In January 2018, Caelan Langan, an associate at KSW Partners LLC ("KSW"), was asked by Katherine Scott, the partner for whom he worked, to recommend a proposed structure to acquire a prominent office building in San Francisco for their most recent fund. Caelan was asked to review potential acquisition structures that would minimize the impact of taxes on their investors' returns. The assignment was complicated as KSW had different categories of investors (a sovereign wealth fund, pension funds and high net worth individuals) each of which had different tax considerations. The differing interests created significant potential conflicts in terms of how to manage the investment and when to sell the building, as the economic consequences to each category of investor were not the same. Even the economic interests of KSW were not completely aligned with their investors. The case outlines the alternative investment structures that could be considered: REITs, Limited Partnerships, C Corporations, and combinations of those entities. The case illustrates how to manage the potential conflicts and the important consequences of tax policy on how investments are structured. Students are asked to model the results of alternative investment structures and determine what Caelan's recommendation should be.
In April 2012, Mubadala, Abu Dhabi's sovereign wealth fund invested $2 billion in Brazlian conglomerate, EBX, believing the company to be undervaluing by the public markets. Shortly thereafter, however, EBX and its multiple business lines began to spiral downward. Hani Barhoush and Oscar Fahlgren, members of Mubadala's investment team, were now charged with leading the restructuring efforts on behalf of Mubadala. The situation was exceptionally complex and involved dealing with different creditors, untangling cross-collateral clauses from EBX's subsidiaries' loans, and foreclosing on personal guarantees from Batista. There were also strong political challenges, since most companies operated in tightly regulated markets, some were publicly-traded, and many had received substantial subsidized financing from Brazil's Development Bank (BNDES). Finally, the country's economic and political environments were rapidly deteriorating, with a combination of stagflation, rising interest rates, and successive popular demonstrations causing the gradual loss of governability and ultimate impeachment of President Dilma Vana Rousseff.
Interline Brands, a leading distributor of residential housing maintenance and repair parts and equipment in the U.S., had just held its November 2014 board meeting. The meeting had been productive, but not without some soul searching for both the company's management team and financial sponsors. Was now the right time to start a sale process? In particular, the team wondered whether the capital markets would cooperate and how effectively the management and sponsor teams would execute. Moreover, the company had only been private for two years, and the value creation plan was only halfway through completion. While there was much to be done at Interline, the company had performed well and was gaining momentum. Interline was a rare asset in terms of the scale it had reached. However, there were still unknowns. Would buyers reward Interline with a high valuation multiple that reflected its acceleration in organic growth? Would financing markets remain healthy? Would such a process disrupt Interline's customers and employees?
Partners Group ("PG"), a Swiss based PE manager, initiated a series of strategic shifts and evolved from a predominately fund-of-funds manager into a large, multi-asset class PE firm focused on direct investments. PG was the first PE firm to go public in 2006. A number of large US based private equity firms followed to create a new category of firms; public private equity firms (PPEs). PG's results were superlative (565% since inception total return and 22% annual compounded growth) versus the US based PPEs performance over the same time of (76%) to 18%. PG's multiple was 22x versus their PPE peer group of 8x. PG had the lowest value of AUM yet had the second largest market capitalization behind Blackstone. Why? PG had differing management practices: (i) compensation practices; (ii) corporate governance structure; (iii) accounting policies; and (iv) source of revenues. PG historically had a low percentage of its revenues derived from carried interest payments (less than 10%) while the US PPEs had a significantly higher percentage (on average 50%). Should PG do more direct investments and have more of its revenues come from carried interests? This could conceivably jeopardize their trading multiple and their stock price. Should PG risk changing their business model or proceed with confidence?
In the Spring of 2004, Byrne Murphy and his partners at Fingen Group discussed options to redevelop Palazzo Tornabuoni, an iconic 15th century palace in the heart of Florence, Italy. The possibilities included turning the upper floors into office space, hotel rooms, condominiums, or a private residence club, a new concept that was quickly gaining popularity in the U.S. but still largely untested in Europe. While they factored the economics and the risks involved in each of the options, they wondered which would preserve the property's historical heritage and still deliver attractive returns.
On December 16, 2010, Byrne Murphy received a call from his Italian partner at Fingen Group. The recently-renovated Palazzo Tornabuoni, an iconic 15th century palace in the heart of Florence, Italy, had been seized by the local police. While Murphy tries to understand the reasons behind the seizure and figures out a strategy to accomodate guests flying in for holidays, he wonders if he and partners have chosen the right redevelopment option for the palace.
James Tallest analyzed the opportunity to invest in a distressed portfolio of high quality properties in Germany by acquiring one or more non-performing loans from Deutschland Bank. While he considers the many aspects of the deal that is about to unfold, he must decide which securities to acquire, the price he should offer to each of them, and whether to retain the former owner of the portfolio as property manager.