History
Matthew Sollis and his wife Chloe are the owners of MCS Mining Supplies (MCS), an entity which manufactures and supplies generic and customised drill bits for use primarily in mining operations. The business began in 1990 and has achieved an annualised growth rate of 8%. Growth in the current financial year is forecast to be between 7.5 and 12% with annualised growth over the next three years forecast to reach 15%. These rates are subject to fluctuations in circumstances affecting the mining industry. The entity currently employs 75 people, 50% of whom are skilled employees.
The products manufactured vary from small drill bits that are sold in very large volumes, to larger, customised drill bits which may take several months to design and manufacture. Manufacturing plants are located at two sites in Western Australia, Perth and Kalgoorlie, and in Mount Macarthur in Queensland.
Despite the existence of five major competitors MCS holds 40% of the domestic market with most sales made to mining companies. An increasing level of sales are being made to organisations within the construction industry however these sales represent only 20% of total sales volume. In an effort to diversify its product line, the entity is currently developing a related product with application in oil fields.
In 2002 MCS began exporting products to South Korea. Despite the low margins, the Korean market has been lucrative due to the high volume of sales MCS has been able to achieve. Existing margins in this market have been placed under pressure by the recent price discounting practices of a competitor seeking to increase market share. Whilst the price of MCS products in South Korea are reasonable, the fact that manufacturing costs are incurred in Australian dollars but sales are made in South Korean won means that MCS has limited ability to discount prices further.
Despite the financial strength and optimistic forecasts for the business they created, Matthew and Chloe have, for personal reasons, decided to sell their business. Tim Pinessi, a former Chief Executive Officer of a Western Australian mining company has long recognised the potential for the business and is keen to acquire ownership. Mr and Mrs Sollis have informally accepted an offer from Mr Pinessi to acquire MCS, however Mr Pinessi does not have sufficient funds to acquire the business on his own. He therefore approached you and one other and it was agreed that the group, acting as a partnership, would acquire MCS Mining Supplies with Mr Pinessi contributing 50% of the sale price and the remaining partners contributing 25% each. It was further agreed that Mr Pinessi, due to his desire to enjoy his retirement, would not participate in the day to day management of the business and would act as a silent partner. The responsibility for overseeing the day to day operations of the firm would rest with the two ‘active’ partners. Mr Pinessi, as senior partner, would however oversee the operation of the business and must be consulted prior to major decisions. Mr Pinessi would also use his enormous experience and contacts within the mining industry to identify potential opportunities for the business. The appraisal of these opportunities would be the responsibility of the four active partners.
A provision has been made in the partnership agreement to admit two more partners to fund any potential offshore expansion.