Apex: Financing an Acquisition

On April 20, 2016, printer and ink maker Lexmark International, Inc. (Lexmark) announced that it was being acquired and taken private by a consortium comprising China-based computer hardware company Apex Technology Co., Ltd. (Apex), as well as private equity firms PAG Asia Capital (PAG) and Legend Capital (Legend). On the same day, Apex formally announced its acquisition of Lexmark for the Chinese capital market. The announcement caused a huge sensation because Apex was a small company compared to Lexmark; Lexmark completed 2015 with US$3.6 billion in revenue—approximately 10 times the revenue of Apex. To raise enough money to pay for the acquisition, Apex had established the consortium with PAG and Legend, and borrowed a large sum of money from its controlling shareholder and banks. Although Apex had ultimately raised enough money to complete the acquisition, its satisfaction over this success soon gave way to pressing questions about financing. In order to dispel the doubts of regulators and the market, Apex needed to decide whether it should adjust its financing plan for the acquisition, and if so, how.

This case can be used in undergraduate- and graduate-level corporate finance or corporate valuation courses. The main objective of the case is to show students how to analyze the financing of an internationalized acquisition. After completion of this case, students should be able to<ul><li>design some simple acquisition structure and financing solutions;</li><li>learn about the motivation theory of mergers and acquisitions, and how to analyze the motives for them;</li><li>discuss enterprise valuation; at a minimum, fully master enterprise valuation using the market approach, and learn how to judge whether the payment for an acquisition is reasonable;</li><li>know the differences between various financing methods, and their roles in financing plans;</li><li>learn about the reverse triangular merger model and its benefits for financing; and</li><li>calculate a simple way to predict the profit statement.</li></ul>

• Lexmark, financing, acquisition