Bloomberg Capital June 2007 Case Solution

Slide 1

• As far as the business of AP is concerned, AP software has a strong model. Why?

  • It allows cost savings

  • They offer environmentally friendly products

  • Their potential market is substantially large and diversified

  • They offer customized services

  • Their current customer base is also diversified

• In terms of financial performance, AP software is performing exceptionally well with revenues and EBDITA margins increasing.

• €44 million value is justified as the performance and the future growth prospects bear a positive outlook. Moreover, as per the management’s review, EBDITA multiple of 5x is also sufficient.

• The issue of 22% Han’s ownership and rest of 18% management/relative ownership appear to be a possible issue for the counterparty. Moreover, as per the sale plans, Hans could still be involved in the management of the firm. Hence, investors might not feel comfortable with this factor. Nevertheless, most of the investors will be interested in AP software.

• It is easy to arrange for investors in the case of AP as the company is fairly attractive to a diversified class of investors.

Slide 2

• With a substantial share in the diamond industry, Niran Technologies has a fairly stable financial performance. However, its net margin has an unstable trend. However, the company jumped from a meagre revenue base in 2004 to a more than 50% increase in 2005.

• Verdict: Financial performance is strong

• From the point of view of the business model, Niran technologies offers services that belong to a narrow customer base. Even though the size of potential market is large, the geographical locations of its services are dominated in India. European investors might be interested in holding the portfolio of assets that dominates in South Asian economies which are considered as emerging and developing markets. Moreover, the management of the firm is adequately experienced.

• €100 million is justified under the optimistic growth figures projected in the financial statements.

• Even though South Asian markets might be a target for the investors, they bear a huge risk. Also, 70% of revenue of Niran is tied up in India. Therefore, only a small class of investors might be interested in the investment.