FrancoM_AVI05_ResearchPaper - Cornell University Johnson...

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Cornell University Johnson Graduate School of Management NBA 593 Professor Melvin Goldman prepared this case study with the assistance of Jürgen Gebhard ‘03 (jeg36@cornell.edu) as the basis for class discussion rather than to illustrate either effective or ineffective handling of a business situation. The FRANCO Group Buyout As Lukas Siebel put down the phone on February 5 th 2002, he wasn’t sure if Dirk Schnellhofer on the other end had just offered him the deal of the year or just another mediocre investment opportunity. The potential target was a €60 million revenue Business-2-Business producer of automated franking systems. FRANCO had been successful for many years and Dirk mentioned growth with a CAGR of 17% from 1995 to 2001 and reported EBIT of €17 million, which represented a considerable 30% EBIT margin. FRANCO’s market was clearly an attractive niche market and FRANCO claimed to the leading provider of automated mailing systems in Germany. Lukas thought about AQUILA’s European fund which was almost € 2 billion now. He recalled AQUILA’s experience with Liegenberg Bank. Lukas and Dirk had known each other for several years and in 1998 even worked together on a buyout transaction. Dirk was then a Senior Associate with Liegenberg Bank’s Leveraged Finance group and Lukas was a junior investment manager working for AQUILA in the UK. Back then AQUILA acquired a UK-German industrial group for €210 million, leading in the growing niche of electromagnetic compatibility (EMC 1 ). Liegenberg Bank had provided €60 million of Senior Debt. The investment was later floated on the UK stock market, where AQUILA returned 6 times their investment and Liegenberg Bank was extremely satisfied with their return, too. Lukas trusted Dirk and decided to order an Investment Memorandum from Dirk. 1 What is EMI? EMC? If it were not for electromagnetic compatibility (EMC for short), a great deal in our modern world would fail to function as it should – from lifts to machine tools, from air-craft to trains and from mobile phones to CAT scanners. In its simplest terms, electromagnetic compatibility ensures that there is no electromagnetic interference (EMI) between electrical and electronic appliances and systems. There is potential for electromagnetic interference wherever current flows and electromagnetic fields are created. The interference occurs either through power lines or through radiation. J E Gebhard 1/29
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The FRANCO Group Buyout NBA 593 The German buyout environment in 2002 2002 was a rough year for the investment community all around the world, in the US as well as Asia and Europe. Equity prices in Germany were down and the economy was facing a recession. Public finance was strained and many companies were in distressed situations. The German economy-the biggest in the Eurozone and third largest in the world was seriously troubled. It seemed like a good time to buy. Or wasn’t it? Nobody could know where the bottom was. There was also the uncertainty regarding changes in German takeover laws and two
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FrancoM_AVI05_ResearchPaper - Cornell University Johnson...

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