Apax Partners And Xerium S.A. Case Solution
In 2002, Apax Partners needed to conclude whether to acknowledge an-inexact ideal proposal for one of its portfolio organizations or to renegotiate it. This organization, a producer of paper industry consumables with a worldwide presence, was bought in 1999 and had performed very well from then on wards. (G. Felda Hardymon, 2004) Notwithstanding being a strong, money generating activity; it didn’t energize a great deal of revenue on the lookout. An early exit at a decent different would be useful for Apax’s present asset and future gathering pledges endeavors, while renegotiating would permit Apax to forget about some cash and offer in future potential gains. Which is the better decision?
Apax Partners had purchased the Xerium Company from its parent company, which had performed very well over the years. Being a private equity company;it had to decide-whether to sell its private equity investment or renegotiate its portfolio investment, in order to generate potential gains in terms of financing. The company was facing key issues in selling the Xerium Company but the early entry would be useful for the company’s operations and its existing asset classes.
There are many difficulties associated with the existing private equities, one of which is the competition among them. Every company tries to compete with other companies and tries to make deals to diversify and target a certain industry to present itself as unique. Many private equity firms chase few deals because it tends to have more capital sidelines that return on assets and the other financial metrics would start declining.
In addition to these problems; there is also a difficulty in processing the due diligence processes in private equity firms. There is uncertainty in the private equity and tough competition between them.Making investments in a wrong company would damage the investment and make the company suffer from terrible loss in return of investment, which is the reasons why private equities carry out their due diligence process quickly to gain investors
Interest is another problem that is faced by the companies as they are charged with tax against their capital gains that they gain from buying and selling goods. The company sees it as an investment but government tax reduces this investment by charging tax on them.
If a company would not be able to provide strong return to investors; it will face difficulties in regaining the investment, so it is very essential for the companies to get correct information through reliable sources and use the data to improve its returns on investments.
By the end of April 2002; the market environment looked favorable for the Xerium Company, as it had become a very good sales prospect for the market. The Apax Company had used the company in refinancing and paying off its debt obligations. After its merger with the Wangner; the company had also acquired two small companies. (See Appendix 1).
Xerium performance had outreached the Apax’s initial expectations, which can be seen from the company’s financial results (See appendix 2). The company had reached an EBITDA of $160 million in 2001, which had an 8% growth rate since 1998. The company’s overall structure had changed through plant shut downs, restricting plans and selling few business segments.
In getting deals for Xerium; Apax faced an uncertain challenge, as the company had created much value since its acquisition by Apax. The company’s Chief Executive Officers believed that in order to get a fair deal; the company must have an angle in adding value and it should be made sure that the company must not overpay. The company’s performance had been exceptionally tremendous, which had not been seen by the market, as an upside potential was very high.
The company’s growth potential was extremely high that it could have been bought at cheaper price and the investors could not have seen the upside growth potential rather it was expected to have a 3% annual growth instead of assuming a high-tech based growth. The assumptions made in the company’s valuation was somehow wrong as the growth was not seen properly by the investors, as an upside growth level had the potential to lead the company to generate a good deal for Apax………………….
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