Palamon case study

Topics: Private equity, Venture capital, Private equity fund Pages: 86 (6481 words) Published: November 2, 2014
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This document is authorized for use only by John McFadden at Temple University- Fox School of Business. Please do not copy or redistribute. Contact permissions@dardenbusinesspublishing.com for questions or additional permissions.

Rev. Feb. 12, 2014

PALAMON CAPITAL PARTNERS/TEAMSYSTEM S.P.A.

We want to make money by investing in change.
—Louis Elson, Managing Partner, Palamon

In February 2000, Louis Elson looked over the London skyline and reflected on the international private equity industry and the investment processes that would be necessary for success in this increasingly competitive field. Elson, a managing partner of the UK-based private equity firm Palamon Capital Partners, was specifically considering an investment in TeamSystem S.p.A., an Italian software company. Palamon was interested in TeamSystem for the growth opportunity that it represented in a fast-changing market. Palamon had an opportunity to purchase a 51% stake in TeamSystem for (euros) EUR25.9 million. In preparing a recommendation to his colleagues at Palamon, Elson planned to assess TeamSystem’s strategy, value the firm, identify important risks, evaluate proposed terms of the investment, and consider alternative exit strategies.

International Private Equity Industry
The international private equity industry was segmented into three sectors. Venture capital funds made high-risk early-stage investments in startup companies. Generalist private equity funds provided expansionary funding or transitional funding that allowed small companies to grow and eventually go public. And leveraged buyout funds financed the acquisitions (often by management) of preexisting companies that had the capacity to take on debt and make radical improvements in operations.

Private equity funds raised capital primarily from individual investors, pension funds, and endowments that were interested in more attractive risk/return investment propositions than the public capital markets offered. Funds existed all over the world, but, not surprisingly, North America had the largest number of funds and largest dollar value of capital invested as of 1999.

This case was prepared by Chad Rynbrandt from interviews, under the direction of Robert F. Bruner, with the assistance of Sean D. Carr. Some details have been simplified for expositional clarity. The cooperation of Palamon Capital Partners is gratefully acknowledged, as is the financial support of the Batten Institute. Copyright  2001 by the University of Virginia Darden School Foundation, Charlottesville, VA. All rights reserved. To order copies, send an e-mail to sales@dardenbusinesspublishing.com. No part of this publication may be reproduced, stored in a retrieval system, used in a spreadsheet, or transmitted in any form or by any means—electronic, mechanical, photocopying, recording, or otherwise—without the permission of the Darden School Foundation.

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Europe and Asia had the next largest private equity industries. Exhibit 1 presents the number and dollar values of private equity funds by global geographic region. Most private equity markets saw rapid growth in the 1990s. In Europe, the amount of new capital raised grew from EUR4.4 billion in 1994 to EUR25.4 billion in 1999. Correspondingly, the amount of capital invested by the funds more than quadrupled from EUR5.5 billion to EUR25.1 billion over the same period. Exhibit 2 summarizes the amount of new capital raised and the amount invested through the 1990s. Some key players in the midmarket sector in Europe included Duke Street Capital (EUR650 million fund based in the United Kingdom), Mercapital...
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