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Usefulness of Data to Assess a Potential Takeover | AQA Q1.5, Paper 2 2018


Last updated 27 Oct 2020

This is an example response to the 16-mark question on the usefulness of data to a rival considering a takeover of M&S plc.

A rival business considering a take-over of a large business such as M&S will want to analyse a variety of financial and non-financial data to decide whether to go ahead. The data in Appendices A to F might be helpful, although as I will argue, it may not be enough.

Let’s look first at the Appendix data that might be useful for the rival making the decision. One piece of data that stands out is the share price of M&S (Appendix F) which has almost halved from its peak in mid 2015. That might suggest that the market capitalisation of M&S is now relatively cheap compared with a few years ago, which might make the take-over seem more attractive. Although M&S profits have fallen (Appendix B) it is not anywhere near as much as the share price fall and indeed profits started to rise again in 2017. The rival might also be attracted by the sheer size and scale of M&S as indicated by the data, which is a true multinational (1433 stores worldwide) and has a very large and growing customer base (Appendix C). The data also suggests that M&S customers are loyal, particularly for food purchases, which might suggest to the rival that buying M&S is relatively low-risk compared with an alternative retailer. Finally, the balance sheet data in Appendix A will be an important part of assessing the financial position of M&S before a take-over. One thing that stands out is M&S gearing of 46.8% (£2774m / (£2774m + £3150m) which is relatively low and might suggest the rival could add more debt into M&S once bought.

However, whilst the above information is definitely useful for the rival, on its own it is unlikely to be enough, particularly given the risks involved in buying a complex business such as M&S. What other information would the rival want to help the decision? Firstly, it would want to assess the competitive position of M&S compared with direct competitors. Research into customer perceptions of M&S, the strategies of rivals in the food and clothing/home markets and perhaps the strengths and weaknesses of the M&S management team would be useful. For example, a rival might want to know why the number of times M&S customers are buying clothing & home products is falling (Appendix C) other whether M&S has lost market share despite achieving relatively stable revenues in recent years. Much more detailed analysis of financial performance would be useful, particularly about the gross profit margins achieved by key product areas and the profitability of different stores and geographical areas.

Overall, I think that the information in Appendices A-F would indeed be useful to the rival, but by no means would it be sufficient. The data provides an interesting overview of some key features of M&S, but take-overs are such high risk that much more detailed information and investigation would be needed before the rival could decide whether to proceed.

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