Finance

Four Deals Case

Redmay Tack Sellers

Pros:

1. LBO would not need much capital equity because it is supplied by small group investors.

2. The stockholders are generally paid a premium above market price.

3. The extra debt provides a tax deduction and therefore increases value.

4. Efficiency will increase because managers are becoming owners.

5. Positive cash flows can be used to lower the risk of taking on more debt.

Red Flags:

1. High risk because of high amount of debt.

6. Questions about the company you would need to get answered before you’d feel comfortable buying it.

Questions:

1.

Discussion: Molly should go forward with the LBO. It will allow her to finance her show. Redmay is an excellent candidate for this type of acquisition at this moment.

Argent Audio

Pros:

1. Argent has a successful niche market and it has a good reputation in the area where they serve.

2. Financed growth through favorable lease terms

3. Generous trade credit from suppliers

Red Flags:

1. There is no centralized warehouse or inventory management system.

2. High inventory accounts with small amount of cash at the moment.

3. Communication gap between upper management and store owners.

Questions:

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Discussion: Potential buyers should consider the high amount of debt that would need to be supported and will have to deal with new management team. They need to an inventory management systems in place. Argent is also a good candidate for LBO and should be purchased with cash.

1. A list of what you like about the prospective deal.

2. Red flags – things that raise doubts in your mind about this company being a good acquisition.

3. Questions about the company you would need to get answered before you’d feel comfortable buying it.

The Quixote Company and the Santa Rosa Plant

Pros

1. Opening a new plan could increase capaicity utilization across the two plants

2. There...