Autoparts: analysis and valuation of a distressed buy-out by a private equity investor

This case is available at The Case Centre with reference no. 113-003-1.

At the end of 2008, Dutch automotive component supplier AutoParts was on the verge of bankruptcy, due to high leverage levels combined with lower revenues as a consequence of the worldwide economic crisis. When looking for a solution, AutoParts’ management had identified a syndicate of two private equity investors, Gimv and Investco. Gimv is the main provider of private equity in Belgium and a leading player in the European investment market. Investco is a regional investor which offers a unique combination of private equity, project financing and real estate to businesses. Both the limited investment required to acquire a majority stake as well as an expected return between 25% and 35% make the investment attractive to Gimv. Moreover, a combination of potential operating and financing improvements was possible at AutoParts. However, the proposed transaction also entailed substantial risks. The business activity is cyclical and was suffering heavily from the economic downturn. In addition, the firm has to deal with limited customer diversification. Another threat was the company’s overleveraged financial structure caused by two previous buy-outs. The deal with Gimv and Investco created a more solid financial structure via deleveraging to normal levels. This case discusses a private equity investment in a distressed company undergoing operational and financial restructuring. It strongly focuses on the valuation of a troubled company.

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