Compagnie d'Equipements Electroniques

Published 01 Sep 1997
Reference 4715
Region Europe
Summary

In early 1994, senior managers and major shareholders of Sté Lambert, a medium sized privately held French company distributing automotive components, decided to put their company up for sale. Two of its major suppliers (Compagnie d'Equipments Electroniques and Société MCE) were interested in buying it to increase their own market shares. The two suppliers were competitors, neither wanting the other to gain more market share by buying Lambert. Lambert's management had recently over-invested in new facilities, which greatly increase debt; for tax reasons, they had been milking the company with the result that its apparent earnings were low. Both the buying and selling companies are considering several valuation methods besides a DCF approach.

Teaching objectives

The case requires an analysis of the target company's true performance and financial position, an estimate of future cash flows - growth, an overhaul of its working capital and financial structure, and an assessment of the suppliers' relationships after sale to one or the other potential buyer. The discount rate must also be estimated, complicated because there are no publicly traded companies in the sector to provide a benchmark. Spreadsheet software on Excel is available to help students make a valuation. The cases lend themselves to a negotiation exercise where the two potential buyers would each try to strike a deal with the sellers.

Keywords
  • Financial Analysis
  • Mergers and Acquisitions
  • Valuation
  • Cost of Capital
  • Financial Structure
  • Financing Acquisitions
  • Negotiating M and A Terms