Tad O Malley Private Equity Case Analysis

As Tad O’Malley, I would recommend to Empire Investment Group to invest in Gurgaon Manufacturing Ltd (GML) in India. There are many reasons that this investment wins over the other two investment choices, but the primary reason is the transaction price. The potential and range of fluctuation in price with the 3F AG deal adds significant volatility in the deal. In addition, both the Coming Home and 3F deals are European based, where Empire already has a significant foothold. The GML deal not only makes financial sense for Empire as the upside is huge for a minimal investment (small % of fund size) and the exit is easy and straightforward, but the deal also makes strategic sense. Empire is new and India and desperately needs a deal, also since India’s manufacturing industry is very relationship based, this deal could help us make the appropriate connections for future deals. Also, this deal is much like a rugelach, the delicious filling is the company’s core business of manufacturing OEM components, however the rugelach isn’t complete or nearly as appetizing until the dough is wrapped around the filling. Empire using its global and North American connections to help earn OEM component contracts would be very much like wrapping the dough around the filling. Of course, once completed, the rugelach is much more enjoyable than just the filling, and once GML has grown with Empire’s help, it will be much more valuable than it currently is. If GML is able to export as much (with new OEM connections through Empire) they sell domestically, than an additional revenue of $240 million is possible by 2007, the corresponding EBITDA should be 102.3, exiting at the same multiple as entry (4.67x EBITDA), the valuation should hover around $478MM by end of 2007. Selling our 30% stake should yield an inflow of $143MM, assuming annual interest and other expenses of $10 million, if we sell in 2007 at the proposed valuation than we Empire can earn an IRR of 41%.