Palamon capital evaluation free essay sample

Private equity firm, Palamon Capital specializes in managing, funding, and developing small to mid-sized companies into public ownership. Palamon’s strategy is to buy a controlling stake in an up and coming company for 10 – 50 million EUROS grow the business, and implement an exit strategy. As the private equity market in Europe becomes more cut- throat and competitive, Palamon Capital, a private equity company Based in the UK is looking to diversify and expand its assets from focusing solely on the UK markets to focusing on the European markets as a whole. As a part of this expansion and diversification plan, Palamon Capital expects to purchase a controlling stake in an Italian software company, TeamSystem S. p. A.. After analyzing TeamSystem S. p. A. ’s financial statements and cash flows, going fourth with the controlling investment is a great opportunity for Palamon Capital as a company in order to expand westward into Europe. We will write a custom essay sample on Palamon capital evaluation or any similar topic specifically for you Do Not WasteYour Time HIRE WRITER Only 13.90 / page Not only is it a great growth opportunity, but Palamon Capital is getting great value for their money. After following all the investment procedures, Palamon Capital should proceed with the investment and pay 25. 9 million EUROS for their 51% controlling stake in TeamSystem S. p. A.. After finalizing the transaction, the current market value for TeamSystem S. p. A. will be 65. 84 million Euros, with Palamon Capitals controlling stake worth 33. 58 million Euros (shown in exhibit 1). After analyzing the financial data, and using a discounted cash flow valuation (Shown in Exhibit 2 of the Appendix) purchasing a 51% controlling stake in TeamSystem S. p. A. for 25. 9 million EUROS is a great opportunity for quick growth in this competitive market. TeamSystem S. p. A. is a very attractive investment because Palamon Capital is getting great value for their money. Palamon Capital is buying 51% of team systems for only 25. 9 million euros when that same 51% is actually worth 33. 58 million euros (shown in exhibit 3). Acquiring a controlling stake in TeamSystem S. p. A. now will allow Palamon Capital to take advantage of the discounted price that TeamSystem S. p. A is proposing. Acquiring TeamSystem S. p. A. will allow Palamon Capital to expand and diversify their assets into the western part of Europe while promising adequate returns in the near future. Palamon Capital has a very extensive process when exploring new investment opportunities, and after following the investment process step-by-step, TeamSystem S. p. A. meets all the criteria, qualifying them for a Palamon Capital investment. In order for Palamon Capital to buy a controlling stake in TeamSystem S. p. A. , Palamon Capital must accept the proposed sale of 51% for 25. 9 million EUROS. After discounting the future cash flows, finding the enterprise value, and eventually finding the value of equity as shown in exhibit 3, we can see Palamon Capital is buying TeamSystem S. p. A. at an attractive discounted rate. In any acquisition there is some uncertainty or risk, and in this takeover it is no different. Elson is worried the current management team relies on current CEO, Ranocchi too much, and has concerns about the ability of the supporting cast to deliver in a period of continued growth. Another risk is the inspections from the Italian Government. This could cause distractions and slow our growth in the near future. Last but not least Elson has concerns the company may not be able to keep up with the technological advancements which will also cause a slow in growth. In order to compensate for this risk or uncertainty, we performed a sensitivity test just in case the long term growth rates as well as the short term growth rates are incorrect and are less than expected (See Exhibit 4 for Calculations). As we can see Palamon Capital is still getting a great value for their money. This sensitivity test shows even if these rates are incorrect, it is not detrimental to Palamon Capital unless TeamSystem’s long term growth is under 4% while their short term growth in under 10%. Another way to access risk is by a comparable analysis. After completing a comparable analysis of the tier 1 large ERP players as shown in exhibit 5, you can see TeamSystem’s has a higher Equity Value to Sales ratio than one of the world’s largest ERP players, JD Edwards. This means for the size of TeamSystem and JD Edwards respectively, TeamSystem’s S. p. A has more sales. After receiving this information from the sensitivity test and the comparable analysis, our firm does not see much risk associated with this investment, and would advise to close the deal as soon as possible. Given the Discounted Cash Flow Analysis, the sensitivity test, the comparable analysis, and any other areas of uncertainty, our firm would advise Palamon Capital to follow through with the opportunity to obtain a 51% controlling stake in TeamSystem S. p. A. for 25. 9 million Euros. As shown through our calculations, Palamon Capital is making a smart and safe investment that will allow their company to diversify from the UK to the rest of Europe while sticking with their investment plan and achieving quick rapid growth.