Sterling Household Products Company

Sterling Household Products manufactures and markets a broad line of consumer goods from laundry soap and cosmetics to cleaning, disinfecting, and sanitizing products. The company has many highly regarded brand names and consistently reports impressive sales and profits to the investment community. Despite a record of success, a deeper analysis of financial measures reveals that growth rates for unit volumes, sales, and profits are low. Looking to expand into new markets with strong growth potential, the company considers acquiring the germicidal, sanitation, and antiseptic product unit from Montagne Medical Instruments, a company in the health care industry. This acquisition seems like a natural extension of Sterling's experience and expertise in the market for household cleaning supplies. Both parties reach a tentative agreement on price and Sterling considers whether the proposed investment adds value given the risks involved. Students must perform a comprehensive investment analysis and examine both the qualitative and quantitative issues associated with evaluating a strategic acquisition before making a final recommendation.