DEUTSCHE BANK SECURITIES:
FINANCING THE ACQUISITION OF
CONSOLIDATED SUPPLY S.A.
Synopsis and Objectives
In November 2003, Maria Ober, a vice president of Deutsche Bank Securities, received a client request for financing the acquisition of a large hospital-supply distributor. The client needed to present the seller with an offering price and an indication of financial commitment within two weeks. The contemplated transaction entailed a highly-leveraged acquisition of the target. The tasks for the student are to value the target firm and projected synergies, assess the credit worthiness of the target (i.e., its ability to bear the high debt), and critically evaluate the general design of the transaction.
This case was…show more content… The following plan depicts a standard class discussion format.
1. What is the problem in the case?
Maria Ober needs to recommend a credit decision on this deal. It would make sense for the instructor to begin with some discussion of how a senior credit officer structures the analysis for a credit decision. More importantly, the problem is not simply a yes-or-no decision on the loan, but rather, a more creative task of structuring and negotiating a deal that is sufficiently attractive to all parties.
2. What is CSSA worth? A logical place to begin the analysis is with the appropriateness of the acquisition price. Are the asset values sufficient to support the loan? Is the buyer overpaying?
3. How much value would the improvement in the EBITDA margin add? This section addresses the economic efficiencies that the buyer expects to harvest.
4. What credit rating should Maria Ober give to this financing? Is the return to the creditor adequate to compensate for the credit risk? Here, the discussion turns to the more prosaic aspects of credit analysis.
5. Is this deal attractive from ICL’s standpoint? What might be done to improve the returns? This section of the discussion turns to the creative structuring aspect of the problem. The returns to the equity investor seem skimpy. Students should be challenged to look for a way to improve the returns, rather than just reject the deal.
6. In summary, how should Ober respond to the request for financing