Thoma-Bravo--Citect-Corporation-Take-Private Case Study Solution
Strategic Buyer
Pros
Schneider Electric S.A.can create value for the company by realizing the synergies via acquisition due to their similarities with the ability to omit the redundant function and target. The Schneider Electric S.A. can also create operational synergies and help in improving the efficiency to greater extent. Furthermore, the Schneider Electric S.A. would better access to the capital and they tend to offer cash, stock or a combination of two in payments of the purchase price. The strategic buyer would come up with the market share, tie-ups and expertise, which in turn gives a significant benefit to the company.
Cons
On the other hand, the strategic buyer might not be the best fit for the company. There is a likelihood that the interest of strategic investor would diverge from the Citect Company’s interest, hence leading to the diminished support of investor for the company. The strategic investment might prove to be a bad decision in case the due diligence is not done properly and the inputs are not critically examined.
Financial Buyer
Pros
Thoma Bravo would make significant investment in Citect Corporation with the long term goal of reaping operational, strategic and financial returns.It would lead the company to have a strong competitive edge and impressive future growth potential. Thoma Bravo would bring multiple benefits to the company. It would also bring resources to the company as alternate sources of capital, increased operating efficiencies and improved financial disciplines.
Cons
In contrast, the investment from financial buyer might result in the loss of management control in Citect Corporation. The company might lose its direction, and control of basic elements such as hiring and firing employees, setting strategy and choosing management team. The company would be left with nothing and lose its ownership after being acquired by the financial buyer.(Marc Martos-Vila, 2012).
Recommendations
After taking into consideration the valuation of the Citect Corporation using two rates of WACC with constant inflation rate, the valuation shows positive Net Present Value in both cases, which shows that the acquisition would be the significant mean of growth for the business and it would drive superior operating results and long term value for the company. It is to suggest that the company should win the deal by offering price ranging between A$1.91 and A$3.36, it would allow Citect Corporation to receive the takeover offer from Thoma Bravo over Schneider Electric S.A.
Appendix A
| TB Financial Projections for Citect Corporation | |||||||
| (A$ millions) FY ends 12131 |
£2006 | £2007 | £2008 | £2009 | £2010 | £2011 | £2012 |
| Revenue | |||||||
| Scada Licenses | $27.7 | S28.2 | $28.8 | S29.4 | S29.9 | $30.5 | $31.1 |
| Ampla Licenses | S6.1 | $8.5 | Sti.5 | S13.7 | S16.1 | $17.7 | S18.8 |
| Support Contracis | $14.7 | SI8.4 | $22.1 | S25.4 | S29.2 | $31.3 | $33.4 |
| Professional Services | $24.5 | S24.7 | $25.0 | S25.2 | S25.5 | $25.8 | S26.0 |
| Total Revenue | $72.9 | S79.8 | $87.3 | S93.7 | $100.7 | $105.2 | $109.4 |
| COGS | $24.7 | S26.3 | $28.1 | S29.6 | $31.4 | $32.5 | $33.6 |
| License Gross Profit | $28.9 | $31.4 | $33.9 | $36.2 | $38.5 | $40.2 | $41.5 |
| Support Gross Profit | $10.1 | S12.6 | $15.7 | SI8.1 | S20.8 | $22.2 | S23.8 |
| Services Gross Profit | S9.3 | $9.6 | $9.6 | $9.8 | S10.0 | $10.2 | S10.4 |
| Total Gross Profit | $48.3 | SS3.6 | $59.3 | S64.1 | S69.4 | $72.7 | S75.8 |
| R&D | S6.9 | $7.6 | $8.3 | $8.9 | $9.6 | $10.0 | S10.4 |
| Sales & Marketing | $12.4 | S13.6 | $14.8 | S15.9 | St 7.1 | $17.9 | S18.6 |
| G&A | $14.4 | S15.5 | $16.4 | S16.7 | SI8.5 | $19.4 | S19.9 |
| Total Operating Expenses | $33.7 | $36.7 | $39.5 | $41.5 | $45.2 | $47.2 | $48.9 |
| EBITDA | $14.6 | S16.9 | $19.7 | S22.6 | S24.2 | $25.5 | S26.8 |
| D&A | l.7 | 1.90 | 2.I | 2.20 | 2.20 | 2.30 | 2.40 |
| EBIT | $12.9 | S14.9 | $17.7 | S20.4 | S21.9 | $23.2 | S24.4 |
| Tax (32%) | 4.128 | 4.768 | 5.664 | 6.528 | 7.008 | 7.424 | 7.808 |
| Profit after tax | 8.772 | 10.132 | 12.036 | 13.872 | 14.892 | 15.776 | 16.592 |
| Working capital | 4.9 | 5.4 | 5.9 | 6.4 | 6.8 | 7.3 | 7.6 |
| Capital expenditures | 2.2 | 2.2 | 2.3 | 2.3 | 2.4 | 2.5 | 2.5 |
| D&A | l.7 | 1.90 | 2.I | 2.20 | 2.20 | 2.30 | 2.40 |
| Free cash flows | 3.372 | 4.432 | 5.936 | 7.372 | 7.892 | 8.276 | 8.892 |
| Terminal value | 211.96047 | ||||||
| Discount period | 0 | 1 | 2 | 3 | 4 | 5 | 6 |
| Discount factor | 1.0000 | 0.9363 | 0.8767 | 0.8209 | 0.7686 | 0.7197 | 0.6739 |
| Discounted Free Cash Flows | 3.372 | 4.14981273 | 5.2041689 | 6.0516189 | 6.06599525 | 5.9561307 | 5.9920018 |
| Discounted Terminal Value | 142.8326019 | ||||||
| Enterprise value/net present value | 179.6243303 | ||||||
| Weighted average cost of capital | 6.80% | ||||||
| Growth rate | 2.50% | ||||||
Appendix B
| TB Financial Projections for Citect Corporation | |||||||
| (A$ millions) FY ends 12131 |
£2006 | £2007 | £2008 | £2009 | £2010 | £2011 | £2012 |
| Revenue | |||||||
| Scada Licenses | $27.7 | S28.2 | $28.8 | S29.4 | S29.9 | $30.5 | $31.1 |
| Ampla Licenses | S6.1 | $8.5 | S11.5 | S13.7 | S16.1 | $17.7 | S18.8 |
| Support Contracis | $14.7 | S18.4 | $22.1 | S25.4 | S29.2 | $31.3 | $33.4 |
| Professional Services | $24.5 | S24.7 | $25.0 | S25.2 | S25.5 | $25.8 | S26.0 |
| Total Revenue | $72.9 | S79.8 | $87.3 | S93.7 | $100.7 | $105.2 | $109.4 |
| COGS | $24.7 | S26.3 | $28.1 | S29.6 | $31.4 | $32.5 | $33.6 |
| License Gross Profit | $28.9 | $31.4 | $33.9 | $36.2 | $38.5 | $40.2 | $41.5 |
| Support Gross Profit | $10.1 | S12.6 | $15.7 | SI8.1 | S20.8 | $22.2 | S23.8 |
| Services Gross Profit | S9.3 | $9.6 | $9.6 | $9.8 | S10.0 | $10.2 | S10.4 |
| Total Gross Profit | $48.3 | SS3.6 | $59.3 | S64.1 | S69.4 | $72.7 | S75.8 |
| R&D | S6.9 | $7.6 | $8.3 | $8.9 | $9.6 | $10.0 | S10.4 |
| Sales & Marketing | $12.4 | S13.6 | $14.8 | S15.9 | St 7.1 | $17.9 | S18.6 |
| G&A | $14.4 | S15.5 | $16.4 | S16.7 | SI8.5 | $19.4 | S19.9 |
| Total Operating Expenses | $33.7 | $36.7 | $39.5 | $41.5 | $45.2 | $47.2 | $48.9 |
| EBITDA | $14.6 | S16.9 | $19.7 | S22.6 | S24.2 | $25.5 | S26.8 |
| D&A | l.7 | 1.90 | 2.I | 2.20 | 2.20 | 2.30 | 2.40 |
| EBIT | $12.9 | S14.9 | $17.7 | S20.4 | S21.9 | $23.2 | S24.4 |
| Tax (32%) | 4.128 | 4.768 | 5.664 | 6.528 | 7.008 | 7.424 | 7.808 |
| Profit after tax | 8.772 | 10.132 | 12.036 | 13.872 | 14.892 | 15.776 | 16.592 |
| Working capital | 4.9 | 5.4 | 5.9 | 6.4 | 6.8 | 7.3 | 7.6 |
| Capital expenditures | 2.2 | 2.2 | 2.3 | 2.3 | 2.4 | 2.5 | 2.5 |
| D&A | l.7 | 1.90 | 2.I | 2.20 | 2.20 | 2.30 | 2.40 |
| Free cash flows | 3.372 | 4.432 | 5.936 | 7.372 | 7.892 | 8.276 | 8.892 |
| Terminal value | 121.524 | ||||||
| Discount period | 0 | 1 | 2 | 3 | 4 | 5 | 6 |
| Discount factor | 1.0000 | 0.9091 | 0.8264 | 0.7513 | 0.6830 | 0.6209 | 0.5645 |
| Discounted Free Cash Flows | 3.372 | 4.029091 | 4.905785 | 5.538693 | 5.390342 | 5.138745 | 5.019302186 |
| Discounted Terminal Value | 68.59712988 | ||||||
| Enterprise value/net present value | 101.9910879 | ||||||
| Weighted average cost of capital | 10.00% | ||||||
| Growth rate | 2.50% | ||||||
Appendix C
| Share Price Calculations | ||||
| Share price calculation with low extreme NPV | ||||
| Number of outstanding shares (Diluted) | 53319800 | |||
| Enterprise value | 179624330 | |||
| Share price | 3.368811023 | |||
| Share price calculation with high extreme NPV | ||||
| Number of outstanding shares (Diluted) | 53319800 | |||
| Enterprise value | 101991087.9 | |||
| Share price | 1.912818276 | |||
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