INSEAD the business school for the world

Case Studies by Peter Goodson

3 case studies

published: 30 Jan 2017

Show details ...

Abstract:
In 2011, Ingersoll-Rand (IR) decided to divest its refrigeration equipment subsidiary, Hussmann International. However, the routine auction process for the non-core asset went awry when both Hussmann’s performance and external finance markets weakened significantly during the due diligence period. IR’s agent, JP Morgan, sought interest from potential buyers and focused on a few leading buy-out firms that submitted bids. After not seeing eye-to-eye with the initial auction winner, Ingersoll-Rand engaged exclusively with a lower bidder, the private equity firm Clayton, Dubilier & Rice. The challenge for CD&R is to develop a deal structure that can meet both parties’ needs, offering enough value to Ingersoll-Rand to keep them from walking away, yet taking into account the increased riskiness of Hussmann’s recent performance to justify CD&R’s valuation. The student takes the perspective of CD&R.

Pedagogical Objectives:
This case aims to build students’ awareness of the challenging PE landscape and shows how one PE firm has found new ways to source and structure deals in order to maintain attractive returns in an overpriced acquisition atmosphere. Successful strategies to outperform in an overheated market are rare, but leading firms find ways to gain sourcing advantage and/or utilize skills to improve underperforming businesses to drive them to the top return quartile. The case examines both return strategies with an inside look at Clayton, Dubilier & Rice’s “recipe for bubbles”.

Keywords:
Private Equity, Auction, Auction, Carve Out, Structuring, Earnings Surprise, Management Change, Growth Capital, Corporate Carve Out, Restructuring, Due Diligence, Divestiture, Operational Improvements, Turnarounds, Gpei, Gpei-Case

published: 06 Apr 2016

Show details ...

Abstract:
Mekong Capital, a private equity firm based in Vietnam, is considering exiting its stake in restaurant chain operator Golden Gate. Despite robust growth, Golden Gate’s profitability is lagging. Students are asked to evaluate the best means of exit and whether operational improvements are required to attract buyers or create the foundation for a successful IPO.

Pedagogical Objectives:
The case demonstrates how PE firms in emerging markets with operational capabilities have a distinct advantage in sourcing investments and driving higher returns. Students examine how minority investors can dynamically shape a portfolio company’s operational strategy to position a company for IPO or match potential buyers’ needs, thereby maximizing value for current owners.

Keywords:
Private Equity, Emerging Markets, Vietnam, Family-Owned, Strategy, Food Service, Restaurant, Investment, Gpei, Gpei-Case

published: 23 Apr 2018

Show details ...

Abstract:
Private equity firm Clayton, Dubilier & Rice (CD&R) is preparing a bid for leading US car rental agency Hertz. By replacing Hertz’s top managers, improving capital management and driving down operating costs, CD&R sees an opportunity to nearly double EBITDA. However, the turnaround involves significant risks, which CD&R must weigh in preparing its bidding strategy. Students are required to assess and value the business, evaluate a post-acquisition operating turnaround plan requiring new leadership, select a financial structure to mitigate significant cyclicality, and craft a winning bidding strategy in the context of a competitive auction.

Pedagogical Objectives:
This case underscores the importance of creating a differentiated investment thesis (no matter how slight the advantage) in a competitive auction setting, inviting students to develop and support their own investment thesis. It demonstrates how the operating capabilities of PE firms (like CD&R) translate into a valuation exercise, investment thesis and operating plan. It explores how the firm’s strategic bent shapes its bidding strategy and willingness to pay for a business that has the prospect of achieving high returns for its fund, as well as identifying sources of advantage in deal sourcing, expertise partnering and turnaround management in the private equity domain.

Keywords:
Private Equity, Winner’s Curse, Auction, Turnaround, Bidding, Rental Car, Investment Strategy, Investment Thesis, Due Diligence, Hertz, Ford, Valuation, Synergies, Operating Efficiency


Share