Acquisitive’s Coal Mining Acquisition

A European energy company is considering acquiring an Australian-based coal-mining company, but first must evaluate if it is the right acquisition for the company.

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Business situation
Problem statement

Acquisitive, Inc. is a European energy company that has struggled in the past several years due to efforts by citizens to consume less energy. Acquisitive is finding it hard to produce energy at a sustainable cost. Acquisitive has attempted to diversify its business away from energy production in recent years in case it finds that shifts in consumer behavior are too much to overcome.

Business situation
Problem statement
After considering the benefits of diversifying its business away from energy production, Acquisitive, Inc., determines it is interested in acquiring Minetar, an Australia-based coal mining company that mines coal and sells it to energy companies and steel producers around the world.
Key considerations regarding Minetar’s business are as follows: 
  • Minetar does not own any mines. Instead, Minetar leases space at mines and pays a variable rate for mines based on the price of coal. 
  • Acquisitive leases machines which aid in the mining process. 
  • Minetar’s revenue is highly subject to fluctuations in the commodities price of coal because their contract pricing is tied to commodities indices. As such, our client is concerned with the result of a potential downturn.
  • Minetar has taken on a significant amount of debt to finance capital intensive mining activities. The debt includes change of control provisions that would require immediate payment of the debt.
  • 70% of Minetar revenue is attributable to its top five customers, three of which are located in Southeast Asia.
  • Minetar receives payment for coal in the currency of their end customer.
  • In order to promote bulk ordering, Minetar will offer financing options to its top customers. The company’s financing receivables are approximately 20% of total assets.
  • Minetar’s inventory balance has grown steadily quarter-over-quarter despite flat sales.