Student name
Professor’s name
Unit code
Date due
Financing Entrepreneurial Business, Pandora
Introduction
Pandora is a multinational company dealing with charms. It is a one product line company operating in 2 countries, namely; Denmark, the USA, and Sweden. Pandora has been growing gradually until the expansion was faced by five challenges, outdated technology, which slowed its operation. The management has been over-dependent on the decisions of the founders; the employees are given too many responsibilities (Philip et al. 2017). Now they see a need to hire a CEO to lead the company. A need for private equity funds preceded the search for a CEO. The management understands the need to engage the company under a partnership of equity to solve some issues encountered by the company.
Analysis of the best PE house to fund Pandora
A solution to one product dependence
Pandora is highly dependent on one product, stilling up to 90% of the business that missing link in the company to be diversified to win more market and reduce competition in the three foreign markets. First, Nordic capital invested in fashion n and fitness chain business only, which shows Nordic capital has no relevant experience in the field. Triton business, too, lacks the diversification needed by Pandora. Axcel is the PE fund that fits well in this line of business, which will bring in new ideas and experience since it has invested in the same industry as Pandora.
Right valuation
The management claims the valuation of Pandora needs to be close to DKK3 billion. The nordic fund is 27 billion, and Triton partners have committed the capital of DK 16 billion. The company doesn’t require too much cash. This leaves Axcel has the right partner coming with the exact required valuation of DKK 3 billion (Philip et al. 2017).
Experienced and qualified executive to fill the position
Reportedly, Pandora is over-dependent on the decision of the founders Per Enelvoldsen and Kenneth Ramstrup. Nordic and Triton seem to lack the required executive to fill in the positions of the CEO, CFO, Production Manager, and creative director. Axcel fund has partnered with industries that are closely related to Pandora’s product. The executives have the right skills to fill in their positions without outsourcing.
Update of IT systems.
Pandora systems are not integrated, and Per himself has programmed the Thailand systems. The systems need a consolidated financial reporting system to be installed, and the full implementation of ERP needs to be done gradually. Axcel fund aims to invest with a particular focus on improving information and technology in its sectors, which is a plus to Pandora; therefore, the management should choose Axcel’s equity (Philip et al. 2017).
Investment location and strengthening competition
Axcel is a famous investor in Sweden and Demarks. Gorge Jensen is a luxury designer of silver wire. Partnering with Axcel shall open the best opportunities to improve diversify product and lock competition. Gorge Jensen has operations in Thailand manufacturing (Philip et al. 2017). Pandora’s operations shall be aided through consultations and the likelihood of benchmarking. Axcel is the best privet equity fund to invest in this context
The proposed deal structure
After October 2007, the profit and loss from January to October was as shown below
| PANDORA B | |
| PROFIT AND LOSS | |
| JANUARY TO OCTOBER 2007 | |
| DKK | YTD 2007 |
| Revenue | 817,933.00 |
| Cost of goods sold | 245,540.00 |
| Gross profit | 572,393.00 |
| Gross margin | 70.00% |
| EBITDA | 413,202.00 |
| EBITDA margin | 50.50% |
| Net profit | 351,069.00 |
My recommended deal will be as follows
| PROFIT AND LOSS | |
| JANUARY TO OCTOBER 2007 | |
| dollars | YTD 2007 |
| Revenue | $ 106,994.40 |
| cost of goods sold | $(26,763.86) |
| gross profit | $80,230.54 |
| gross margin | 75.00% |
| EBITDA | $ 54,020.40 |
| EBITDA margin | 50.00% |
| Net profit | $ 45,910.80 |
| EBITDA CAGR | 95% |
AXCEL DEAL
- Axcel Invests $84m million for 70% hence
$ 84m = 70%
= 100%
= (100%*$84m/70%) =$120million
- The equity value will be $120m
- Bank debt $230 million
- Cash-out of $200m to existing shareholders
- Other $150m used to purchase Australian and German distributors
Equity financing
Through equity financing, the company is exposed to less risk. Axcel comes with the benefit of an experienced executive. The investor takes up 70% of the company, but the management is strengthened, and thus the company has a high possibility of expansion and gradual growth
Debt financing
Through debt financing, the company can gain funds to spearhead the operation of the company. In this case, the bank shall lend $230million as a long term debt to the company. Debt financing enables long-term planning. The company has a good history of profitability, and thus, it can cater to the debt repayment.
What is the enterprise value?
$350m@ 70% = $500m or
$120m + $230m = £350m)
Or is it the cash out value to the founders that really matters?
Cash-out of $200m@70% stake = £285m
Trade buyers at the time were offering $500m
EBITDA grew by 50% in 2008 and by consolidating
German and Australia EBITDA doubled to $140m in 2009.
Forecast EBITDA for 2010 was $200m
The enterprise value of £1.8bn
Equity Value of £1.8bn – £200m debt = £1.6bn this was generous
Conclusion
In summary, this paper reviews the criterion for choosing the best private equity house results from the review of what they offer, namely, ready skills of leadership, information technology updates, experience with product line industry, and geographical and demographic considerations. The article also reviews the best instrument that can be used by the chosen house as it invests in Pandora. The instruments turn out to be useful and boost the productivity of the company.
References
Philip E., Mullins J., Williams M., Pandora (B) London Business school (Aug. 2017).