You recently started a new assignment as a senior risk analyst at The Surrey Group, one of New York City's most prestigious private equity funds, named after the famous hotel where the founders of the firm met to start the firm. This private equity fund has a strong focus on (1) proactively managing the strategic risk associated with companies in its portfolio and (2) understanding the strategic risk posture of any potential acquisition.
You report to the Director of Portfolio Risk Management ("PRM"), who has a team of 23 risk analysts who are constantly evaluate companies. The Director of PRM is very busy as she is constantly evaluating the strategic risk posture of companies in the portfolio and assessing potential acquisition in order to advise the firms' managers.
Your first assignment for the Director was to assess the company that you selected in Assignment 1, (the project is code named "Buffalo"). Based upon the information that you provided in Assignment 1, the Surrey Group has taken a 5% pre-emptive stake in the firm you evaluated in Assignment 1.
The Surry Group's executives are poised to complete the acquisition of that firm, but before they do, they want to make sure they are selecting the best firm in the industry. Since you did such a good job on the first assignment, the Director has selected you to be part of the due diligence team for project Buffalo.
There are members from legal, finance, operations, human resources, and others on the due diligence team, as well, performing analyses in their disciplines. Your task is to identify a close competitor of the firm you evaluated in Assignment 1 and do a thorough comparative analysis of the firms from a strategic risk management perspective.
In a memo address to me, the Director, (or in powerpoint presentation, if you prefer), that I can share with the firm's senior executives, address the following issues:
a. Summarize the business of the competitor and the strategy it is pursuing. Does the company utilize an action-oriented strategic principal? Has the strategy evolved over time? If so, how and why? (15 points)
b. Assess the company strategy using the tools discussed in the lecture notes and in the reading and present your findings. Compare and contrast your findings to those for the company evaluated in Assignment 1. Which company has the better strategy? Why? (20 points)
c. Identify, describe in reasonable detail and evaluate the key strategic risks that this company is facing or is likely to face as it pursues its strategy. Into what SRM category do these risks fall? Emphasis should be given to the strategic risks we have covered in class thus far. Compare and contrast these risks with the risks identified for the company evaluated in Assignment 1 (20 points)
d. Discuss each of these risks, providing a summary of the potential impact on the company and the potential downside implications. Quantify the probability that the risk will occur. (I understand that you do not have full information for this task, so an estimate base on your understanding will suffice for this memo.) Quantify the impact that the risk will have on the company if it occurs.
(Again, I understand that you do not have full information for this task either, so an estimate base on your understanding will suffice for this memo. I note that very often companies will ascribe a dollar value impact or change attributable to a particular strategic objective. If this is available for your company, it will provide a good basis for this assessment. If not, your best estimate will suffice.) Assign an expected value/impact to the risk (probability * impact). Prioritize the risks based upon expected negative impacts from most impactful to least impactful. Between this company and the one evaluated in Assignment 1, which company faces the most significant set of risks and why? (30 points).
e. Categorize the risks as either avoid, mitigate, transfer or accept and justify your categorization. (15 points)
f. For the 3 most impactful risks that require mitigation, please describe in reasonable detail how the company will reasonably mitigate those risks. If the steps described are implemented, what level of mitigation will be achieved; i.e., assign a percentage to the level of mitigation achieved. To the extent that full mitigation is not achieved, what will happen with the remaining risk: accepted, transferred or otherwise mitigated. When compared with the mitigation measures recommended in Assignment 1, which set of mitigation measures are most likely to be successful and why. (35 points)
g. What controls would you put in place to help manage the risks and the effectiveness of the mitigation? Please explain why these controls will produce results. (20 points)
h. Given the identified risks, express your opinion as to whether or not the company's strategy can be executed successfully. Is the strategy fundamentally sound? Why or why not? (30 points)
i. Based on your overall assessment in this memo and the assessment completed in Assignment 1,focusing on the strategy and the strategic risk posture of the firms, should the Surrey Group complete the acquisition of the company assessed in Assignment 1, the company assessed in this assignment, both or neither. Why? (15 points)
You will also be assessed on:
(i) whether you addressed all components of the assignment,
(ii) the quality of your responses,
(iii) your ability to support your analytical observations and strategic recommendations,
(iv) appropriate usage of the tools we discussed in class and that are included in the reading,
(v) your ability to communicate information in a clear and concise manner suitable for the defined audience,
(vi) whether you identify sufficient sources to support your conclusions and arguments and whether all of the sources relied upon are identified (however, you should not excessively quote sources, e.g., quoting the Form 10-K does not demonstrate knowledge of the company). If you use the Form 10-K as a source, it should be the most recent one.
To most effectively complete this assignment, you will most likely need to use other sources in addition to the most recent Form 10-K. Please reference all your sources. If the Annual Report on Form 10-K is your only source, you will lose 25 points for failure to research the company.
Typographical, grammatical and syntax errors will result in reduced points.
Consider various types of visual aids that will facilitate communicating your points, e.g., charts, graphs, tables, etc. Headings are very helpful in organizing your material.
Page count is limited to up to 12 single-sided, double-spaced pages, excluding your reference sheet. The references pages does not count in the 12 page limit.
If you elect to use a Powerpoint presentation format instead of a memo, which is totally acceptable, I will be flexible on the page limit. Please discuss the page limit with me separately prior to submitting your assignment.