Company Analysis Framework
A venture capital firm wishes to acquire a boutique hotel chain in an environment of economic and global disruption such as that caused by the Covid-19 pandemic. You will evaluate and apply decision-making frameworks to determine acquisition criteria. You must determine which sections of a framework are needed to make assessments for the potential acquisition. You will need to answer questions such as What are the most important types of data needed to effectively inform decision alternatives and why? What economic and financial data and measures are needed for risk and return evaluation?
You will prepare acquisition criteria for a San Francisco venture capital firm, Morgan-Eskola Hospitality Partners (ME-HP) LLC. The partnership is interested in acquiring European-style boutique hotels and spas targeted at hosting business meetings, retreats, weekend getaways, and upscale tourism, beginning with one location each in San Francisco, Los Angeles, New York, Chicago, and Boston.
The entire hospitality industry has been radically affected by the Covid-19 pandemic. The hygiene and cleanliness of hotels has become the focal point in the recovery plan during Covid-19. Investing partners from ME-HP LLC believe that early in the post-Covid recovery is an opportune time to consider a major investment in the industry, as it retools and reinvents itself after the global pandemic. The partners asked you to lead a team to formulate hospitality hotel acquisition criteria. Acquisition criteria can fall into three broad categories: general, operating, and financial. In the general category a sample criterion could be: Is retaining hotel management important?
To assist your team, the investors provided you with these three articles: (attached)
Pillai, S. G., Haldorai, K., Seo, W. S., & Kim, W. G. (2021). COVID-19 and hospitality 5.0: Redefining hospitality operations. International Journal of Hospitality Management, 94(2021), 1–11.
This study uses past disasters affecting the hospitality industry such as SARS to evaluate the impact of Covid-19 and how the industry may respond. In their suggested framework (p. 7), the authors evaluate hotel guest touch points and consideration of a Hospitality 5.0 perspective using a combination of people and AI/robotics. The authors argue that adoption of Hospitality 5.0 technologies is mandatory as a key facilitator of hygiene and safety. The proposed recommendation requires large-scale investment and decisions on where to begin and how quickly to take action.
Seyitoğlu, F., & Ivanov, S. (2020). A conceptual framework of the service delivery system design for hospitality firms in the (post-) viral world: The role of service robots. International Journal of Hospitality Management, 91(2020), 1–10.
This study creates a conceptual framework to evaluate the hospitality industry service delivery system design in a post Covid-19 world. The authors present a comprehensive framework (p. 4) from customer demand and expectations through alternatives to physically distant service delivery system design of the use of AI/robotics.
Wieczorek-Kosmala, M. (2021). COVID-19 impact on the hospitality industry: Exploratory study of financial-slack-driven risk preparedness. International Journal of Hospitality Management, 94(2021), 1–14.
The Wieczorek-Kosmala study looks at financial liquidity requirements in the hospitality industry and how they might be used to evaluate the viability of hotels continuity. Look closely at the elements in the financial models and how they can be represented in your acquisition criteria for a strategic investment.
As a starting point for identifying the acquisition criteria, the investors want you to expand on the Figure 1 framework, page 4 of the Seyitoğlu and Ivanov article A Conceptual Framework of the Service Delivery System Design. The article provides definitions for each element in their framework. You are asked to evaluate and address these questions:
Relevance of the Framework: Which sections of this framework are the most important for identifying acquisition criteria for a strategic investment and why?
Elements of the Framework:
What preliminary information have you discovered to help develop acquisition criteria related to:
Demand: customer expectations.
Service delivery system and alternatives.
What financial data and measures are required for your acquisition criteria?
How might the financial liquidity requirements suggested by Wieczorek-Kosmala in the article COVID-19 Impact on the Hospitality Industry be integrated into your acquisition criteria?
Acquisition Criteria for Strategic Decision Making: Identify and justify 5–10 acquisition criteria you will present to the investors.
Reflection: From a practitioner perspective, how do you see the utility, value, and application of a strategic decision-making framework to establish acquisition criteria? Explain what you learned from this assignment in less than one page.
You will need a minimum of three references in addition to the assigned readings. Add any new references to your Capstone Literature Matrix [XLSX] and include the spreadsheet with your assignment submission.
Read the Company Analysis Framework Scoring Guide to ensure that you understand all criteria.
As you complete your assignment, be sure your submission meets the following guidelines:
Capstone Literature Matrix: Submit the literature matrix Excel file with your selected articles entered.
Written communication: Use error-free doctoral-level writing, with original (nonplagiarized) content, logical phrasing, and accurate word choices.
APA formatting: Format all references and citations according to current APA style and formatting guidelines. Refer to the Academic Writer as needed.
Font and font size: Use an APA-compliant font, 12 points, throughout.
Length: Submit 5–7 double-spaced content pages plus cover and reference pages.
Recite: Use Recite to confirm that your in-text citations match the reference list at the end of your assignment and make any needed corrections before submitting your assignment.
Company Analysis Framework
The Sections of a Framework Most Relevant to the Particular Situation
There have been numerous studies that emphasize the significance of conceptual frameworks in qualitative research and the critical role they play in the process of inquiry. The research's guide and ballast and integrating all study components into a unified process benefit from having a companion and ballast (Seyitoğlu & Ivanov, 2020). If one wants to improve quality management in the hotel industry, they will need a conceptual framework to guide their efforts. This framework will guide them through the entire procedure, from start to finish. There has been some debate about which part of a framework is more significant in the business community. Organizations seeking success must concentrate their efforts on gaining new customers and maintaining relationships with existing customers. The industrial sector is looking for approaches that will help them to better allocate their limited resources to the most vital tasks in response to these restrictions. Also, the industry's long-term business plan and objectives will help determine the solution.
As Pillai et al. (2021) point out, customers' expectations of the level of hospitality have received significantly less attention than they should have, despite the attention devoted by service marketers and academic researchers to customer expectations of the quality of hotel services. Compassion can be developed among hosts and their customers due to these factors and the climate produced in a hospitality environment (Pillai et al., 2021). The ultimate goal of the hotel industry is to achieve high levels of client happiness, expectation, and loyalty. According to Pillai et al. (2021), the requirement of providing guests with sensory-stimulating experiences should be prioritized in the hotel industry. Customers' expectations serve as a baseline against which actual performance can be compared, as Seyitoğlu & Ivanov (2020). Anyone working in the hotel marketing sector must understand their client's expectations and thoroughly comprehend the critical factors impacting those expectations. The importance of these criteria is that customers utilize them to evaluate the overall quality of their service.
Information Related to Demand, Situational Analysis, Differentiation, and Service-Delivery System and Alternatives for Developing Acquisition Criteria
Developing acquisition criteria is critical in any organization since it allows one to determine the worth of a company's assets and liabilities. This is true regardless of the business in which one works. There is no unique set of acquisition criteria that will work for every firm; instead, the success of every acquisition is determined by the efforts made to ensure that the strategic purpose of the investment is maintained (Richter & Sereseanu, 2015). Before beginning with a purchase, the hospitality business must first identify the criteria used in the selection process for the item being purchased. Suppose acquisition prospects develop unexpectedly in the future. In that case, analytical frameworks such as this one might assure that key decision-makers would apply the same rationale to make their decisions in the future. Among the many tools that may be utilized to make quick decisions in business are Situational Analysis, Differentiation/Positioning, and the Service Delivery System, to name a few. Acquisitional planning is a procedure that may be used to develop a strategy to deal with these difficulties and address them. During acquisitional planning, decision points that may involve business, management, and other critical aspects that influence the acquisition elements are identified. This allows for developing a strategy to address these issues, which is accomplished by placing decision points. Market research is likely to impact the acquisition process and the style and substance of the firm's description or statement of work if it is carried out.
The successful acquisition of another corporation requires that the acquiring firm regard the transaction as an investment and be prepared to defend itself against the risks associated with the purchase. According to Fitriani & Koesrindartoto (2021), acquiring a company is an excellent strategy for increasing a company's market share. According to Fitriani & Koesrindartoto, it is critical to evaluate a company's risk-return profile and its cash flow characteristics before considering an acquisition. For the production of linked diversification suggestions, it is recommended that a different strategy be used from that utilized for unrelated diversification, and a distinct focus and substance be developed. Following the authors' findings, distinguishing between bolt-ones and platform differentiation is critical because it establishes numerous criteria for evaluating possible transactions and transactions in progress. Acquisition criteria must be developed via diligent observation and reading to ensure that the purchase is more valuable and efficient than before. Attentive observation and reading are required to do this.
Financial Data and Measures Required to Create Acquisition Criteria
It is customary for a prospective acquirer to be obliged to provide specific financial information about the firm that it is interested in purchasing as part of the due diligence process before making a purchase. The criteria for financial data and measurement statements are two examples of acquisition requirements that must be met before a transaction can be completed successfully. To comply with SEC Rule 3-05, an acquirer must assess the significance of a business purchased before closing the transaction. Therefore, it is necessary to give three tests in a single session when S-X 3-05 and S-X 8-04 are used in conjunction. The following questions will be asked on the examination: According to the Asset Test, was it possible to determine what percentage of the purchased company's total assets belonged to the buyer? What portion of the buyer's total consolidated assets belonged to the parent company? When the overall acquisition price of a newly purchased business is compared to the GAP criterion, the Investment Test process.
Comparison of the acquirer's participation in the acquired business's pre-tax earnings from ongoing operations with the acquirer's involvement in the acquired business's pre-tax earnings from discontinued operations; and the pre-tax income test is essential. Depending on when the transaction is completed and how long the transaction has been in progress, a separate set of unaudited interim financial statements may be necessary for any period covered by the stub. When considering whether to make an offer to purchase a business, it is a good idea to check the financial documentation from the previous several years. Tax returns, balance sheets, debt declarations, and cash flow statements are examples of the types of documents under this category. Whenever a company is acquired, it is essential to consider if the acquisition will assume any of the firm's responsibilities or liabilities. If the purchase assumes such debts or liabilities, it is necessary to proceed with caution. To determine how liquid a firm's balance sheet is, the corporation should determine the critical decision it must make. Using this example, it will be possible to demonstrate a company's ability to make investment decisions without obtaining additional cash from other sources. A liquid asset's ability to be converted into cash in a short period without depreciating the market value of the asset's acquiring firm is defined in financial terms as the power of an asset to be converted into cash in a short period without depreciating the market value of the asset's acquiring firm. When determining a company's ability to pay its short-term debts and present obligations in a financial crisis, it is vital to consider its liquidity. Different ratios and computations can be employed to select a company's liquidity.
How the Financial Liquidity Requirements Identified by Wieczorek-Kosmala (2021) Could Be Integrated into Acquisition Criteria
The following is a suggestion for anything that may be done to assist with continuing acquisition requirements. Because financial ratios are critical in monitoring changes in a company's borrowing capacity and profitability, the information provided by Wieczorek-Kosmala (2021) can be pretty valuable in the finance industry. Generally speaking, organizations with these characteristics, such as solid cash levels and low debt-to-asset ratios, are considered great acquisition possibilities. According to Wieczorek-Kosmala (2021), it is critical to understand the various motivations for acquiring a company and the most crucial purchase criteria before proceeding with the acquisition. For anyone considering purchasing a new company, it is essential to develop an acquisition criteria checklist that reaffirms the acquirer's objectives, analyzes its strengths and weaknesses, and evaluates its long-term strategic direction. Given its solid financial base, this acquisition represents a good investment opportunity to adopt a successful risk management strategy in the future.
It has been shown by Wieczorek-Kosmala (2021) that hotels are particularly vulnerable to the COVID-19 pandemic's effects. Therefore, there is some concern about the industry's ability to recover. For those worried about how well the organization is preparing for the COVID-19 danger, Wieczorek-Kosmala's (2021) exploratory study can shed some insight into the company's financial slack holdings and lifespan. With minimal financial wiggle room, most assessed hospitality businesses had recently depleted their resources.
Appropriate Acquisition Criteria to Evaluate a Potential Investment
In performing the research for items to acquire, the company should look for things such as, but not limited to, the following: To gain greater exposure, the firm can be interested in increasing the geographical scope of their organization. Second, legal considerations must be made, such as how the acquisition may affect the company's liability insurance and environmental and safety standards, which must be considered (Pivnk, 2021). For example, before making a purchasing decision, it is critical to assess the organization's reputation, history, and present image in question. There should be a superb reputation for providing high-quality service before this company is established. The culture and brand of a new firm have a significant impact on the growth rate and the organization's financial health in question. Finally, as previously said, it is critical to design a criterion to make rapid and accurate purchasing selections.
As soon as the similarities and differences between the acquired and acquiring firms are identified, it is customary for the strategic decision-making process to go forward quite swiftly from that point on. According to Clark & Maggitti's (2012) perspective, this is accurate. In contrast, while the strategic decision-making framework in acquisition criteria is a phenomenon that cannot be easily observed via the lenses of various utilities, values, and applications, the consequences of the decision may be evaluated. In situations where the number of interruptions caused by political conflicts would hurt the value and effectiveness of the decision, strategic decision-making is more likely to be completed more quickly due to the concentration of decision-making authority and the small number of people involved. However, according to Clark & Maggitti (2012), decision-makers will have difficulties since they will no longer be able to use typical optimization processes, such as those primarily concerned with anticipating future values and advantages and the applications of alternative actions in the future.
As a result of the newfound understanding, one can better grasp how additions can increase supply chain capabilities in a timely and cost-effective manner while providing more excellent value to consumers and the broader public. It is vital to disassemble the acquisition process of hospitality service providers to understand better why enterprises choose to unite or buy one another. This procedure can be scattered with the use of a conceptual framework. As a result of the acquisition, the company will be able to get a more valuable market share, regardless of whether it intends to diversify its portfolio within or outside of the hotel industry. As people get to know, the purchase of another firm is a growth strategy that must be carried out by the rules and regulations governing acquiring another business. Developing a conceptual framework is widely recognized as a valuable tool for clarifying any research objectives and identifying the most critical components of the results. To better grasp the conceptual framework and company, it is essential to develop a checklist of acquisition search criteria that validates an acquirer's aims and vision before beginning the acquisition search process.
Clark, K. D., & Maggitti, P. G. (2012). TMT potency and strategic decision-making in high technology firms. Journal of Management Studies, 49(7), 1168-1193. https://doi.org/10.1111/j.1467-6486.2012.01060.x
Fitriani, N., & Koesrindartoto, D. P. (2021). Proposed business strategy for XYZ consultant company to financial improvement through acquisition strategy. European Journal of Business and Management Research, 6(2), 1-7. https://doi.org/10.24018/ejbmr.2021.6.2.559
Pillai, S. G., Haldorai, K., Seo, W. S., & Kim, W. G. (2021). COVID-19 and hospitality 5.0: Redefining hospitality operations. International Journal of Hospitality Management, 94, 102869. https://doi.org/10.1016/j.ijhm.2021.102869
Pivnk, K. E. (2021). Significant financial ratios to assess the company's financial policy effectiveness. Financial Analytics: Science and Experience, 14(3), 347-360. https://doi.org/10.24891/fa.14.3.347
Richter, S., & Sereseanu, A. (2015). Developing effective risk assessment criteria in regulated environments. 2015 IEEE 8th International Conference on Intelligent Data Acquisition and Advanced Computing Systems: Technology and Applications (IDAACS). https://doi.org/10.1109/idaacs.2015.7341369
Seyitoğlu, F., & Ivanov, S. (2020). A conceptual framework of the service delivery system design for hospitality firms in the (post-)viral world: The role of service robots. International Journal of Hospitality Management, 91, 102661. https://doi.org/10.1016/j.ijhm.2020.102661
Wieczorek-Kosmala, M. (2021). COVID-19 impact on the hospitality industry: Exploratory study of financial-slack-driven risk preparedness. International Journal of Hospitality Management, 94, 102799. https://doi.org/10.1016/j.ijhm.2020.102799
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