INTERNATIONAL BUSINESS FINANCE, MIDTERM ASSIGNMENT 1
MARTIN SMITH CASE
Works for a buyout firm (companies that buy companies that are failing and try to make them make money) called Newport Partners. Newport is an old but very respected company. Buyout opportunities are getting smaller so the company has to choose which companies to buyout very carefully.
Smith is brilliant in his career, strong background in economics and banking
He has been given information on 3 companies and asked to consider which one is the best to buyout and what are their strengths and weaknesses.
Buyouts were now more complicated.
Companies did not spend as much money, they were efficient in their spending. It was also more expensive to buyout a company. There were only a few good strong companies but there were still good buyout opportunities if you looked carefully.
The future was not to buy a big company and let it continue. It was to buy a smaller company then change it to make sure it makes more money. Changes including investing in the bought company, cutting operation costs and changing the location to a cheaper area.
Smith wanted to understand the business and market world
Smith has chosen Rustica Industries as the company to invest in.
• Largest maker of industrial wire and the plastic cover on wires in the US
• Interests in food, health, and customer based interests
• Market share of 65% (6 times larger than its closest competitor)
• 25% of money made from products made in the last 5 years
• Manager and management team have a lot of experience so this may solve the “resource problem”
• Buyout price: $145 million
• Solid company with previous success so paying off the debt gradually shouldn’t be a problem
• Great potential in manufacturing wires and plastic which won’t cost a lot
• Very reliable, win back the companies reputation
• Opportunity to borrow and make good relationships with banks
• Solid company, chance to build more areas around it
• Can create new products
• Managers aware of new markets for their products
• Increased its share in industry sales
• Increasing net sales and gross profit
• Large profit from high quality food based products (storage etc)
• Large number of manufacturers working for them
• Potential work from restaurants for shelving etc
• Opportunity to cut costs
• Profit from health industry, customer base of more than 3000
• Able to produce “speciality products”
• Management able to maximise efficiency
• Commercial area is the fastest growing
• Possible international interest
• Projected financial targets are very positive
• Rustica is $100 million in debt
• Can only make a limited number of products, a problem if they have to make more stock.
• No competitors in the wire and plastic business
• Who will give the money to help it expand
• Other companies could easily copy the product and make money themselves
• Too much focus on marketing
• Can the management actually carry out any changes?
• Reducing growth
• Consumer products are expensive to make
• International interest is expensive in terms of marketing and distribution
International Business Finance
Martin Smith Case
Please review the attached case study and the three Powerpoint presentations. As you read over the materials, please consider how Martin should structure his presentation at the partners’ meeting. Among the issues you may wish to consider are:
? Which company should he recommend?
? Which uncertainties should he highlight?
? Are there valuation issues that he should point out?
? What organisational issues are likely to influence the partners’ decision?
Please choose one deal on Martin’s behalf.
TASK A – Presentation (30 marks)
Working in your group you will prepare a 15 minutes presentation selecting one deal which your group would recommend to take.
PRESENTATION ASSESSMENT CRITERIA
Presentation will be assessed based on following criteria (equally weighted):
? Clarity of verbal expression.
? Demonstration of group cohesion and equal participation.
? Validity of reasoning used to support strategic decisions.
? Quality and level of evidence presented to support your group’s view.
? Group’s ability to defend their views / arguments.
TASK B – Written Paper (70 marks)
Using data gathered during presentation preparation, please submit an individual report elaborating on your presentation (or presenting another deal if you did not agree with your group). Your report should include a detailed analysis of pros and cons of the proposed transaction, taking into account both individual transaction merits and Newport’s situation – analysing also risks and merits of the transaction for you, Martin Smith.
In your analysis you need to present what type of a PE deal “your” transaction is.
This report should also contain about 500 words (included in the total count of 2,000) describing your key learning points acquired while working on this assignment. These learning points may also apply to your experience in working as a group, but should not be limited to it.
You should use online and library resources. If relevant, please support your argumentation with examples from real life. You should carefully document your use of sources of information, applying Harvard referencing system.
Your report should not exceed 2,000 words (attachments and footnotes are not included)
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