Subject: Palamon Capital Partners
Details: I. Palamon Capital Partners/TeamSystem S.p.A.
1. What is private-equity investing? Who participates in it and why? How is Palamon positioned in the industry?
2. How does private-equity investing compare with public-market investing? What are the similarities and differences between the two? 3. Why is Palamon interested in TeamSystem? Does it fit with Palamon's investment strategy?
4. How much is 51% of TeamSystem's common equity worth? Use both a discounted-cash-flow and multiple-based valuation to justify your recommendation.
5. What complexities do cross-border deals introduce? What are the specific risks of this deal?
6. What should Elson recommend to his partners? Go/no go?
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This is because large part of the Palamon's customers includes Pension Funds, Insurance Companies, Charitable Endowments and specialist investment groups. So TeamSystem does not fit entirely with Palamon's investment strategy because Palamon would normally look forward to investing in less risky investments.
4. You may use the figures available on the TeamSystem website to calculate the common equity 51%. When you find that the present value of the expected cash inflows exceed the initial cost of the project then you are supposed to recommend the purchase of equity. This is using the cash-flow method. Alternately, you may use the internal rate of return method. The multiple based method uses a combination of the following methods, average rate of returns, average additional returns on income, payback method and the profitability index.
5. Complexities of cross-border deals include repatriation issues like repatriation of income, commission, management fees and capital. Further, countries are known to put restrictions on the management, ownership level and operating control. Besides fluctuation in foreign exchange rates could play havoc with all profitability calculations. In this deal there is a fixed management structure, which TeamSystem has and it is doubtful if it will allow Palamon to play any meaningful role in its management.
6. BACKGROUND. If Elson should recommend Go. Then non-price terms should include the inclusion of Palamon