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Selected Case

published: 30 Jan 2017

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


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