Q1.) What are the sources of potential value creation in this investment?
Management of Infrasource is one of the key value creation resources, which can help it to manage the business opetations effectively and we need not to worry about the business operations because the manangement has strong desire to do the things for business beyond the traditional limits and they have invested their own money in the business in order to make the survival of business posible. Furthermore, the long established relationship with loyal customers is another value creation source for its each segement, which will help in preparing more accurate and realistice budgets that will be achieveable and strong relation with customers will let the business know about the expected demand and the Infrasource can mobilize its resources accrdingly. However, the different entities that have been bought by Infrasource have not been integrated with each others and this is an un-used asset that can be integrated with each other because this will help us to achieve synergies, which will increase the revenues in future.
Additionally, the GFI has a long history of good performance and have developed good business relations with its customers and this ability of its business can be used in this way to increase the customer base.
Q2.) What are the key areas of due deligince, including any that are specific to this business?
Due diligence is the process of establishing the facts and statements that has been presented in relation to any business opportunity that are realistic and achievable. Furthermore, it is a process of confirming the representations made with the documents for the correctness of the these representations. However, the key areas of due diligence include the financial review of the investment opportunity because the financing of any business opportunity is the key for the successful implementation. In addition to this, due diligence should be carried out regarding the legal aspects as well as the financial aspects in order to avoid any non compliance issues, meanwhile, the contracts that the business opportunity had made with suppliers, employees or other business partners should be revenue and their authenticity must be checked. At InfraSource, we have established that the due diligence of risks and reward should be confirmed by the non serious attitude.
Q3.) What would be your expected rate of return for this investment given its risks and prospects? Why?
This investment opportunity is very much attractive due the fact that the future earning growth potentials of its three business segments, meanwhile, the risk on this investment opportunity is also not very much high because Infrasource has been successfully operating in infrastructure building market in the United States. Furthermore, as per the return analysis performed in case, it shows that the expected return on investment will increase with the passage of time and the more longer we hold the invetment and bring improvement in their operation; the higher returns it will generate for us. Therefore, I will expect a rate of return on investment of around 31%.
Q4.) How much would you be willing to pay for this investment? how did you arrive at that valuation?
How much an investment opportunity is worth depends on value assigned to its existing operations and we can use EBITDA multiplier in order to calculate the valuation or price of Infrasource, however, given the risk of this opportunity and the retruns expected from this opportunity, maximum reasonable price will be arround $325 million. This price has been calculated using the range of EBITDA multiplier and the corresponding return on investment of 31% has matched as per the expected return that was selected in question 07.
Q5.) What are the possible exit strategies for this business? Which is the most likely and why?
Exelon Corporation have a number of possible exit strategies available to it such as the liquidation of the business, however, in this exit strategy the operations Infrasource will be sold on piece meal basis and the realized cash will be used to pay out standing liabilities first and then the residual amount will be distributed among equity holders as per their agreed proportion. For the meantime, the value of liquidation will not include any provision for the future revenues that the business is expecting to generate.....................................
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