Acquisition, or simply one firm buying another, is one strategy that companies can implement to improve diversification. The alliance comes with many complications and compromises with the buyer dominating decision-making. Acquisitions can be intense as things move very quickly once the decision to align has taken place. Due diligence is generally not done thoroughly and the financial aspects are generally the only considerations. This can produce an unsuccessful outcome. Six themes can help improve the success of acquisitions: being a part of the corporate strategy, having patience, evaluating the industry fully, developing how synergies will be achieved before the acquisition, remaining objective, and developing implementation strategy before the acquisition (De Kluyver & Pearce, 2012).
The University of North Texas has assets worth over 280 million dollars (Hankins, et al., 2013). By acquiring the apparel manufacturer American Apparel, University of North Texas will create more value. “Multi-division, multi-product companies have a distinct advantage over non-diversified companies” (De Kluyver & Pearce, 2012, p. 177). Product roles are assigned and funds are allocated to the different pieces of the portfolio based on growth and cash-flow potential. General Electric and McKinsey & Company developed nine cells to help determine a firm’s rating on industry attractiveness and business strength. In addition, General Electric and McKinsey & Company developed a market-activated corporate strategy which measures if a business unit is fit for sale to another company. When all matrices are applied, optimal values depends on industry attractiveness, position of business, and chances to improve (De Kluyver & Pearce, 2012). American Apparel has all three factors in optimal values.
The apparel industry is highly competitive and having the right product is essential. Companies must tailor towards demographics and keep with fashion trends (Spencer, n.d.). Demographics and fashion trends within a college campus may be easier to tailor toward and give a niche in the industry. The position of American Apparel with its opportunity for improvement is especially attractive. American Apparel built a business on fashion coolness, particularly suited for a college campus. However, American Apparel has just filed for bankruptcy. Within the bankruptcy file, American Apparel will be able to keep its manufacturing plant in Los Angeles and several stores open. American Apparel has struggled in a market geared towards teenagers, who are fast to change fashion trends. Marketing to the demand of college apparel may prove more stable. New financing will reduce American Apparel’s debt from 311 million to 120 million (Tabuchi, 2015). The chances to improve the optimal value comes from better internal management, shaping the industry structure, or conduct of participants (De Kluyver & Pearce, 2012). University of North Texas, as the company acquiring American Apparel, would not be in a financial drain due to the new financing and would be in an excellent position to improve the optimal value. American Apparel’s beginnings show how fit the brand is for college apparel. American Apparel began as a t-shirt company that stood for anti-establishment coolness and made in the USA. However, internal drama from the company founder and lawsuits brought on by the employees have been distracting from the mission (Tabuchi, 2015). Also, the company acknowledges a lack of seasonal planning as product offerings became the same every season and every year.
De Kluyver, C. & Pearce, J. (2012). Strategy: A View From the Top (4th ed.). Boston: Prentice Hall.
Hankins, Eastup, Deaton, Tonn, & Sealy, PC. (2013). Independent Auditors’ Report: University of North Texas. Retrieved October 5, 2015, from https://endow.unt.edu/sites/default/files/2013%20Audit%20Report_0.pdf.
Spencer, M. (n.d.). Industry Analysis: Apparel. Value Line. Retrieved October 5, 2015, from http://www.valueline.com/Stocks/Industries/Industry_Analysis__Apparel.aspx#.VhMRr_lVhHw.
Tabuchi, H. (2015, October 5). American Apparel files for Bankruptcy. The New York Times. Retrieved October 5, 2015, from http://www.nytimes.com/2015/10/06/business/american-apparel-files-for-bankruptcy.html?_r=0.