This case focuses on the review by the private equity firm ABRY Partners of an opportunity to invest in a film financing vehicle, Legendary Pictures. Before 2004, private equity firms had avoided co-investing with film studios in film productions because of their perception of the industry as highly risky and biased against financial investors. The ABRY team undertook extensive due diligence to determine the risk-reward profile of investments in film slates. The case highlights issues around due diligence, risk assessment, market bias and deal structuring in private equity.
Greenbriar Growth Partners (GGP), a venture capital firm, has been an investor in Microsurgery Devices (MSD) for four-plus years, and has come into conflict with the company's founder. Should the Board's Nominating Committee re-nominate the VC investor, and should the board go along with the VC's push for a stock buy-back in the midst of the financial crisis, and so soon after the company's IPO?
The Blackstone Group had conducted a roll-up of theme parks and attractions business in Europe. It was considering how to generate liquidity for its investors. Blackstone entered the theme parks and attractions business in Europe by acquiring a majority stake in U.K.-based Merlin Entertainment in 2005. In 2005 and 2006, Merlin Entertainment acquired two other similar businesses, LEGOLAND based in Denmark and Gardaland based in Italy. At the end of 2006, Blackstone's team was weighing its options for generating liquidity for its investors. The options were to conduct a dividend recapitalization of Merlin Entertainment or to acquire The Tussauds Group. The acquisition, if successful, would result in the second largest theme parks and attractions business in the world after Disney. The Tussauds Group was owned by another private equity firm, Dubai International Capital (DIC). Blackstone's goal was to make a minimum of 3x on its initial Merlin investment through the dividend recapitalization and at least 5x through the Tussauds acquisition. A third option arose while Blackstone was in negotiation with DIC. This was the opportunity to perform a sale-leaseback of the underlying real estate assets owned by Merlin and Tussauds. Based on the facts and financials provided, it is clear there were tradeoffs between the size of the potential returns for each option, timing, and the risks that have to be managed. What should the Blackstone team do?
In 2002, Arcapita Bank, B.S.C., then known as First Islamic Investment Bank, or FIIB, faced a liquidity crunch. Aracapita offered Islamic-compliant private equity, real estate, and venture capital products. In the wake of the 9/11 terrorist attack, however, Islamic banking was an endangered species in the U.S. Should Arcapita change its business model, and how should it finance its growing capital needs?
In 2006, Citect Corporation, a publicly traded Australian software company, was the target of a takeover battle between a financial sponsor and a strategic buyer. Thoma Bravo, the US-based private equity firm, had to decide on its acquisition strategy in the face of competition from Schneider Electric, a large French multinational. The case allows for a thorough analysis of buyer types (financial vs. strategic), deal strategy and valuation. Among other topics covered in the case are the importance of due diligence, the potential for value creation by private equity firms through operational improvements, the use of footholds in deal strategy and the challenges of cross-border acquisitions.
Aurora Capital, a US Private Equity firm, contemplates whether to acquire Douglas Dynamics, the leading US maker of snow plows. Does a business that is highly dependent on the weather, and is seasonal, make a good LBO candidate? This case provides a good introduction to the LBO business. What are the characteristics of a successful LBO? And how do successful PE firms create value by acquiring such companies?
The case focuses on Lance Johnstone, a former NFL player, who has dabbled in real estate development during his playing career, and now, as a retired player, is trying to pursue the development of a 10-unit rental apartment building in a depressed area of Philadelphia, his hometown. The case presents the process Johnstone and his partner went through to purchase the vacant land, develop a construction budget and financing plan, and asks students to evaluate the prospective financials for this development and assess the viability of the development plan and its prospective returns. The case then ends with a change in the fundamental assumption - the bank has withdrawn and a new bank will loan less than the original plan, and the construction budget has come in considerably higher. Students must evaluate the plan and prospective returns in light of this new information.
Parks Capital acquired a Children's Apparel Manufacturer, American Child Clothing Manufacturers, Inc. (ACCM), in 2001. Two years later ACCM's largest retail, customer, U.S. Retail, Inc., decided to evaluate strategic alternatives due to financial difficulties. Parks Capital must now decide whether to acquire U.S. Retail, to fund ACCM so it acquires U.S. Retail, or to sit on the sidelines.
Hythem El-Nazer, a young investment professional at TA Associates, believes he has found an attractive investment opportunity for the firm, MetroPCS, a wireless telecomm service provider. However, two months earlier, TA had invested considerable resources on this company, before the company decided it could not raise equity capital, due, in part, to some accounting problems. Should El-Nazer bring this deal opportunity to the attention of TA's CEO, or should he do precisely what the CEO had told him two months earlier, "stop wasting his time on this company"?
In January 2006, Andrew Banks and Royce Yudkoff were considering raising a 5th fund for their media-focused private equity firm, ABRY Partners. ABRY had a strong track record that the co-founders attributed to their group's deep knowledge of the media industry and relationships with media lenders, coupled with a client-service approach to working with Limited Partners. For the fund, Banks and Yudkoff had intended to raise $1 billion and continue their existing strategy, but potential Limited Partners had indicated that they would be willing to commit up to $4 billion. Banks and Yudkoff had to decide whether or not to quadruple the capital in their latest fund.
Berkshire Partners, a private equity firm in Boston, was pleased with their recent investment in the Holmes Group, a home comfort consumer electronics company. The portfolio company was exceeding key financial targets and Berkshire Partners was confident that it would be another successful investment. Holmes' management team then suggested acquiring a kitchen electronics company, the Rival Company. The management of Holmes believed that Rival would complement their existing portfolio of products and it was the perfect time to buy due to a depressed stock price caused by declining earnings. The investment team at Berkshire now had to decide if the possible returns from an investment in Rival were enough to risk the successful investment in Holmes, or if Rival could be acquired without risking Berkshire's investment in Holmes.
Nordic Telephone Company, formed by a consortium of private equity firms, has made a public tender offer for Denmark's leading telecommunications company, TDC. TDC's board of directors approved the take-private transaction, and 88% of shareholders have accepted the offer. Nordic Telephone must gain 90% of TDC's shares to force compulsory redemption under Denmark law. However, a pension fund that held 5.5% of the outstanding stock has rejected the offer. Should Nordic Telephone lower its 90% acceptance threshold and purchase TDC without a guarantee of full ownership, or should TDC walk away from the table?
Kinder Morgan, Inc., was a leader in the transportation and distribution of energy throughout North America, managing a master limited partnership with over $35 billion in infrastructure assets. In the summer of 2006, Richard Kinder, the founder and Chairman of Kinder Morgan, led a consortium of buyers to take the company private. The independent board of directors of Kinder Morgan must decide whether or not to accept Kinder's offer and assess the fairness of the proposal, given the conflicts of interest in this management buyout.
The CFO of JetBlue is trying to decide which of two financing proposals to pursue. A straight equity issue will dilute his principal shareholders' ownership, but seems like the safer alternative in an industry that is notorious for its high failure rate. On the other hand, a convertible debt alternative seems less dilutive, and cheaper, but brings with it an increased risk of default and financial problems. Which option should John Owen pursue?