Private Equity and Investment Banking
Summit Partners FleetCor A
1. Summarize the proposed transaction:
Summit Partners proposes to FleetCor Technologies (later preferred as “FleetCor” or the “Company”) an investment into FleetCor for the total amount of $44.9 million in return for a post transaction ownership of 54.2% in the “Company” and coming down to 46% ownership in the company after newly created stock options for management equivalent to 15% ownership in the company has been completely executed and fully diluted. This investment is in the form of convertible preferred stock with an 8% accrued interest, compounding annually. As the transaction come through, Summit’s prefer stock will be treated equal-footing in liquidity with the other $37.5 million of existing preferred stock.
The proceeds from Summit’s investment will be used as followings: • $9.0 million will be used to redeem part of a $15 million subordinated debt held by current investors. The remaining $6 million of this debt will be converted by the current investors into the same strip of prefer stock which Summit proposes. • About $16.6 million will be used as an upfront cash to buy back FleetCor’s seven “Super Licensees” • The remaining $19.3 million will be used as a general working capital for FleetCor to fund its growing business and to buy back any other potential licensees.
2. Discuss five key investment strengths:
➢ FleetCor’s management team: very well-performed management team consisting of: • Very high quality profile and experienced CEO, Ron Clarke, who has brought FleetCor back on track after just 18 months of working in the company. • Other executives who have many experiences and a lot of knowledge in the industry including H. Steve Smith, Senior VP of Sales and Marketing; Tommy Andrews, Senior VP of Operation; and Scott Ruoff, Senior VP of Business Development.
➢ FleetCor has a highly differential business strategy leading a very competitive business as followings: • Middle Market Focus: big market for growing with very little potential competitors and high barriers to entry • Local Market Distribution: FleetCor has created a network of local branches with a complete staff employees including a general manager • “Semi-Exclusive” Merchant Acceptance Network: FleetCor limits the size of merchant network to provide greater traffic volume to participating retailers.
➢ Highly established market shares in the highly potential and continued growth market: FleetCor has 90,000 fleet customers across its entire system comprised especially of four large national accounts such as Sears, UPS, Aramark and National Line Service; and over 500,000 active cardholders.
➢ FleetCor provided its customers the cost-saving and customized information report to really please the customers and make them high reluctance to switch to new card network providers, leading to low customer churn.
➢ High gross profit margin (in case of gross revenue report): averagely 5%, double compared to other regular credit card issuing companies or its big competitors in high-end market, however, it has still gained highly growing market share because of its unique and differential business strategy.
3. Discuss five investment concerns:
➢ FleetCor is still missing a financial expert who not only has experiences and knowledge in the industry but also has ability to draw fully effective projection for a long-term growth by implementing a stable financial system ( Suggest: Hiring a highly effective and experienced CFO.
➢ High projected improvements after the acquisition. The company should be a little more conservative due to the fact that there are always some unexpected risks associating with the implication of a new centralized system. ( Suggest: the company should project in the more conservative way and should establish...
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