TN33 Deutsche Bank Securities Financing
DEUTSCHE BANK SECURITIES:
FINANCING THE ACQUISITION OF
CONSOLIDATED SUPPLY S.A.
Teaching Note
Synopsis and Objectives
In November 2003, Maria Ober, a vice president of Deutsche Bank Securities, received a client request for financing the acquisition of a large hospital-supply distributor. The client needed to present the seller with an offering price and an indication of financial commitment within two weeks. The contemplated transaction entailed a highly-leveraged acquisition of the target. The tasks for the student are to value the target firm and projected synergies, assess the credit worthiness of the target (i.e., its ability to bear the high debt), and critically evaluate the general design of the transaction.
This case was developed to support the following teaching objectives:
Profile the highly leveraged acquisition and its financial structure. The particular perspective of this case is that of the creditor. Thus, the case complements other cases on leveraged buyouts that consider the view of the equity investor.
Exercise skills in valuing a business. The case includes a completed financial forecast and an estimation of the internal rate of return for the equity investor. The student must assess the adequacy of the return and consider valuation insights based on peer firms and transactions.
Exercise skills in credit analysis. The case gives ample information on projected performance, forecasted interest coverage, and credit rating standards. The student must assess whether the return to the lender is adequate in light of the assessed credit risks.
Consider the impacts of changes in leverage, in control structure, and of a cross-border transaction with the attendant country risk and exchange rate bets.
Suggested Questions for Advance Assignment
1. Is the payment to the seller an appropriate amount? If not, why? If so, what is the source of value created that might justify the acquisition premium?
2. Intercontinental Capital, Ltd. (ICL) believes
FINANCING THE ACQUISITION OF
CONSOLIDATED SUPPLY S.A.
Teaching Note
Synopsis and Objectives
In November 2003, Maria Ober, a vice president of Deutsche Bank Securities, received a client request for financing the acquisition of a large hospital-supply distributor. The client needed to present the seller with an offering price and an indication of financial commitment within two weeks. The contemplated transaction entailed a highly-leveraged acquisition of the target. The tasks for the student are to value the target firm and projected synergies, assess the credit worthiness of the target (i.e., its ability to bear the high debt), and critically evaluate the general design of the transaction.
This case was developed to support the following teaching objectives:
Profile the highly leveraged acquisition and its financial structure. The particular perspective of this case is that of the creditor. Thus, the case complements other cases on leveraged buyouts that consider the view of the equity investor.
Exercise skills in valuing a business. The case includes a completed financial forecast and an estimation of the internal rate of return for the equity investor. The student must assess the adequacy of the return and consider valuation insights based on peer firms and transactions.
Exercise skills in credit analysis. The case gives ample information on projected performance, forecasted interest coverage, and credit rating standards. The student must assess whether the return to the lender is adequate in light of the assessed credit risks.
Consider the impacts of changes in leverage, in control structure, and of a cross-border transaction with the attendant country risk and exchange rate bets.
Suggested Questions for Advance Assignment
1. Is the payment to the seller an appropriate amount? If not, why? If so, what is the source of value created that might justify the acquisition premium?
2. Intercontinental Capital, Ltd. (ICL) believes