個案總覽

In March 2008 the CEO had just received a surprising and unsolicited offer from a Japanese company to purchase his AmData Software China company which owns the exclusive mainland China franchise to distribute this U.S. vendor's software. The Japanese company owns a similar exclusive franchise in Japan. After preliminary negotiations, including a demand by the Japanese company to state the business sale amount in U.S. dollars, the initial $2.5 million offer was raised to $5.5 million. However, this amount was not yet agreed to by both parties and a business valuation analysis would be critical to the key decision of the case: should the CEO sell the company now or continue to develop it for sale at a future date? Such a subsequent sale might be an IPO on one of the Chinese stock exchanges.

The purpose of this case was to determine whether ACE Private Equity Partners, a mid-size private equity fund, should acquire two physical therapy companies in order to develop them for subsequent sale to a larger private equity firm. This situation represented another opportunity for ACE's general partners to implement their "merger consolidation" investment strategy for their fund investors or limited partners. This investment strategy was to buy several private firms in the same industry, develop them for three to five years with revenue growth and cost saving synergies and, then, sell this larger consolidated company. This investment strategy was summarized by three major tactics: 1) build more valuable companies through growth and consolidation, 2) use arbitrage to buy smaller companies at lower private company EBITDA multiples and, then, sell them as a larger combined enterprise at higher public company EBITDA multiples, and 3) leverage the acquisitions with debt to spread risk and enhance returns.