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Palamon Case Study Solutions

 

Ryan Teichmann

Executive Summary

Should Palamon Capital Buy 51% of TeamSystem’s Equity for EUR 25! "illion#

Palamon Capital, a generalist private equity fund, is based in the United Kingdom.Palamon did not limit itself to investing in one specific country or to one industry. nstead,Palamon focused on small to midsi!ed European companies it could acquire a controlling sta"efrom bet#een EU$ %& million and EU$ '& million. Palamon is interested in acquiring(eamSystem, S.p.) taly*s leading provider of accounting tax and payroll management soft#arefor small to medium si!ed businesses. Palamon Capital is interested in acquiring '%+ of (eamSystem*s common shares for EU$ '.- million, but is unsure ho# much '%+ of equity isreally #orth. Using the discounted cash flo# method, '%+ of equity in (eamSystem is #orthEU$ &./- million 0exhibit %1 and using the multiple comparables method, '%+ of equity is#orth EU$ /-.%2 million from comparing the revenue and E3( multiple, and EU$ '-.2/million from comparing the price to boo" multiple 0exhibit /1.n the discounted cash flo# model, there are t#o calculations that might not be so obvious. Change in 45C occurred after the cash restructuring that Palamon required of (eamSystem*s.3ecause of this, current assets decreased causing the change in 45C be %2+ of sales increase. Capital expenditures are calculated by the change in end of the period noncurrent assets plusdepreciation. (he tax rate of 26+ seems very high but is #ithin reason, according to (radingEconomics 7the average corporate tax rate for taly is 6.'+ from %--' until &%2.8 0http9::###.tradingeconomics.com:italy:corporate;tax;rate1. Exhibit  sho#s taly*s corporatetax rate from %--- to &&<. =rom the discounted cash flo# model, three sensitivity analysiscomparing the terminal gro#th rate to the discount rate 0exhibit 1, the sales gro#th to the

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