Palamon Capital PartnersTeamSystem S.p.A Harvard Case Solution & Analysis

Quantitative Analysis

We need to see whether 51% common equity is worth or not, to evaluate the calculated discounted cash flow and multiple based valuation discounted cash flow is a technique for the company’s valuation; in this case we can identify whether or not we should invest in the project. Discounted cash flow technique is a very simple decision making process; if the amount is positive then company will consider to invest otherwise not. In this situation, we take all the inflows and outflows of the amount and calculate the tax payment. To calculate the tax payment we will deduct the depreciation but later on depreciation will be added back as this is a non cash item after calculating the tax payments.

 At the end of the project, we will calculate the terminal value in which net cash flow will be taken that arise on the end period of the project and that will be adjusted for the growth along with the discount rate.

 Palamon is investing of EUR 25.9 in the common equity of the Team System, we computed the discounted cash flow to decide whether Palamon should invest in the Team System and NPV of the Team System is 40784.5, which means that the NPV is more than the initial investment and the NPV is positive, this represent that Palamon should invest in the Team System.

Other than the discounted cash flow technique, we have calculated multiple based valuations as well to decide whether 51% of the Team System is worth it or not. In the multiple based valuations, we incorporate some figures like sales along with EBIT and we calculate the growth of sales and EBIT to know how is the Team System. From 2002 to 2007 sales is increasing and EBIT is increasing as well, the reason might be that there was a growth in the Team System and it was performing well. So if the Palamon is considering to invest in the Team System on the basis of the discounted cash flow and on the multiple based valuation; then Palamon should invest in the Team System as the discounted cash flow is positive and as the per multiple based valuation if we look at the sales and EBIT then sales and EBIT is increasing over the years, so this seems that Palamon can invest in the Team system and the 51% of the Team System in the common equity is worth it.

 Palamon is considering to invest in the Team System, which is in Italy and Palamon is a European based company itself that means Palamon is considering to invest in entirely different country; this represent the cross broader ideal, so it may be possible that there are some issues arising due cross broader deal.

There are chances that Team System will have totally different culture, language, work environment and Palamon might not be aware from that culture, language, work environment so Palamon have to deal with these issues, not only this there might be some government rules and regulations as well which need to be considered; there are chances that the government issue policy in the future that might result in loss or risk if the Palamon will invest in the Team System say suppose if future government will not allow investment from the other country and or not allow to take the income from Italy to their home country, so this is a risk and Palamon needs to considered these issue before investing in the Team System.

There will be foreign exchange risk as well, there may be chances that Palamon will face this as it is investing in a different region so there may some payment or receivable take place and due to foreign exchange risk there are chances that Palamon will face the risk of higher payment or face the risk of less receivable and Palamon also have to consider the inflation of the Team System as well because if inflation is high in the Team System’s country then there currency is depreciating and in the case Palamon will be required to pay more amount. So this risk is very important and should be considered before investing in a different country.

Palamon also have to consider its own country’s rules like if it will bring its income from Italy; then it needs to considered whether there is any double tax impact on the European country and Palamon is also need to consider the impact of the worse reputation in its own country, which arise as the Palamon is investing in elsewhere instead of its own country so this may give a negative impression to the European government.....................................

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