You are a Finance Manager who works in the Finance Team of Azugu Gyms (Azugu) and your role includes giving advice on strategic projects and financial matters .Azugu is a family owned business established in 2009 by two brothers. The two brothers invested an initial sum of GH¢300,000 splitting the share capital 50/50, issuing a total of 100,000 shares in Azugu. Azugu was launched with the aim to make gym-based fitness training highly accessible, by removing the obstacles to exercise and making its gyms affordable to most people, open more gyms for accessibility and providing optimum flexibility in offering non-contractual membership. Azugu is currently very popular in Ghana and total membership and new gym openings have grown rapidly since 2009.
Azugu is considering moving away from their organic growth model and have been considering and looking for a potential acquisition. The East Legon Executive Fitness Club is for sale at what seems to be a low price. East Legon Executive Fitness Club has gained a reputation over the past few years for loyal customers and has been rated as ‘outstanding’ by 95% of its members in 2017. Although the East Legon Executive Fitness Club’s annual results are excellent, it doesn’t quite fit with the current operations of Azugu. It is a luxury gym group with highly priced membership and high levels of staff/customer interaction. However, its fitness equipment is out of date by the standards of Azugu. There are concerns that when Azugu acquire the East Legon Executive Fitness Club, most of their staff may leave. The staff have expressed concerns that when it acquires East Legon Executive Fitness Club, it may make it a budget gym and are worried about the security of their jobs.
Required:
a) Discuss THREE (3) strategic advantages and THREE (3) challenges of acquiring East Legon Executive Fitness Club compared with Azugu’s usual organic approach to growth within the country. (12 marks)
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Strategic Advantages
- One of Azugu’s strategic aims is making gyms more accessible to people and to open more gyms in Ghana. East Legon Gyms will help satisfy this aim and is an opportunity for Azugu to achieve growth in gym numbers.
- Synergies are possible whereby Azugu and East Legon Executive Fitness Club reduce their aggregated costs by operating together as one bigger organisation. For example, they may utilize bulk buying discounts or obtain more favourable financing deals as part of a bigger operating unit.
- Also, by sharing ideas and expertise, both elements of the business may find more effective ways of working.
- It also appears that this particular acquisition may be cost-effective as East Legon Executive Fitness Club can be obtained “at a very good price”.
- Location advantage may also accrue to Azugu considering the fact that East Legon Executive Fitness Club is located in a very prime area. This may not be easily acquired by Azugu through organic growth.
- Economies of scale by means of equipment purchases and other services sought by the combination of the two organisations.
Strategic challenges - The acquisition of East Legon Gyms is a new type of venture to Azugu. To date Azugu has achieved growth purely organically. It does not have experience of acquisitions and may need to obtain professional advice.
- Any acquisition process can be a concern for staff of Azugu. Unlike organic growth, an acquisition leads to uncertainty and fear, particularly at the target company, and if staff leave as a result, the target can become less valuable.
- Integration problems – Differences in organisational culture may not be easy to manage. Through organic growth Azugu can roll out their desired company culture as they proceed. This will be more challenging when acquiring East Legon Gyms and we will have to decide whether we want to change the culture at East Legon Gyms to bring it in line with our Azugu culture.
b) Identify FOUR (4) ways to ensure that East Legon Executive Fitness Club staff remain reassured, motivated and loyal throughout the acquisition process. (8 marks)
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- East Legon Gyms staff will need to be reassured, perhaps face-to-face, that Azugu value and intend to keep the luxury, highly staffed approach. Communication should focus on educating staff about the impacts of the change and dispel rumours.
- Azugu may want to back up face-to-face meetings with good quality, regular and transparent electronic communications by email or an intranet to keep staff informed of the process and their part in it.
- Another way of ensuring staff remain loyal and motivated is to involve them in the process. Letting them have their say and giving them roles within the acquisition project will help them to feel part of the new organisation and reassure them they have a future post-acquisition.
- Removing uncertainty through timely and appropriate information exchange is key to preventing staff from searching for alternative employment through fear of their own position within the organisation. Reassuring staff of their long term role by sharing ideas and plans will reduce concerns and may lead to the generation of new and useful ideas that smooth the course of the change.