Paint-Pen, Inc Harvard Case Solution & Analysis

Needed investment to focus on acquisition value

Initially there are two ways of financing the deal. One way is bank, and other is equity. However, both financing methods do have different sets of complications. Bank is a financial institution, and an intermediary between the borrowing and lending. Let’s discuss each financing source and identify the best one.

The bank’s main source of the revenues is from borrowing from individual investors, and lending to the customers. Therefore, the difference of the interest, bank pays to the lender and interest paid by borrower is the revenue of the bank.

Hence, this is how the bank creates money. Hence, if the bank the bank has to pay interest to the investor (saver) who lends money to the bank to earn interest, and on other hand, the borrower pays interest to the bank for the amount he borrowed from him. In such a case, the borrower has to pay interest in anyway, its due upon him, if he fails to generate profit, then there would be negative consequences.

Similarly, equity financing is a way to finance through issuing shares in the market. However, the investor would require dividend per share annually along with the capital gain, which means there would be an increase in the share price. Thus, the share price would increase, if the company is operating well in the market.

Similarly, dividend per share also depends on what policy does has the company adopted either to pay the earning, or retain it to expand the operations. In both situations, it would have positive impact on the company. Moreover, equity financing is more preferred source of financing rather the bank debt as discussed above.


Deal for investor/lender

Investor is always fearful about the risk associated with investment. Similarly, company has the growth, and has potential to grow in the market. However, investor do have concerns over the company’s performance. On the other hand, if we take a look at the sources of the financing, then the investors would be ready to invest in the company.

This is because the company’s major financing source is from the bank financing around 75%. However, the bank is the first owner of the assets of the company, in case if the company defaults, then the bank will take over the assets of the company.

Thus, the bank would be more interested in financing the company, because it will have interest earning since the company operates in the market, otherwise, the company itself is a collateral to the bank.

Deal Structure

The sources of the financing remain same, except angel’s investors portion as they do contribute originally 13% of the financing portion into the company. In contrast bank financing is 75%, buyer financing is 2%, and seller financing is 10%.

Therefore, the question remains that what portion of the equity would be preferable. However, the total contribution of the angel’s investors would remain 13% always, but it is important to measure proper portion of the investors contribution in the angel financing, which includes hedge fund portion, bank loan, Un-regulated financer, Mezzanine investor, and strategic a buyer as well...........

This is just a sample partical work. Please place the order on the website to get your own originally done case solution.

Share This


Save Up To




Register now and save up to 30%.