Four Cases

Redmay Tack Sellers

LBO is a great alternative in this case because Redmay appears to have a multi-year history of stable and recurring cash flows, hard assets (property, plant and equipment, inventory, receivables) that may be used as collateral for lower cost secured debt; and the prospect buyers seem to have been carefully chosen and are familiar with the industry and could have the potential of designating new managers that will be able to make operational or other improvements to the firm to boost cash flows.

A private equity fund can be established using funds from the bidders who have shown interest in acquiring this firm. Private equity funds are typically limited partnerships with a fixed term of 10 years. At inception, institutional investors make an unfunded commitment to the limited partnership, which is then drawn over the term of the fund.

Molly should go forward with the LBO. This will allow her to finance her new show barn business. Also, Redmay is a good candidate for this type of acquisition.

Argent Audio

The audio/electronics market is incredibly saturated with a lot of competition from big retailers like Best Buy and Wal-Mart who compete in this segment. Big retailers can benefit from economies of scale that in turn can lower their inventory costs. Since Argent did not invest in an adequate inventory shipment and tracking system, their inventory costs must be substantially higher.

Argent audio needs a buyer with a lot of cash at their disposition and that can bring the technology needed to improve their inventory management problem and who will be able to utilize their economies of scale to lower costs.

Wal-Mart could be a potential buyer as they have already saturated the market in rural areas and suburbs, and they lack presence within big cities and it has been recently expanding their electronics selection at their stores to compete with Best Buy.

Wal-Mart has capital and is also a pioneer in inventory controls with RFID tags at their...