Skyjack Proposal

Lifting Skyjack to New Heights

Team 43: Internal Board J

Sabith Azward - 110266260

Jourdan Bousfield - 110421750

Madeleine Coulter - 110639470

Ali Momin - 204367630

Daniel Nicholl - 110841690

Jash Patel - 204278540

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Table of Contents

Executive Summary ...................................................................................................................................... 3

The Existing Opportunity ............................................................................................................................. 4

Recommendation .......................................................................................................................................... 4

Growth Drivers In The Middle East And Asia ............................................................................................. 5

Sinoboom, An Accretive Acquisition ........................................................................................................... 5

Embracing Diversification ............................................................................................................................ 6

Servicing As A Differentiator ....................................................................................................................... 6

Alignment In Organizational Values ............................................................................................................ 7

Integrating Operations And Planning ........................................................................................................... 7

Implementation Timeline (Exhibit D)........................................................................................................... 8

Stage 1: Present Acquisition Proposal To Sinoboom (Q3 2014) .......................................................... 8

Stage 2: Acquire Sinoboom (Q4 2014) ................................................................................................. 8

Stage 3: Introduce Servicing Department (Q1 2015) ............................................................................ 8

Stage 4: Co-Branding In Asia, The Middle East And Latin America (Q2 2015) ................................. 9

Stage 5: Launch Sinoboom’s Spider Lift In Existing Markets: (Q3 2015) ........................................... 9

Stage 6: Product Line Collaboration Between R&D Departments (Q4 2015) ..................................... 9

Stage 7: Increase Presence In India And The Middle East (Q1 2017) ................................................ 10

Contingency ................................................................................................................................................ 10

Conclusion .................................................................................................................................................. 10

Exhibits ....................................................................................................................................................... 11

Exhibit A: Decision Criteria ............................................................................................................... 11

Exhibit B: Recommendation Decision Rational ................................................................................. 11

Exhibit C: Skyjacks And Sinobooms Markets .................................................................................... 12

Exhibit D: Implementation.................................................................................................................. 13

Exhibit E: Ebit As Percentage Of Revenue......................................................................................... 13

Exhibit F: Acquisition Price Calculation ............................................................................................ 13

Exhibit G: Revised Organizational Chart ........................................................................................... 14

Exhibit H: Service Department Structure ........................................................................................... 14

Exhibit I: Spider Lift Product Catalogue Page .................................................................................... 15

Exhibit J: Financial Projections .......................................................................................................... 16

End Notes .................................................................................................................................................... 18

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Executive Summary

Skyjack, one of North America’s leading Aerial Work Platform (AWP) manufacturers is

looking to pursue growth opportunities with a return of at least 20%. It is recommended that

Skyjack focus its resources towards global expansion in the Middle East and Asia. In order to

accelerate this process, Skyjack should pursue the potential acquisition of a company based in

Asia.

Sinoboom, a Chinese AWP manufacturer meets the required criteria for an ideal

acquisition target. Their product line is consistent with Skyjack’s, offering a variety of scissor

lifts, telescopic booms and articulating booms with a focus on safety and reliability. With a

strong presence in Asia and the Middle East, Sinoboom complements Skyjack’s current

positioning in North America and Europe. To take advantage of Sinoboom’s brand equity,

products in the emerging markets will be co-branded as Skyjack-Sinoboom for a period

following the acquisition. The R&D teams for each company will work collaboratively to

establish a common product line of AWPs. This line will include a spider lift, which is currently

manufactured by Sinoboom but it is new to Skyjack.

In the emerging markets, a large portion of Sinoboom’s sales are through direct

distribution as opposed to the rental model seen with Skyjack’s customers. In order to add value

for these industrial customers who own their equipment, an extensive servicing option will be

made available. This option will establish Skyjack-Sinoboom as the leader in high-quality,

reliable AWP equipment in the emerging markets.

By 2025, Skyjack will achieve an annual return on investment of 26% through their

acquisition of Sinoboom. Through pursuing this global expansion strategy and adding a servicing

component to their business, Skyjack will diversify their customer base and ensure strong growth

potential beyond 2020.

4

The Existing Opportunity

As one of the leaders in the aerial work platform (AWP) manufacturing industry, Skyjack

is currently on pace to reach its 2020 vision of $1 billion in sales and $100 million in profit.

Beyond the 2020 goals, Skyjack would like to pursue further opportunities that offer a 20%

return.

Recommendation

In order to capitalize on future opportunities, as well as maintain consistency with the

decision criteria (Exhibit A), Skyjack should focus its resources towards global expansion. With

the North American and European markets maturingi, there are higher growth opportunities in

emerging and developing markets such as the Middle East and Asia (Exhibit B).

It is recommended that Skyjack first look towards establishing a presence in the Middle

East and Asia. They will then look to grow, using China as their primary geographical hub due to

inexpensive labour and future infrastructure growth. In addition, Skyjack will offer an extensive

servicing component, including maintenance and repairs to their AWP and telehandler

products. This is a result of the direct distribution strategy in these markets where customers are

not typically rental companies, but industrial users who own their fleet. This servicing option

will allow Skyjack to differentiate themselves within the market and capitalize on the growth

potential in the Middle East and Asia.

In order to accelerate this expansion, Skyjack will look towards the potential acquisition

of a company based in Asia. Hunan Sinoboom Heavy Industry Co. Ltd. (Sinoboom), a growing

Chinese AWP and telehandler manufacturer represents a promising opportunity. With operations

already established in these target regions, Skyjack will be able to leverage the existing synergies

to integrate the two businesses and expand smoothly into Sinoboom’s markets (Exhibit C).

5

Growth Drivers in the Middle East and Asia

Cumulative growth in the Middle East for the construction industry is expected to

increase to 80% over the next decade, compared to the expected global industry growth rate of

67%ii. The fastest growth will be realized in Qatar as a result of $100 billion USD in planned

expenditure dedicated towards infrastructure in preparation for the 2022 FIFA World Cup. In

addition, there are various growth drivers present in Saudi Arabia and the Middle East due to

increasingly lenient Government regulations and a shortage in availability of affordable housing,

resulting in increasing demand for constructioniii

.

In China, the current market for AWPs is small, but there is a projected compounded

annual growth rate (CAGR) of 12.2% from 2013 to 2018iv

for non-residential construction.

Similarly, other civil engineering and large-scale contracts have a projected CAGR of 13.9%

from 2012 to 2017v. The majority of work-at-height is currently done using scaffolding, as it is a

cheaper alternative to an AWP. Through lobbying by the Association of Equipment

Manufacturers (AEM), the Chinese government has agreed to implement legislation in the next

five years that will eliminate 50% of the scaffolding usedvi

, thereby increasing the market for

AWPs.

Construction growth in India is very promising with a forecasted CAGR of 15.5% from

2013 to 2017, compared to a CAGR of 1.5%vii

in Europe. In addition, India’s urban population is

projected to grow from 331 million to 500 million in the same periodviii

, placing further demands

on infrastructure and the construction market.

Sinoboom, an Accretive Acquisition

Sinoboom and Skyjack have similar characteristics, and as such there are numerous

synergies. While both companies offer AWP products, Skyjack sells to rental companies while

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Sinoboom largely sells directly to its end customers. Both companies have positioned themselves

to provide simple, safe, and reliable AWPs and telehandlers in their respective markets. As seen

in Exhibit C, Skyjack has established itself with the scissor lifts in large markets such North

America, Latin America, and Europe, while Sinoboom which is based in China, has a significant

presence in the Middle East and Asian markets. Through the acquisition, Skyjack can leverage

Sinoboom’s existing networks and facilities, as well as utilise their strengths in the boom lift

industry, including the spider lift, to grow further in Skyjack’s core markets.

Embracing Diversification

Sinoboom has established a strong presence in Asia through direct selling and supplying

AWPs to a variety of customers including container shipping companies, dockyards and

shipbuildersix

. Their expansion into the Middle East has been successful through customers such

as Saudi Aramco, the national oil company of Saudi Arabia and the Saudi Bin Laden Group, the

largest construction company in the worldx. In July 2013, Sinoboom signed an exclusive

distribution agreement with the Juffali group who is described as the "key to Saudi Arabia" and

offers a strong business and financial network in the Middle Eastxi

.

Through the acquisition of Sinoboom, Skyjack is able to expand their customer base

beyond rental companies without diverting their focus from AWPs. This fortifies Skyjack’s

position as a leading manufacturer of AWPs in a global market.

Servicing as a Differentiator

Skyjack’s existing customer base in North America and Europe, predominantly

composed of rental networks, already have infrastructure in place to service and support their

sizeable fleets. However, many major purchasers in the emerging markets own their equipment

rather than rent and do not have economies of scale to justify an internal servicing departmentxii

.

7

When vital equipment, such as a boom, is out of commission for even a few of hours it can cost

projects upwards of $1600xiii

. Therefore, strong product support and servicing can be used to

strengthen existing relationships and establish Skyjack as the market leader in emerging markets.

Alignment in Organizational Values

Sinoboom’s operative goal is to provide safe and reliable lifts for their clients. This is

conducted through steady operations, strong R&D, high quality production and thoughtful

customer servicexiv

. Along with being safe and reliable, there is an emphasis on their customers

as they strive to be a one-stop solution by designing their lifts to meet customers’ specific

requirements. Their slogan, “Always for better access solutions”xv

signifies their focus on

reliability, innovation and providing value to their stakeholders. As a result, Skyjack’s

acquisition is highly realizable due to the strong alignment in company values and culture, as

well as the brand image of being simple and reliable.

Integrating Operations and Planning

Through Sinoboom’s existing networks, Skyjack will achieve greater efficiency within its

supply chain. Due to China’s proximity to the Middle East and India, Skyjack can utilize

Sinoboom’s existing production facilities to optimize efficiency in manufacturing and delivery,

as well as within the supply chain. In the long term, Skyjack can evaluate the existing production

facilities in China, as well as explore centralizing their production to minimize costs and

overhead.

As a result of Sinoboom’s strong focus on innovation and R&D, Skyjack should benefit

from this innovative stance while sharing human and intellectual capital between these two

previously separate organizations. If necessary, Skyjack can further optimize R&D operations as

a whole through consolidation into a central location.

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Implementation Timeline (Exhibit D)

Stage 1: Present Acquisition Proposal to Sinoboom (Q3 2014)

When presenting the acquisition to Sinoboom, their current CEO Xu Hong Xia, will be

offered the VP of Asia position at Skyjack to account for the potential fear of power loss. It

would also be emphasized that there would be no job loss or drastic changes to Sinoboom’s

current culture, values and organizational structure due to the close alignment with Skyjack. By

using current employees, we can take advantage of their existing cultural knowledge of local

markets.

Stage 2: Acquire Sinoboom (Q4 2014)

The acquisition of Sinoboom is projected for the end of 2014 for $30 million (Exhibit

E/F). In order to ensure the smooth acquisition of Sinoboom, it is important that employees are

well informed of Skyjack’s values and how they conduct business. Skyjack will employ a task

force to carry out organization development conferences at Sinoboom to promote these changes.

Stage 3: Introduce Servicing Department (Q1 2015)

Skyjack will introduce a servicing department for the existing Sinoboom Middle East and

Asian markets, offering equipment maintenance and repairs. This service department would be

placed under the VP of Asia within the organization (Exhibit G/H) and composed of certified

equipment technicians that would be filled internally or hired externally. These technicians will

be re-trained yearly to ensure they are servicing equipment to their highest potential and will be

experts on all company equipment with the ability to conduct troubleshooting, diagnostics,

technical support, and repairs. To regain the expenses of the additional mechanics, extended

warranties will be offered at cost. As the mechanics service multiple customers, Skyjack should

9

strive to break even while achieving economies of scale thereby passing cost savings onto their

customers.

Stage 4: Co-branding in Asia, the Middle East and Latin America (Q2 2015)

By acquiring Sinoboom, Skyjack will obtain an organization that has built substantial

brand equity within the Middle East and Asian markets. Skyjack will leverage this strong brand

presence and reputation with the objective of creating one global brand encompassing both

Sinoboom and Skyjack products.

Shortly after the acquisition, all products sold in Sinoboom's primary markets will be co-

branded with promotions featuring the names "Skyjack-Sinoboom." Since Sinoboom does not

have a presence in North America and Europe, equipment in these markets will solely be

branded as Skyjack. As the Skyjack brand gradually becomes synonymous with the reputation

and quality of Sinoboom, the “Sinoboom” name will eventually be phased out.

Stage 5: Launch Sinoboom’s Spider Lift in Existing Markets: (Q3 2015)

The spider lift will be introduced to the North American and European markets to

compliment Skyjack’s current product line. Skyjack will sell the spider lifts to rental companies

that carry their equipment. In addition, to inform potential customers of the new product, their

current catalogue advertising will highlight spider lifts (Exhibit I).

Stage 6: Product Line Collaboration Between R&D Departments (Q4 2015)

The R&D departments of both Skyjack and Sinoboom will both leverage their

collaborative resources, as well as share human and intellectual capital. These departments will

incorporate the strengths of each product offering from the different brands to engineer a

superior product line of AWPs and telehandlers. In addition, the communication between the

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R&D teams will aid Skyjack in becoming more innovative in its existing markets as the

Sinoboom R&D team has a higher level of expertise in boom lifts, the origin of their business.

Stage 7: Increase Presence in India and the Middle East (Q1 2017)

Due to the projected infrastructure growth in the Indian and Middle East markets, after

the acquisition, Skyjack will begin to increase their presence in both of these markets. Skyjack

should first look to strengthen its presence in India and later focus its efforts within the Middle

East, especially in Qatar with an eye towards the 2022 FIFA World Cup.

Contingency

The acquisition of Sinoboom is projected to be the optimum strategy for Skyjack.

However, if the acquisition is unsuccessful, similar strategies will be used to enter the emerging

markets. Skyjack can develop a department headed under a new VP of Asia, while establishing a

presence in China, India and the Middle East through sales offices. Skyjack will then target the

various key industries (oil, shipping, construction) in this market as Sinoboom has done in the

past. However, this strategy would continue to have Skyjack as a follower in these markets. To

establish themselves as the leaders and quickly gain market share in global emerging markets,

the acquisition of Sinoboom remains ideal.

Conclusion

Through the proposed acquisition of Sinoboom for $30 million, Skyjack can achieve an

annual return on investment of 26% (Exhibit J). In addition, through pursuing this global

expansion strategy and adding a servicing component to their business, Skyjack will diversify

their customer base and ensure strong growth potential beyond 2020.

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Exhibits

Exhibit A: Decision Criteria 1. Achieve a 20% Return on Capital

2. Maintain budget of $25-$75 million

3. Maintain Skyjacks current brand image

4. Minimize Risk

5. Grow beyond $1 billion target for 2020

Exhibit B: Recommendation Decision Rational

Decision 1: Which Growth Strategy?

- Due to the North American and European market for AWPs saturated with competition, market penetration would not be ideal - Due to lack of knowledge of end consumer needs and the high cost and time it takes to develop a product, product development would not be ideal - For the same reasons as product development, without knowledge of end consumer needs, developing a product for an entirely new market is difficult and risky - Market expansion is ideal because the developing and emerging markets show great opportunity, which will help to expand out of saturated markets.

Decision 3: Which Markets To Expand To?

- In South America, the construction industry has seen an overall increase in recent years however, the CAGR seen from 2008 to 2012 was only 0.3%, which indicates slow growth

Decision 2: Which Market Expansion Strategy?

- Direct investment can be risky, especially when you do not have knowledge about end consumer needs in a new market - Acquiring Sinoboom, a company with growth potential that has already established itself in the emerging and developing markets allows Skyjack to leverage Sinoboom’s existing presence to grow its business.

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Exhibit C: Skyjacks and Sinobooms Markets

Skyjack

Sinoboom

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Exhibit D: Implementation

Stages 2014 2015 2016 2017 2018

Short Term

Stage 1

Stage 2

Stage 3

Medium Term Stage 4

Stage 5

Long Term Stage 6

Stage 7

- Stage 1: Present acquisition interest and plan to Sinoboom - Stage 2: Acquire Sinoboom (Assuming they accept) - Stage 3: Introduce Servicing Department - Stage 4: Begin co-branding with Sinoboom products in Asia, the Middle East, and Latin America - Stage 5: Introduce and launch Sinoboom’s spider lift in the North American Market and begin promotion for the spider lift - Stage 6: Collaboration by R&D Departments to determine which product lines to keep for each company - Stage 7: Increase presence in India and the Middle East

Exhibit E: EBIT as Percentage of Revenue

Company EBIT as % of Revenue

Skyjack 8.6%

Haulotte 5.2%

Manitou 1.8%

Terex (Genie) 6.7%

Average 5.6%

-This exhibit shows EBIT as a % of revenue for Skyjack and its competitors -JLG is not included since they were acquired by Oshkosh and financials solely related to access equipment are unavailable

Exhibit F: Acquisition Price Calculation

Sinoboom’s Revenue $37,000,000

Average EBIT % of Revenue 5.6%

Sinoboom EBIT $2,072,000

Average EBIT Multiple* 10.24

EBIT Multiple Proposed** 14.48

Proposed Acquisition Price $30,000,000

* As per Bloomberg – average multiple for all 2013 acquisitions in Asia-Pacific within the industrial sector ** Premium EBIT multiple proposed is due to the potential for high growth

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Exhibit G: Revised Organizational Chart

Exhibit H: Service Department Structure

15

Exhibit I: Spider Lift Product Catalogue Page

16

Exhibit J: Financial Projections

Financial Projections – Realistic (In Millions ($))

% Of Rev. 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025

Sales

61.050 73.260 85.714 98.571 111.386 124.752 138.475 152.322 166.031 179.314 191.865

Sales Growth %

25.0% 20.0% 17.0% 15.0% 13.0% 12.0% 11.0% 10.0% 9.0% 8.0% 7.0%

Total Sales

61.050 73.260 85.714 98.571 111.386 124.752 138.475 152.322 166.031 179.314 191.865

Total Wages 11.0%

6.716 8.059 9.429 10.843 12.252 13.723 15.232 16.755 18.263 19.724 21.105

Total Material 64.7%

39.499 47.399 55.457 63.776 72.066 80.714 89.593 98.552 107.422 116.016 124.137

Total Overhead 6.9%

4.212 5.055 5.914 6.801 7.686 8.608 9.555 10.510 11.456 12.373 13.239

COGS - Amortization 0.9%

0.549 0.659 0.771 0.887 1.002 1.123 1.246 1.371 1.494 1.614 1.727

SG&A 7.9%

4.823 5.788 6.771 7.787 8.799 9.855 10.939 12.033 13.116 14.166 15.157

EBIT 8.6% -30.000 5.250 6.300 7.371 8.477 9.579 10.729 11.909 13.100 14.279 15.421 16.500

IRR

26%

Skyjack CAGR of 38% and Sinoboom CAGR of 37.5%

Sales Growth of 32% in 2014

Sales Growth Decay of 15.6%

% Of Revenue Consistent With Skyjack

NPV = $7 million

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Financial Projections – Worst Case (-25%) (In Millions ($))

% Of Rev. 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025

Sales

55.766 64.689 73.487 82.305 90.865 99.588 108.352 117.020 125.445 133.474 140.948

Sales Growth %

20.0% 16.0% 13.6% 12.0% 10.4% 9.6% 8.8% 8.0% 7.2% 6.4% 5.6%

Total Sales

55.766 64.689 73.487 82.305 90.865 99.588 108.352 117.020 125.445 133.474 140.948

Total Wages 11.0%

6.134 7.116 8.084 9.054 9.995 10.955 11.919 12.872 13.799 14.682 15.504


36.081 41.854 47.546 53.251 58.790 64.433 70.104 75.712 81.163 86.357 91.193

Total Overhead 6.9%

3.848 4.464 5.071 5.679 6.270 6.872 7.476 8.074 8.656 9.210 9.725


0.502 0.582 0.661 0.741 0.818 0.896 0.975 1.053 1.129 1.201 1.269

SG&A 7.9%

4.406 5.110 5.805 6.502 7.178 7.867 8.560 9.245 9.910 10.544 11.135

EBIT 8.6% -30.000 4.796 5.563 6.320 7.078 7.814 8.565 9.318 10.064 10.788 11.479 12.122

IRR

21%

NPV = $1.2 Million

Financial Projections – Best Case (+25%) (In Millions ($))

% Of Rev. 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025

Sales

67.988 84.984 103.044 122.364 142.248 163.586 186.079 209.339 232.889 256.178 278.594

Sales Growth %

31.3% 25.0% 21.3% 18.8% 16.3% 15.0% 13.8% 12.5% 11.3% 10.0% 8.8%

Total Sales

67.988 84.984 103.044 122.364 142.248 163.586 186.079 209.339 232.889 256.178 278.594

Total Wages 11.0%

7.479 9.348 11.335 13.460 15.647 17.994 20.469 23.027 25.618 28.180 30.645


43.988 54.985 66.669 79.170 92.035 105.840 120.393 135.442 150.679 165.747 180.250

Total Overhead 6.9%

4.691 5.864 7.110 8.443 9.815 11.287 12.839 14.444 16.069 17.676 19.223


0.612 0.765 0.927 1.101 1.280 1.472 1.675 1.884 2.096 2.306 2.507

SG&A 7.9%

5.371 6.714 8.140 9.667 11.238 12.923 14.700 16.538 18.398 20.238 22.009

EBIT 8.6% -30.000 5.847 7.309 8.862 10.523 12.233 14.068 16.003 18.003 20.028 22.031 23.959

IRR

32%

NPV = $15.9 Million

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End Notes

i Interviews with Aerial Manufacturers: Period of Growth. (n.d.). Rental Equipment Register.

Retrieved July 18, 2014, from http://rermag.com/aeriallifting/interviews-aerial-manufacturers-

period-growth

ii Middle East Construction Boom surpasses global growth . (n.d.). The Big 5. Retrieved July 19,

2014, from http://www.thebig5.ae/files/report_middle

iii Middle East Construction Boom surpasses global growth . (n.d.). The Big 5. Retrieved July 19,

2014, from http://www.thebig5.ae/files/report_middle

iv China - Non-Residential Construction. (n.d.). MarketLine. Retrieved July 19, 2014, from

http://advantage.marketline.com.libproxy.wlu.ca/Product?pid=MLIP1309-0006&view=d0

v China - Construction & Engineering. (n.d.). MarketLine. Retrieved July 18, 2014, from

http://advantage.marketline.com.libproxy.wlu.ca/Product?pid=MLIP1059-0006&view=d0e21

vi AEM Opens Door for More Aerial Work Platform Business in China. (2013, August 26).

AEM. Retrieved July 20, 2014, from http://www.aem.org/News/Advisors/AEM/?A=1136

vii Growth of Construction in India . (2013, July). Thought leadership, July 2013. Retrieved July

20, 2014, from http://www.leap29.com/thought-leadership/growth-of-construction-in-india.pdf

viii Growth of Construction in India . (2013, July). Thought leadership, July 2013. Retrieved July

20, 2014, from http://www.leap29.com/thought-leadership/growth-of-construction-in-india.pdf

ix Partners - Aerial Work Platform - SINOBOOM. (n.d.). Partners - Aerial Work Platform -

SINOBOOM. Retrieved July 19, 2014, from http://www.sinoboom.com/Client/

x Partners - Aerial Work Platform - SINOBOOM. (n.d.). Partners - Aerial Work Platform -


xi SINOBOOM and JUFFALI signed official Exclusive Distributor Agreements in K.S.A -

Sinoboom. (n.d.). Retrieved July 22, 2014, from http://www.sinoboom.com/News/cont-100.html

xii Partners - Aerial Work Platform - SINOBOOM. (n.d.). Partners - Aerial Work Platform -


xiii

AWP equipment maintenance. (n.d.). Mason Contractors Association of America RSS.

Retrieved July 18, 2014, from http://www.masoncontractors.org/2012/01/31/awp-equipment-

maintenance/

xiv SINOBOOM Boom Lift. (n.d.). Retrieved July 18, 2014, from

http://www.sinoboom.com/Produce/

http://www.thebig5.ae/files/report_middle

http://www.thebig5.ae/files/report_middle

http://www.sinoboom.com/News/cont-100.html

http://www.sinoboom.com/Produce/

19

xv

Red SINOBOOM under the Blue Sky of Auckland – the Sidelights on Routing Inspec - News

- Aerial Work. (n.d.). Sinoboom. Retrieved July 20, 2014, from http://www.sinoboom.net/show-

13-102-1.html