10 Pages Posted: 14 Jun 2009
A privately held U.S. plumbing parts manufacturer is negotiating the purchase of a Brazilian plumbing manufacturer specializing in water conservation. The case provides sufficient information to value this cross-border acquisition and includes a brief summary of valuation techniques in this context. A particularly rich discussion arises from two points: A forecast of exchange rates from a forecasting company differs from forecasts based on inflation, and two methods are suggested for dealing with country risk (sovereign spread and scenario analysis). A teaching note and instructor and student spreadsheets are available to accompany this case.
Rev. Jul. 30, 2014
In June 2010, Peterson Valve Company was in the final stages of making an offer to purchase Milagrol Ltda., a Brazilian manufacturer of faucets, showers, and other bathroom fittings, including a line of high-quality automated fixtures designed to conserve water. Discussions of a merger had proceeded smoothly. Both companies believed there were advantages to combining efforts. Milagrol needed capital to support research and development efforts. Peterson was interested in diversifying its operations globally and in gaining access to manufacturing processes that would be costly to develop.
The remaining substantive challenge that Peterson faced was determining a reasonable initial offer. Peterson's management was not looking for a bargain price and would be satisfied with capturing only the value created from the synergies arising from information transfer. Peterson therefore wished to offer Milagrol a price consistent with the expected value of the company given its operations in Brazil and exports to neighboring countries. At the time, Milagrol had a 20% share of the Brazilian market. Both companies were privately held.
Milagrol History and Strategy
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Keywords: international valuation acquisition forecast
Suggested Citation: Suggested Citation
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