LoneStar Graphite Harvard Case Solution & Analysis

LoneStar Graphite Case Solution

Introduction

Lonestar Graphite is a potential purchase for a center market private equity firm. The private equity firm should decide what to offer for an equity position in Lonestar, in light of both fundamental operations of the business and the availability of other sources of funds (largely debt) to finance a transaction. Furthermore, the opportunities for the analysis include the application of some valuation techniques including variations of discounted cash flow models and multiples.

Q1

Strong business sector position and competitive advantages:

It is expected that the Lonestar is a good candidate of Loathes that might appear glaringly evident, yet stable LBO applicants incorporate organizations that are business sector pioneers with practical plans of action. This can be portrayed by high obstructions to passage, high exchanging costs, and solid client connections. The outline of the plant and motivation behind every machine were precisely selected and was developed over the company's history whereas, it could be said that the multifaceted nature of Lobsters assembling operations was its advantage and this made it workable for contenders to reproduce Lonestars items.

Multiple avenues of growth

It is constantly helpful to have a balanced and different growth strategy so that an organization's success is not entirely dependent on one driver.

Trends

Private equity firms are continually searching for organizations that are well positioned to benefit from attractive industry patterns, as it would resulting further business sector development which would provide higher equity return potential and stronger downside protection for the investment.

Strong management team

A solid administration group is essential for success as private value firms will give strategic direction, however, they will be solely depend on the administration to execute their working system. If an organization does not have a stable administration group, then the private value firm should have a substitution prepared before even genuinely considering the speculation

Q2

In discounted cash flow valuation, the goal is to discover the estimation of benefits, given their income, development and danger qualities. In relative valuation, the goal is to esteem resources, based on how related resources are as of now estimated in the business sector. While multiples are easy but difficult to utilize and natural, they are additionally simple to misuse. Hence, a progression of tests was created, which could  be used to guarantee that the products are accurately utilized.

There are two parts to relative valuation. The first is to esteem resources on a corresponding premise, costs must be institutionalized, more often than not by changing over costs into products of profit, book qualities or deals. The second is to discover comparable firms, which is hard to do asno two firms are indistinguishable, and enterprises in the same business can, in any case, vary on danger, development potential and money streams. The subject of how to control these distinctions could be the key factor when considering other few firms.

The discounted cash flow (DCF) focuses on the net present worth (NPV) of anticipated money streams, which is accessible to all suppliers of capital. Moreover, the profit should be contributed increasing the planned development. The idea of DCF valuation depends on the rule that the estimation of business or resource is naturally taking into account its capacity to generate money streams for the suppliers of capital. To that extent, the DCF depends more on the great desires of the business than on general business sector elements or recorded points of reference, and it is a more questionable methodology depending on various suspicions. Apart from that,DCF investigation yields the general estimation of the market, including both obligation and value..............

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