Berkshire Carter S LBO Case Study
1. How does Berkshire Partners create value?
Berkshire partners believes in creating values “based on successful relationships, hard work, analysis, and the open decision making of all individuals” (Partners) They do not see the acquiring company as just a financial investment but as an investment in a relationship between two living entities. They work hard in collaboration with the acquired firm to do the analysis and research and consult all individuals in both firms regarding the future of the company. They focus on quality over quantity and tend to have a smaller set of deals they think will be successful and devote their resources to conduct in-depth analysis to uncover all necessary information and thorough due diligence for each deal. At times when they feel their team could do with some assistance, they bring in industry experts to help with the decision making process. Despite these detailed steps, the ultimate decision lies with the entire firm. They engaged in leveraged buyouts (LBOs), growth capital, and privatization. In LBOs, they use capital structures to find the best combination of price, leverage and returns. In order to demonstrate a serious commitment and to achieve a desired rating, they decided in a minimum capital structure of at least 25% equity whereas debt is roughly 4 to 5 times EBITDA depending on market conditions. They also support its management by assisting in setting priorities right for the future of the firm, reviewing the organizational structure to ensure it runs optimally, helping to build the management and leading the integration process in the event of an acquisition.
2. Does Carters fit with the Berkshire investment philosophy? Why is Investcorp selling?
Yes, Carters does fit with the Berkshire investment philosophy. At this stage, Carters has developed a huge presence and brand in the kids apparel segment with the potential of expanding into other consumer good owing to the brand halo effect and existing
Berkshire partners believes in creating values “based on successful relationships, hard work, analysis, and the open decision making of all individuals” (Partners) They do not see the acquiring company as just a financial investment but as an investment in a relationship between two living entities. They work hard in collaboration with the acquired firm to do the analysis and research and consult all individuals in both firms regarding the future of the company. They focus on quality over quantity and tend to have a smaller set of deals they think will be successful and devote their resources to conduct in-depth analysis to uncover all necessary information and thorough due diligence for each deal. At times when they feel their team could do with some assistance, they bring in industry experts to help with the decision making process. Despite these detailed steps, the ultimate decision lies with the entire firm. They engaged in leveraged buyouts (LBOs), growth capital, and privatization. In LBOs, they use capital structures to find the best combination of price, leverage and returns. In order to demonstrate a serious commitment and to achieve a desired rating, they decided in a minimum capital structure of at least 25% equity whereas debt is roughly 4 to 5 times EBITDA depending on market conditions. They also support its management by assisting in setting priorities right for the future of the firm, reviewing the organizational structure to ensure it runs optimally, helping to build the management and leading the integration process in the event of an acquisition.
2. Does Carters fit with the Berkshire investment philosophy? Why is Investcorp selling?
Yes, Carters does fit with the Berkshire investment philosophy. At this stage, Carters has developed a huge presence and brand in the kids apparel segment with the potential of expanding into other consumer good owing to the brand halo effect and existing
Cited: Foundation, T. (2013, December 18). Tax Foundation. Retrieved March 28, 2015, from http://taxfoundation.org: http://taxfoundation.org/article/oecd-corporate-income-tax-rates-1981-2013 Partners, B. (n.d.). Our Partnership. Retrieved March 24, 2015, from http://www.berkshirepartners.com: http://www.berkshirepartners.com/1_0_partnership.shtml