The company was a leader in manufacturing launching vehicles for satellites. The sector was global and consolidated, and three players accounted for 50% of the market. Margins had fallen as manufacturers were caught in a price/cost squeeze. As a result, the business was not earning its cost of capital. Large investments were required to continue to service customers. The objective was to determine how to remain competitive in a consolidating industry given the company’s large cost structure, the large base of fixed assets, and required continued investments.
We recommended forming a strategic alliance with one of the leading competitors to start rationalizing industry capacity together.
We analyzed the industry, its financial determinants, and various scenarios for competitors to earn their cost of capital.
INDUSTRY AND MARKET ANALYSIS
Estimated supply and demand of launch vehicles worldwide
Estimated market size in terms of satellite launches
Forecasted future growth over the next 4 years
Analyzed commercial launch prices, historical trends, and future projections
Calculated competitors’ market share by customer segment, including
Determined the industry cost of capital and overall Return on Invested Capital (ROIC)
Analyzed various industry scenarios based on the number of players (4, 3, and 2)
Determined that a 2-player industry scenario would be the only feasible option for companies to earn their cost of capital
COMPARATIVE VALUATION OF POTENTIAL ALLIANCES
Computed feasibility of alternative strategic alliance partners based on the following metrics
For each strategic alliance, determined financial implications for the company, including
Also determined the total amount of shareholder value creation
Determined best opportunity based on two factors