Kingspan plc (‘Kingspan’) is a UK listed company that operates a chain of chemist shops across the South East of England. It has grown organically over the last three years since obtaining its listing and now wishes to accelerate its growth via an acquisition. The board of directors of Kingspan is considering two different options for expansion, each of which is detailed below:

Option 1 – acquire Spencer Ltd (‘Spencer’), a privately owned company that operates a chain of chemist shops in the North West of England.

Option 2 – acquire Triton plc (‘Triton’), a UK listed company that manufactures testing and measurement equipment for laboratories and research facilities.

Requirements

1. With respect to option 1, describe two different approaches by which Kingspan could arrive at a valuation for Spencer Ltd that is suitable for acquisition purposes.
2. With respect to option 2:

1. 1. Explain the risks that arise for Kingspan and its shareholders in acquiring Triton, which operates in a different industry segment to Kingspan.
2. 2. Describe how Kingspan can identify a suitable cost of equity in order to evaluate the potential purchase of Triton.
3. Identify the main sources of finance that can be used for an acquisition such as this and explain the advantages and disadvantages of each source.

Answer rating: 100% (QA)

Option 1 Acquisition of Spencer Ltd Approach 1 Comparable Company Analysis CCA In this approach Kingspan can look at publicly traded companies similar ... View the full answer