Apax partners ad Xerium S.A. Essay

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APAX PARTNERS AND XERIUM S.A.

1. What tactics/actions did Apax take to enable it to acquire BTRP in an auction without over-paying? How did Apax add value to Xerium?

Apax took a well-designed strategy to bid for Xerium. First, they understood it was not a competitive auction. Secondly, they took advantage of the momentum and circumstances of the seller that was under distress. Finally, they spent huge resources to analyze and calculate the value of Xerium to Apax.

First, they analyzed the competitors in the auction. The team observed it was a very opaque industry with only few companies public, limiting the access to information. Luckily, Apax had a competitive advantage (Wangner’s expertise) in the industry which allows
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Also, the market downturn in the paper industry may have a pressure on the price compared with its real value.

Renegotiating with the third bidder is also a clean exit for Apax with the target buyer partly educated. Unfortunately, another round of negotiation will distract the management from operations, especially when Xerium is being put in the disadvantage side in the negotiation. As the only potential buyer, the third bidder may raise a lot of special requests including but not limited to price and due diligence. Moreover, the bidder has the incentive to “take his time” in making the decision, since the market downturn may further pressure the price.

Recapitalization seems to be the best alternative discussed in the case, mainly because of the underlying 39% IRR (discussed below). There are chances to expand the pie (through consolidation and/or operational improvement) and sell it at a higher price, taking the advantage of the potential market pick-up in 2003. Two potential risks are that the higher price is not guaranteed and that there is low interest from financial buyers and no powerful strategic buyer, future selling negotiations may take time again.

IPO is not feasible either. As discussed in the case, the company, although the market leader in its field, is too small in terms of revenue for an IPO. The paper sector is not hot

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