Case Analysis -

Industrial
Accessories
SUBMITTED BY:

Limited
AKHIL KHER
(A009)
SHUBHAM RALHAN
(A059)
DRISHTE JAIN
(C021)
HISTORY
1970-Purchased a machine shop in keowna,British Columbia to cater to
the wide variety of manufactures and other industries in the Okanagan
region

1975-A growing number of clients in the Forestry and mining industry

were requesting modifications to standard construction equipment
attachments

1990-IAL was focused on manufacturing a standard range of

attachments

1991-IAL moved its headquarters to vancouver

2002-IAL had offered products in a few standard sizes and had organized
its factory to maximize efficiency by producing attachments in batches
on a production line
 Strong financial position and health can allow the
firm to make further investments
 The company can lose efficiency
 The location advantage can improve the due to poor inventory
competitive positioning management practices

S W
 The wide product portfolio can allow the  The cash shortage or insufficient
company to expand current assets negatively affect
the liquidity position and harms
the over all business

 The changing customer needs,

tastes and preferences can act as
an opportunity
O T  The rise in inflation increases the
cost of production and affects the
business profitability

 Reduction in the interest rates  Shortage of skilled labour in the

makes the fund raising and market can make it difficult for the
financing at lower cost easier for organisation to attract talent with
the business organisation the right skills set
 KEY
ISSUES
Cyclical Fragmented
Competition
Demand Market

Challenges Conflict in Financing

in Valuation strategies Options
 CYCLICAL DEMAND

• Demand for both construction equipment and attachments were

cyclical.

• It was highly dependent on the state of the economy in general

and the level of activity in the specific industry segments that
were serviced.
FRAGMENTED MARKET

• The industry served a wide range of customer needs.

• It was difficult for any one player to offer a complete lineup of

attachments.

• The market was fragmented with dominant players in particular

industry and geographic niches and a multitude of independent
manufacturers and machine shops
COMPETITION

• The value of the C$ was expected to continue to climb.

• This exchange rate movement had made U.S. manufacturers more

competitive but had not yet had much impact on the Canadian
market.

• IAL began looking for ways to differentiate itself to respond to

possible U.S. competition.

• It could not easily break into another regional market unless it was
willing to acquire a competitor.
CHALLENGES IN VALUATION

• For relative valuation; the company considered i.e. Finning

would not help to arrive at the true value

• This is because the scope of operations of both the

companies were not aligned.

• Finning’s shares were publicly traded while IAL’s shares were

owned privately, so this would affect the valuation too.
CHALLENGES IN VALUATION

• If relative valuation is done by taking Finning as the comparable company,

then its PE = 15 and EPS for IAL (2003) = 2.53.

• The price for IAL comes out to be 37.95/share. But the company is
currently paying USD 20/share.

• The difference can be because Stone doesn’t have a successor as of now

and is not willing to expand his business to other locations which can be
profitable according to the management.

• Also, expansion to other locations will require additional capex investment.

Conflict in strategies (of Management and
Owner)

• Management team was anticipating dramatic growth in western

Canada. They had argued that this was an opportune time to consolidate
portions of the industry and that if IAL didn’t pursue this strategy another
competitor would.

• On the other hand, Mr. Stone was planning a harvest strategy. The
opportunity cost of foregoing the expansion plan in such a booming
economic condition might result into fetching a lower price for IAL on
selling the business.
Financing Options

• Considering the equity option it is difficult to interpret a

successful future IPO towards the end of the 5 th year

• An all debt option might result into higher EBIT/Interest ratio

and lead to no dividend payouts. (Currently IAL is paying
dividend as high as 68)
CONCLUSION
 The terms mentioned for debt are: To ne a borrowed from a life insurance company
for a period of 15 years.
 The loan has to be amortized over the period. The interest rate would be 8 percent
 In addition to that, the insurance company would be issued 100,000 class B shares.
 The capex requirement would be taken care of from the additional credit line of 3
million that the company can take from the bank. 

Taking all these into consideration the company offered the potential to
increase the target leverage to at least 25% debt.
Currently the debt to equity ratio is 18.5%. Keeping that in mind the
company can fund the buyout partially via debt and partially via equity.