Reference no: EM131401638

Case Study - Bim Consultants

Bim Consultants Inc. is a medium-sized consulting firm. It is a corporation with 30 partners who own most of the shares. It has 10 offices across Canada with 3,000 staff, and has been in business for 30 years. Senior staff also own shares and participate in an annual bonus scheme. Salaries are generally on the low side, but bonuses in good years can be quite high. The balance sheet is sound (see Exhibit 26.1).

The company has always prided itself on its customer focus. "Customers are number one" has been the mantra from the chairman, Mr. Smooth, for many years. Recently, however, revenue has been stagnant, and the younger partners are getting restless, wondering if the older partners have lost their edge and whether changes are needed to return to the glory days of large bonuses.

At a recent strategic planning meeting of the major partners, the decision was made to continue focusing on customers as number one, but also to explore how to increase revenue from within the existing clientele and to explore what additional services could be provided to enrich the client experience (and revenues). It was agreed that the strength of the firm was in its blue-chip client base and that this high-quality reputation was worth preserving. Some discussions were also held around the idea of selling a minority share of the company at a large multiple, if such a deal was identified. Bim Consultants' profit and loss and retained earnings are provided in Exhibit 26.2.

Earlier this week, the chairman received a call from the president of the Canadian subsidiary of a U.S.-owned competitor, Bravado International, saying that Bravado was pulling out of Canada and would consider an offer to sell the subsidiary to Bim Consultants Inc. The Bravado subsidiary had 12 offices across Canada and just over 3,500 staff, but had often drawn on its U.S. resources when required for large engagements.

The chairman called an executive meeting and pointed out that making such a purchase would double sales, catapult Bim Consulting into the number one position in major markets in Canada, and provide a strong marketing thrust into previously untapped midtier markets. Based primarily on the persuasiveness of the chairman, the executive committee approved proceeding with the negotiations.

The president of the Bravado subsidiary cautioned Mr. Smooth that it was imperative not to have word of the negotiations leak out, as this could lead to a loss of key staff and possibly clients. Accordingly, he urged Mr. Smooth not to do the normal due diligence in the subsidiary's offices but to review the necessary records and meet with select senior executives of Bravado at an off-site location. This process seemed to work well, and the Bravado executives were well prepared and very likable. All the information checked out, and the way seemed clear to do a deal.

Discussion Questions

1. What is your assessment of the situation?

2. What advice would you provide to the board of Bim Consultants?

3. What pitfalls should they be concerned with?

4. Exhibit 26.1 Bim Consultants Balance Sheet

Bim Consultants Inc. Summary Balance Sheet As of December 31, 2016
	2016	2015
Year ended December 31 (Canadian dollars in millions) Current Assets	$	$
Cash and Short-Term Investments	12	7
Accounts Receivable	175	168
	187	175
Current Liabilities
Accounts Payable	34	27
Short-Term Loans	100	110
	134	137
Working Capital Fixed Assets	53	38
Leasehold Improvements	196	178
Furniture and Equipment	100	94
Less Accumulated Depreciation & Amortization	(153)	(128)
	143	144
Net Assets	196	181
Share Capital
Common Shares	100	100
Retained Earnings	96	81
	196	181

Exhibit 26.2 Bim Consultants Profit and Loss and Retained Earnings

Bim Consultants Inc. Summary Profit and Loss and Retained Earnings For the Year Ended December 31, 2010
	2016	2015
Year ended December 31 (Canadian dollars in	$	$
millions) Revenue	300	290
Expenses
Salaries	220	207
Other	20	18
Net Profit before Income Tax	60	65
Income Tax Provision	27	29
Net Income after Tax	33	36
Retained Earnings - Beginning of Year	81	65
	114	101
Dividends	18	20
Retained Earnings - End of Year	96	81