Brazos Partners and the Tri-Northern Exit Harvard Case Solution & Analysis

Brazos Partners and the Tri-Northern Exit Case Study Solution

Introduction:

Brazos Private Equity Partners was formed in 1999 by a group of ambitious investors under the leadership of Fojtasek, an enthusiastic entrepreneur. The aim of the group is to acquire companies operating in diverse sectors with a good history of positive cash flows and good management. Since the incorporation of the group, the Brazos have acquired more than 60 companies. Fojtasek has vast experience in the industry, Fojtasek was president and CEO of his family owner company named Fojtasek Companies. Under his leadership the company grows at an extremely good rate, this rapid increase in the profits and revenues enforces Fojtasek to dispose of its holdings from the company and to make significant gains on disposal of the company.

The latest acquisitions of the group is the acquisition of two companies operating in the distribution of electric equipment industry named Tri-Ed Distribution and Northern Video System. Brazos has created a company named Tri-Northern Holding Company which acquired these two companies and formed a combined company. Despite the positive results from the acquisition, the management of Brazos is considering to sell their holdings in Tri-Northern Holding Company as they are expecting significant gain on the sale of the company.

Tri-Ed Distribution was founded in 1982 and was involved in the business of distribution of low voltage electronic instruments, Tri-Ed has been acquired by a Canadian Company and after the acquisition the headquarter of the company was shifted to Toronto. After sometime, the parent company of Tri-Ed wasacquired by Tyco International. It can be said that acquisition of DSC by Tyco was not so successful and the stock price of Tyco was reduced by 73% which can be said as one of the biggest collapse in the industry. However, after some time the Tyco spin off the Tri-Ed by saying it was not core business of Tyco.

Northern Video System was formed in 1986 and the primary source of income for the company is the retail sales of industrial video equipment. In the year 1992, Northern Video System was acquired by a pair of two brothers, the combination of the skill of the brothers made the company a leading player in the distribution of electrical equipment industry. The period from 2003 to 2009 proved to be very successful for the company and the revenues reached their highest levels in the year 2009.

Problem Statement:

It can be said that the management of Brazos Partners are considering to sell the Tri-Northern Investments as anticipated they can get substantial gains from the disposal of the investment. However, the management of Brazos is also expecting that the future years will be very positive for the Tri-Northern as the market for their products is likely to increase. This potential favorable industry conditions places the management of Brazos in to a dilemma, the management is confused whether they should have to sell the investment now or whether they should have to give some more time to the company to increase the earnings.

Assessment of Dual Acquisition strategy:

The main strategy which the Brazos pursue in its acquisition is to invest in the companies which have excellent management and which also have history of positive cash flows not only this, the equity firm ensures that it only invest in the companies which have great future prospects. Furthermore, the acquisition decision of the group is also based on the expected synergies which they get by combining the similar departments of two or more companies. It can be said that the acquisition of Tri-Ed and Northern is consistent with the overall investment of the group, both the companies have positive cash flows in the past and the expected future performance of combined company is also expected to be very good. Furthermore, the operations of the combined companies have also improved after the acquisition and the market share of the combine company is also increased as compared to the market share if both the companies operates in isolation.

The dual acquisition strategy proves to be very successful, the combine company combines the operation of both the companies which means that the customers will receive more than one type of products from a single supplier. This synergy proves to be very attractive and the revenues have increased drastically after the acquisition. In addition to this, the acquisition also results in increase in the geographic reach of the company and they can cater the orders outside of the America as well.

It can be said that it is better for the management of Brazos partners to dispose of the holdings from the combined company after the third year from the acquisition because of many factors. The parent company can make maximum gain on disposal if the Tri-Northern is sold after one year i.e. march 2013. The IRR of the disposal will be maximum as per the projection of management of subsidiary and parent company as compared to the IRR of the project if the company is sold after the five years of acquisition. However, the multiple would be very low if the company is sold in March 2013, it can be said that the multiple of Invested Capital will be half of the MOIC if the company is sold after the five years.................

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