Acova Radiateurs

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Acova Case EM
The purpose of this executive memo is to evaluate the justification to invest in a potential LBO candidate, Acova Radiateurs, and estimate the possible bidding price, keeping the minimum annual return required by Baring Capital’s investors at 30%-35%. 1. Justification of the Potential Transaction

We evaluate the prospects of Acova LBO transaction for Barings and come into a conclusion that Acova is a good potential LBO candidate is justified. a. Strong Cash Flow Generation Ability: Radiators manufacturing market in France is a mature market, with fast growth in a few new types of radiators. According to Acova’s financial history and the cash generating ability of the whole market, we expect steady and increasing cash flow in the future. Cash flow generated could help support the capital structure in the potential LBO deal. b. Leading and Defensible Market Position: Acova is the leader in decorative radiator market, especially the fast growing towel-dryer radiator segment. Success in the decorative radiator market depends heavily on branding and the ability to customize products, and Acova enjoys dominant advantage in these two aspects. Acova was also strengthening its market position by a shift to exclusive wholesale distribution. c. Growth Opportunities: We believe that Acova has promising growth opportunities in the future. As the leader in the fast growing towel dryers segment, Acova also opened up a product in the dramatically growing electric radiator segment. Besides, we expect Hot-water radiators, which takes up half of Acova’s sales, will growth steadily in the next five years. d. Expansion and Efficiency Improvement Opportunities: Because other European markets are not that developed than the French market, Acova has the option to expand its revenue in the future. Acova has opportunities to reach out to other European countries only if the management could make the agreement with Zehnder. However, we consider the...
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