Ryan Teichmann
Executive Summary Should Palamon Capital Buy 51% of TeamSystem’s Equity for EUR 25! "illion#
Palamon Capital, a generalist private equity fund, is based in the United Kingdom. Palamon Palamon did not limit itself itself to investing in one specific specific country or to one industry industry.. nstead, nstead, Palamon focused on small to midsi!ed European companies it could acquire a controlling sta"e from from bet#ee bet#een n EU$ %& millio million n and EU$ '& milli million. on. Palamo Palamon n is interest interested ed in acquiri acquiring ng (eamSystem, S.p.) taly*s leading provider of accounting tax and payroll management soft#are for small small to medium medium si!ed si!ed busine business sses. es. Palamo Palamon n Capita Capitall is intere intereste sted d in acquir acquiring ing '%+ of (eamSystem*s common shares for EU$ '.- million, but is unsure ho# much '%+ of equity is really really #orth. Using the discounted discounted cash flo# method, method, '%+ of equity in (eamSys (eamSystem tem is #orth EU$ &./- million 0exhibit %1 and using the multiple comparables method, '%+ of equity is #orth EU$ /-.%2 million from comparing the revenue and E3( multiple, and EU$ '-.2/ million from comparing the price to boo" multiple 0exhibit /1.
n the discounted cash flo# model, there are t#o calculations that might not be so obvious. Change in 45C occurred after the cash restructuring that Palamon required of (eamSystem*s. 3ecause of this, current assets decreased causing the change in 45C be %2+ of sales increase. Capital expenditures are calculated by the change in end of the period noncurrent assets plus depreciation. depreciation. (he tax rate of 26+ seems very high but is #ithin #ithin reason, according according to (rading (rading Econ Econom omic icss 7the 7the aver averag agee corpor corporat atee tax tax rate rate for for tal taly y is 6.' 6.'+ + from from %--' %--' until until &%2. &%2.88 0http9::###.tradingeconomics.com:italy:corporate;tax;rate http9::###.tradingeconomics.com:italy:corporate;tax;rate1. 1. Exhibit sho#s taly*s corporate tax rate from %--- to &&<. =rom the discounted discounted cash flo# model, three three sensitivity sensitivity analysis analysis comparing the terminal gro#th rate to the discount rate 0exhibit 1, the sales gro#th to the
Ryan Teichmann
discount discount rate 0exhibit 0exhibit 21, and the tax rate to the discount discount rate 0exhibit 0exhibit '1. (he three sensitivit sensitivity y analysis sho# that Palamon*s valuation of (eamSystem is very sensitive to the discount rate and that there is not much margin for error in Palamon*s calculated 5)CC 5)CC of %2+.
n the multiple multiple comparables comparables model, a revenue multiple multiple valuation valuation is chosen because because it incorporates the si!e of all of the the firms in the comparable group. )n E3( multiple valuation is also chosen because it incorporates the profitability of all of the firms in the comparable group. (he chosen comparable comparable group is tier . (his is because because the group has similar equity equity mar"et value, similar debt and similar total assets assets compared to (eamSystem. (eamSystem. (he tier group also offers similar similar products as (eamSys (eamSystem, tem, middle mar"et accounting soft#are soft#are solutions. solutions. (he median multi multiple ple is chosen chosen for both both the revenue revenue and the E3( from the tier tier group. group. (he median median is chosen because there are some outlier multiples from some of the companies that are in the comparables comparables group. =rom the revenue and E3( comparison, comparison, '%+ of (eamSys (eamSystem tem is #orth EU$ /-.%2 million. Comparing the price to boo" ratio of (eamSystem (eamSystem is another #ay to gauge value. )gain )gain using the tier comparable group and again using the median median rather than the average because because of the outlier. outlier. =rom this, '%+ of (eamSyst (eamSystem* em*ss equity is #orth EU$ '-.2/ million.
=rom both methods, methods, it is obvious that acquiring acquiring '%+ of (eamSys (eamSystem* tem*ss equity for EU$ '.- million million is a very attractive deal. deal. 3ut this is in a perfect situation situation and does not account for any of the ris"s involved. involved. Some of these ris"s ris"s include an exchange rate ris" ris" bet#een the Euro and >ira, and also the ris" ris" of dealing #ith a foreign foreign government. government. taly has a very high tax rate and is active in the payroll industry, #hich causes regulations to change several times a year.
Ryan Teichmann
5ith all of this active management, the talian government might intervene slo#ing the deal or preventing it from happening at all.
Exhibit %
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Exhibit 2
Exhibit '
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Exhibit /
