with luxury leather goods.

The rationale for choosing the target company

Several factors ought to be determined when choosing the right Company for acquisition. The rationales of selecting a particular company have to be carefully considered. The first rationale to consider is the market capability of the Company to acquire (Rabier, 2017, pp.2666-2681). Access to new markets is a primary reason for acquisition; thus, Burberry Group PLC should assess if it will take over Padfield market share and if the market was big enough and worthy to take on. Blueberry deals with leather products, so acquiring Padfield Company might be to acquire the Companys products and services which is a rationale for the acquisition. Another factor to consider in the acquisition is the capabilities and diversifications of the Company to acquire (Gartenberg and Yiu, 2021). The capacities range from resources, infrastructure, and innovations. Burberry needs to consider the range of capabilities it will acquire from acquiring Padfield to improve its operations from the joint efforts. The cost of acquiring the Company is a fundamental rationale of acquisitions. Burberry management has to consider if the acquisition price is...

…made. The valuation of stock prices can also increase because of the combined assets and reduced costs, prompting investors to purchase more stocks. Burberry will also achieve more market growth due to taking over markets previously operated by Padfield. Burberrys acquisition of Padfield will enable the Companys financial and operational development.

Challenges and risk assessment of the acquisition

It is essential to note the challenges and risks of acquisition. The first risk in the acquisition is overpaying for the acquired Company, leading to destroyed shareholder value. Poor valuation of the acquisition deal can cause the overpayment problem (Renneboog and Vansteenkiste, 2019, pp.650-699). Another risk that might occur is overestimating the synergies of the acquisitions acquired advantages (Araguas, 2021). Overestimation will lead to disappointments in the acquisitions if others fail to materialize. Integrating operations is a huge challenge during the acquisition process, especially inclining the previous functions of Padfield to Burberrys operations.

In conclusion, acquisitions are incremental to the operations of a company. Specific rationales have to be considered before acquiring a target company to ensure it is the right choice and enable the other Company to achieve strategic goals. A critical aspect of the acquisition is synergies…