Entry Engineering Exit
The purchase price offered to the company, is much less than the current enterprise value of the company. Moreover, Silver Lake can finance this deal on attractive terms by providing finance of $ 180 million and the remaining $15 million financing,through the management. The capital markets are priced accurately and thus this deal is priced fairly. Silver Lake would also be able to introduce operational improvements after the restructuring process takes place. Savings of around $ 63 million would be generated for the next 3 years. The incentives to the management would also be significant, as they will be provided with time vesting options on 8% of the diluted outstanding shares. IPO and sale to a potential buyer are possible exit routes but Instinet needs to achieve higher growth rate and as more potential buyers emerge.
Uncertainties and Deal Structure
We need to determine the uncertainties and the structure of the deal. The uncertainties surrounding this deal are that the company might not be able to achieve higher growth in future years and potential buyers might not be willing to bid at favorable prices. The IPO would also not be possible if the growth of the company is not consistent. Lastly, the restructuring might not generate estimated savings in expenses and they might be lower. In order to overcome these uncertainties the deal can be restructured by requiring other investors to contribute in the deal. However, it must be ensured that proper governance would be left in the hands of the management of Silver Lake.
Financial Analysis Support
Fourth, we need to make sure that the financial analysis produces a positive valuation for Instinet. Question two answers this area, which shows that this deal is attractive quantitatively and generates a positive valuation and returns for Silver Lake.
Qualitative Analysis of Inet Deal
Again, we have applied the ME-ME-ME framework to analyze the proposed deal of Inet. This is explained as follows:
First, we need to analyze the business environment of Instinet. The analysis of microenvironment would be same as above since both companies operate in the same market. We begin with microanalysis for Inet.
Inet has enabled its customers to anonymously and efficiently execute their equity trading without any market intermediaries. The Inet platform has many other strengths such as it has been designed for high speed and reliable electronic trading at the lowest of cost. Inet is considered a leader in technology. The company has been competing with electronic and traditional US exchanges and the electronic matching systems of the US. The company has experienced intense price competition within the equity securities business and this wasexpected to continue for the next few years.
We need to understand the ways through which the buyout creates a positive NPV. It seems that the current management team is up to the task. The management is hungry for incentives and these would be offered to them in this deal. The Inet acquisition would help NASDAQ to create a leading execution venue for OTC equities trading in the market………………………
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