Palamon Capital Partners/Teamsystem S.P.A. Essay

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PALAMON CAPITAL PARTNERS/TEAMSYSTEM S.P.A. Teaching Note Synopsis and Objectives In February 2000, a managing partner of a U.K.-based private equity fund, Palamon Capital Partners, faced the decision of whether to invest in an Italian software company, TeamSystem, S.p.A. The rationale for this investment was a belief in the rapid future consolidation of the Italian enterprise software industry, in combination with improvements in operating performance that were believed to arise from a stronger investor orientation after the transaction. The transaction entailed a leveraged recapitalization of the target that would significantly change its ownership, control, and leverage. The task for the student is to evaluate the attractiveness of the investment, based on a strategic appraisal, a valuation of the target with its new capitalization, and an assessment of the proposed deal structure. This case was developed to support the following teaching objectives. • Introduce the practice, goals, and process of private equity investing and provide a basis for comparing those attributes with public market investing. • Consider the diffusion of private equity investing practices around the world. • Exercise skills in valuing a business. The case offers the student a chance to perform both a discounted cash flow and a market multiple valuation of TeamSystem. The valuation tasks confront the realistic constraints that face many private equity analysts, a lack of detailed historical and forecast financial information and few publicly traded comparable firms. • Consider the impacts of changes in leverage, control structure, and of a cross-border transaction with the attendant country risk and exchange rate bets. Suggested Questions for Advance Assignment 1. What is private equity investing? Who participates in it and

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