Butler Capital Partners and Autodistribution

Butler Capital Partners and Autodistribution

The deal became feasible because of a failed takeover battle for Autodistribution parent company. Private equity investor Butler Capital Partners must make an investment decision within three weeks. Other private equity firms compete with Butler for the deal. Butler must assess the potential for margin improvement and expansion within France and to other European countries. Furthermore, since the price for the deal is set, Butler must focus on finding an advantageous structure for all parties to secure the deal. Teaching Purpose: assessing the feasibility of a private equity transaction in France, valuation of a car parts distributor, structuring executive compensation.

Questions:

What industry and strategic factors must be considered in the decision to invest in a components supplier?What local investment factors should be of concern in the decision to invest in Autodistribution?

Should Walter Butler submit a proposal for Autodistribution? What rate of return do you expect for this investment? Please consider the assumptions for margin improvements and growth in Exhibit 18 of the case.

What is your assessment of Autodistribution�s chances for pan-European expansion? In your opinion, what are the major risks associated with this investment? What can Walter Butler and his team do to mitigate these risks?

Paul-Marie Chavanne is interested in joining Autodistribution as CEO, but he has not signed on yet. What kind of incentives should Walter Butler offer to Chavanne? How should these incentives be structured? What should Walter Butler's strategy be in negotiating the deal?

Answers:

Question 1:

Since the pricing level of the deal has been fixed, and the growth opportunities have been determined with certain, Butler Capital is only left with overcoming the future execution risks. Though the time is limited, and there are many constraints to the deal, Butler should focus their valuation process on the potential liabilities and the profit margin, which is required to be over 30% for the fund. What Walter Butler can be sure of is that the Autodistribution is destined to have a successful prospect in the European markets, due to the reasons following:

1. With the future consolidation of independent wholesalers, and non-affiliated wholesalers, the sales will grow substantially. Synergies can be exploited from this because more subsidiaries mean more purchasing bargaining power.

2. The European markets are ripe for consolidation. The acquisition opportunities are very profitable in the current fragmented European auto-parts markets.

3. Efficiency can be improved internally in Autodistribution because the main three departments can be better-organized and centralized.�