In January 2021, Alphabet (Google) finally closed on its acquisition of Fitbit Inc (FIT) for $7.35...

  

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In January 2021, Alphabet (Google) finally closed on its acquisition of Fitbit Inc (FIT) for $7.35 per share or roughly $2,100 million, after announcing the transaction in November 2019. Fitbit has sold more than 100 million devices, supporting over 29 million active users globally. Growth in wearabes is anticipated to be 8.0% per annum through 2030. In 2019, despite revenues exceeding $1.4 billion, Fitbit generated negative cash flows. With Alphabet's resources and global platform, Fitbit will be able to accelerate innovation in the wearables category, scale faster, and improve efficiencies. Alphabet therefore expects cash flows to be a modest $30 million in the following year. Google's cost of capital is 10.0%. 1. Based on the data provided above, what is the present value of future cash flows in acquiring Fitbit? Do you agree with Google's decision to acquire Fitbit? Why? (show calculations; 10 points) [PV = CF1 / (r- g)] 2. Using the exhibit below, assess the performance of Fitbit. Does this change your decision to acquire? (support answer with financial ratios; 10 points) 3. Based on course content, what can Alphabet do to avoid problems in acquisitions in general? Briefly describe. (10 points) Fitbit - Select financial information, 2017-19 Figues in S000s 2019 2018 2017 Figues in S000s 2019 2018 2017 Revene 1,434,788 1,511,983 1,615,519 Total current assets 1,119,752 1,311,811 1,384365 Cost of revenue Gross profit 1,007,116 908 404 924,618 PPE, net 82,756 106,286 104,908 427,672 603,579 690,901 Other assets 165,578 1,368,086 1,515,547 1,582,075 97,450 92,802 R&D expense Saks & marketing Total Assets 300,354 329,800 332,169 343,012 344,091 415,042 Total curent liabilities 764,610 719,383 60,226 701,300 General & admiristratve Change in consideration 118,231 116,627 133,934 Other liabilities 116,213 880,823 56,812 758,112 Total Liablities 779,609 Operating income Other income, net Income tax expense (320,713) (189,308) (201,087) Sharcholders' equity 487,263 735,938 823,963 11,648 5,166 1,687 6,443 11,646 82,548 Net income (320,711) (185,829) (277,192) In January 2021, Alphabet (Google) finally closed on its acquisition of Fitbit Inc (FIT) for $7.35 per share or roughly $2,100 million, after announcing the transaction in November 2019. Fitbit has sold more than 100 million devices, supporting over 29 million active users globally. Growth in wearabes is anticipated to be 8.0% per annum through 2030. In 2019, despite revenues exceeding $1.4 billion, Fitbit generated negative cash flows. With Alphabet's resources and global platform, Fitbit will be able to accelerate innovation in the wearables category, scale faster, and improve efficiencies. Alphabet therefore expects cash flows to be a modest $30 million in the following year. Google's cost of capital is 10.0%. 1. Based on the data provided above, what is the present value of future cash flows in acquiring Fitbit? Do you agree with Google's decision to acquire Fitbit? Why? (show calculations; 10 points) [PV = CF1 / (r- g)] 2. Using the exhibit below, assess the performance of Fitbit. Does this change your decision to acquire? (support answer with financial ratios; 10 points) 3. Based on course content, what can Alphabet do to avoid problems in acquisitions in general? Briefly describe. (10 points) Fitbit - Select financial information, 2017-19 Figues in S000s 2019 2018 2017 Figues in S000s 2019 2018 2017 Revene 1,434,788 1,511,983 1,615,519 Total current assets 1,119,752 1,311,811 1,384365 Cost of revenue Gross profit 1,007,116 908 404 924,618 PPE, net 82,756 106,286 104,908 427,672 603,579 690,901 Other assets 165,578 1,368,086 1,515,547 1,582,075 97,450 92,802 R&D expense Saks & marketing Total Assets 300,354 329,800 332,169 343,012 344,091 415,042 Total curent liabilities 764,610 719,383 60,226 701,300 General & admiristratve Change in consideration 118,231 116,627 133,934 Other liabilities 116,213 880,823 56,812 758,112 Total Liablities 779,609 Operating income Other income, net Income tax expense (320,713) (189,308) (201,087) Sharcholders' equity 487,263 735,938 823,963 11,648 5,166 1,687 6,443 11,646 82,548 Net income (320,711) (185,829) (277,192)

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