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Ducati and Texas Pacific Group A Wild Ride Leveraged Buyout Case Solution
The Texas Pacific Group seeks to acquire a controlling interest in the Bologna, Italy-based Ducati, the largest manufacturer of motorcycles in the world. On the other side, Cagiva Group's a family-owned Ducati company. Due to difficult economic conditions, the Cagiva family's only successful and high-earning division is Ducati. However, Ducati is also dealing with a number of financial issues, such as a lack of working capital. In the past year, Texas Pacific Group has engaged in numerous talks. The TPG Company's management is now disgruntled and wants to cancel the acquisition arrangement. TPG wants to buy Ducati at a cost that is greater than what it is currently valued. Now the problem for TPG is to offer such a deal to the Ducati's owner family, which leaves both the parties satisfied both economically and financially. In order to make this deal a successful one, Cagiva Group needs to let go of its years-long family-owned business.
Following questions are answered in this case study solution
What is the nature of the opportunity? Could the Ducati brand be expanded beyond motorcycles? Why? Why not?
How does this deal differ from a typical private equity deal in the U.S.? In terms of deal flow generation, due diligence process, negotiations and context?
What is the value of Ducati at the time of the deal? How much should TPG be willing to pay for 51% of the equity?
Should Abel Halpern walk away from this deal? Why? Why not?
If TPG pursues the deal and purchases a stake in Ducati, what are the critical steps that TPG needs to take in order to make the deal successful and to minimize the related risks? Please be specific in your answers.
Case Analysis for Ducati and Texas Pacific Group A Wild Ride Leveraged Buyout
1. What is the nature of the opportunity? Could the Ducati brand be expanded beyond motorcycles? Why? Why not?
It can be evaluated after examining the company's vast industrial structure and comparable motorcycle manufacturing companies. Following are the different perspectives through which the business can be looked at;
As seen in Exhibit-1 below, where Honda, Kawasaki, Suzuki, and Yamaha had the majority of the market share, the competitive competition is fierce for the company because other competitors are well-established in the industry with strong brand image and market share. Particularly in the sports sector of the market, where the company competes with Japanese companies and others like BMW, Harley-Davidson, and Triumph, which are all technologically cutting edge with a strong brand image in the market and easy access to finance, the rivalry is fierce. In consequence, it enables businesses to invest more in their R&D endeavors. Additionally, this has made Ducati's industry more competitive. The corporation would be in a precarious situation when dealing with any uncertain events that could influence the company's profitability and sales if it had to invest more in its R&D efforts in order to achieve a competitive advantage. Because of this, it was easy for customers to switch, which encouraged competition. In order for a particular business to thrive in the market, it needs to understand its competitors, and thus Ducati needs to invest much more in its marketing department and R&D. In a way, both these departments can help Ducati in increasing its market share by understanding its competitors in the market including Harley Davidson, BMW, etc.
Threats of Substitutes
The threat of substitutes is moderate for the business because clients have access to a wide range of other options, such as cars, mopeds, all-terrain vehicles, snowmobiles, and golf carts. But nothing compares to the sense of freedom a motorbike rider experiences. The industry is made up of fervent motorcycle enthusiasts who maintain the market for bikes. As a result, the industries' competitive rivalry to win over those ardent motorbike enthusiasts grows.
2. How does this deal differ from a typical private equity deal in the U.S.? In terms of deal flow generation, due diligence process, negotiations and context?
In 1946, the business created a new direction during World War II by releasing a little auxiliary motor dubbed "il Cucciolo" that could be mounted to a bicycle to boost speed. The item was a success and served as the foundation for other motorcycle models. Fabio Taglioni, popularly known by his colleagues at Ducati as "Dr. T," created the "Desmo" (Desmodromic) system in the middle of the 1950s, allowing for more revolutions per minute and more power. The system, which was implemented in all models and is still in use today, was crucial in making Ducati a significant player in the motorcycle racing world. By producing the "Monster" in 1993, the business brought the appeal of the racetrack to the streets.
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