Growing for Broke

Jordan Davis

Professor Andrews

MGMT 495

9 October 2017

Questions for Growing for Broke

1. Bullet point the reasons given by the “CEO” and by the commentators for making the acquisition.

1. The acquisition would push Paragon to be a fast-growing company with a powerful presence in the marketplace.
2. With the acquisition, Paragon will have the opportunity to offer their customers troubleshooting services, which would allow for the continuance of developing new technology.
3. When merged MonitoRobotics and Paragon have an opportunity serve many of the same manufacturing customers.
4. Paragon is already in the process of developing technology and software like the products MonitoRobotics creates. The combined technology provides a chance for Paragon to respond immediately when a customer’s machine goes down.
5. Paul Hemp wrote the article, “MonitoRobotics’ software technology would become the standard means for machines – and ultimately a variety of industrial machines – to communicate their service to the people who serviced them and to other machines that might be affected by their shutdown.”
6. The confident and daring move of acquiring MonitoRobotics might be the exact growth effort that will spark interest in some of Paragons analysist. Also, the move may appeal to securities firms who may be prompted to further their cover with Paragon.
7. The service division is an area with significant potential for growth, which Paragon has already sunk large amounts of money into developing future software.  

1. Bullet point the reasons given by the CEO and commentators for not making the acquisition.

1. Many of Paragons competitors have seen the same opportunities and are taking steps to move forward in the process. This means that Paragon is behind the competition on acting and there is the possibility for the acquisition to come together too late.
2. Paragons last quarter reports showed a year to year drop in overall earnings.
3. The engineers at Paragon did an analysis of MonitoRobotics technology to see if the modification would detect and report operating failures in their own equipment. They confirmed that MonitoRobotics software could be beneficial to the machines but weren’t sure how long it would take.
4. If Paragon received a fair acceptance price from MonitoRobotics they would still be faced with a delay on profit growth because of the acquisitions mere size.  The drop I profits would be greater than any seen before at Paragon. Besides the actual acquisition cost there would be other expenses such as: hiring and training, brand development and accelerated software research. Overall this would put a ton of pressure on Paragons earnings because they were still recovering from prior growth-related ventures.
5. Littlefield made multiple arguments against the acquisition:

1.  If Paragons earnings didn’t bounce back then Wall Street is going to publically attack them.
2. By getting out of the service business altogether it would eliminate continual losses which would allow for profit growth from many of the other investments made by the company.
3. The market might not be profitable or even worth the effort to enter. Many of Paragons customers were struggling with probability and the idea of add-ons may not be doable for them now. Littlefield explained that the acquisiton would be a rush to dominate a “profitless market”.
4. There was a narrow window for Paragon to take over and become a dominate force in the machine-tool service market when many of the competitors have already done so.

1. Not all members of the senior management team agreed with the furthering of growth by acquiring MonitoRobotics.
2. It is unclear if Paragon, a manufacturing company, has the management capabilities to merge and run a successful technology and software business.
3. The integrating of MonitoRobotics technology and Paragons manufacturing machines might be difficult to accomplish.

1. Identify advice offered by the commentators (bullet points).

1. Case Commentary by Rand Araskog

1. When a unique acquisition opportunity like MonitoRobotics arises, which can provide potential growth for a company similar too Paragon then they must jump at the move. Even though, there will be a short-term hit to Paragons profits they must be able to move past that and look towards greater future profits.
2. The main concern for Paragon when trying to acquire MonitoRobotics would deal with the bid price and how much they are financially willing to pay. They will have to beware of other competitors with sufficient means and eagerness to purchase MonitoRobotics for themselves.  Nicky’s main problem he should be focusing on is how much Paragon should pay for the acquisition and if they have the strength to walk away from a high-priced bidding war.
3. “For Paragon Tool, the acquisition seems to have such focus and could thus strengthen the company’s competitive position in a market with lots of growth potential.”
4. Servicing equipment relatively complicated machines that you manufacture is highly profitable division for a manufacturer to have. If the service division is not profitable right away there is still potential for abundant growth and expansion wither from creating Paragon creating their own software or through the merger. “If you sell reasonably complicated equipment, you should be the one to service it.”
5. Nicky and Littlefield must come together on the issue of an acquisition with MonitoRobotics. “No matter how brilliant Littlefield may be, he is no good to Paragon if he and Nicky don’t operate as a team.  They can do this by complementing ad counterbalancing one another.”
6. Nicky’s job is to decide when it’s a good time to act on and make moves such as the purchase of MonitoRobotics. If Littlefield is not on board with the decisions made by Nicky then he will have to be preplaced with a CFO who will strengthen the pursuit of MonitoRobotics.

1. Case Commentary by Ken Favaro

1. Nikolas seems to be focused on the decision of whether to grow instead of how to grow Paragon.  He shouldn’t be wasting time mulling over the short-term profit loss when there is a large potential for lasting growth.
2. The management team should be looking at multiple growth alternatives and not just MonitoRobotics. There is a problem if this is the only option they have brainstormed. “While it may be time for Paragon to double its bet on its service division, it may also be time to fold and play a different hand. Nikolas and the board won’t know unless Paragon explicitly examines alternative growth strategies.”  
3. The management team at Paragon has a minuscule chance of properly executing a profitable merger with MonitoRobotics.
4. Nikolas needs more information on the acquisition and until then he and his team can’t accurately gage whether the generated growth is profitable. “. . .it must meet three important criteria: a good fit, the right price, and excellent execution. At this point, Nikolas doesn’t know enough about fit to make a call one way of the other. He knows nothing about price. And one can’t help but sense that these will be real problems with execution.”    

1. Case Commentary by Brian Arthur

1. If Paragon can use MonitoRobotics technology and software to adapt to their machinery and others then there is also the possibility for further competitive development.  
2. The acquisition should be more of a repositioning to build new skills instead of just growth within the industry. “And if you’re going to reposition yourself like this to create a new platform for future revenue, you almost inevitably have to except some temporary losses.”
3. “Even if Paragon’s technology becomes widespread, it will not establish a “language that other machines will have to speak. But the acquisition will establish a new skill base – a capability that Paragon can use to build on.”

1. Case Commentary by Jay Gellert

1. Paragon doesn’t have a well thought out strategic plan of how to approach growth. They only wanted to acquire MonitoRobotics because it fell into their lap. MonitoRobotics wants a joint venture because they are in danger of receiving a hostile bid. “Certainly, there are times when you need a to do something to match a competitor’s move, but if that is the sole reason for an acquisition, it’s almost guaranteed to fail.”
2. The CEO and CFO should be on the same page when it comes to planning for a merger.
3. “It is portrayed almost entirely as what I call a “strategic deal” – that is, the financial benefits will only be realized far in the future of can’t be quantified at all.”

1. What specific information would you want to feel more comfortable about this acquisition?

1. Acquisition Price and competitor’s aggressiveness.
2. Management capabilities within merger.
3. Adequate funds for research of software.
4.  We need more information to know whether the acquisition stretches Paragon Tools too thin to where they can’t make adequate improvements.
5. Can Paragon create technology on its own to provide better servicing to customers.
6. Is MonitoRobotics the perfect fit for Paragon and how will the future of the company be effected if not.

1. What would you do and why? Be sure to justify your answer.  Make sure you address commentator concerns or points in a way that shows your ability to prioritize.

• I would have already been on the same page about growth with my CFO and senior management.

• Having alternatives allows for more options to develop and for the company to be in a better situation to make the decision.
• By creating a game plan up front my team and I will be better able to understand risk and reward scenarios.
• This will create a much shorter time-gap between seeing the opportunity and making a well-thought-out decision.
• Everyone on my staff would have a clear understanding of the financial positon we are in and if the acquisition would play into our already devised plan to regain optimal profitability in the next year.  

• The growth and the repositioning of Paragon Tools sounds like a great idea until I really looked at the meat and bones of the acquisition.

• If I were the CEO and Paragon was in this exact position I would take a deep consider my financials to see if we can make a bid for a good deal.
• Then my financials must allow me wiggle room to do research, which takes time and money. I do not feel that Paragon will be stable enough financially to compete in the new market.  
• MonitoRobotics is coming to them because they fear a hostile takeover bid can come any day.
• Paragon doesn’t have the management capacity to efficiently merge a manufacturing and technology company.