Printicomms Proposed Acquisition of Digitech - Negotiating Price and Form of Payment - Price Negotiation

Printicomms Proposed Acquisition of Digitech - Negotiating Price and Form of Payment - Price Negotiation

1. Case Summary

1. Provide brief summary of the case (Not more than 300 Characters)

Ans- the case describes various aspects of acquisition of one firm by another firm and the related issues and methodology of firm valuation and its subsequent payment terms for this valuation. The case introduces a unique acquisition payment transaction of earnout.

1. Case Problem - 1

1. Describe ‘Problem 1’ – Less than 200 Characters

Ans- The appropriate valuation of firm digitech for acquisition by Printicomms and the difference in valuation by the seller and the buyer.

1. List out the Corporate Finance Theories that can be used to Solve ‘Problem 1’ – Less than 200 Characters

Ans- valuation based on discounted cash flow. valuation based on current EBITDA and future growth prospects.

1. What are the various ways / methods of addressing or solving ‘Problem 1’? Less than 200 Characters

Ans- Arriving at an optimum valuation by DCF analysis. Comparing the valuations of similar firms with similar credentials.

1. What is the optimal solution to ‘Problem 1’? – Less than 100 Characters

Ans- based on strong growth prospects, the valuation based on current EBITDA and future growth prospects is the optimal solution.

1. Case – Problem 2

1. Describe ‘Problem 2’ – Less than 200 Characters

Ans- Retention of premier employees of digitech and keeping them aligned towards the growth and profitability of the firm after acquisition.

1. List out the Corporate Finance Theories that can be used to Solve ‘Problem 2’ – Less than 200 Characters

Swap ratio for share to share exchange. ROIC and Cash conversion cycle. Earnout.

1. What are the various ways / methods of addressing or solving ‘Problem 2’? Less than 200 Characters

Ans- Linking the payments to ROIC and Cash conversion cycle. Earnout. A certain potion of payment can be made by swapping the shares, thus aligning the interests of the top management.

1. What is the optimal solution to ‘Problem 2’? – Less than 100 Characters

Ans- The three  year Earnout structure.

1. Case – Problem 3

1. Describe ‘Problem 3’ – Less than 200 Characters

Ans- In case if the deal fails, should Printicomms go for a similar firm or should it develop its own software equivalent to the software Marketelegence instead of going for the acquisition.

1. List out the Corporate Finance Theories that can be used to Solve ‘Problem 3’ – Less than 200 Characters

Ans- Merger and Acquisition of other rival firms.

1. What are the various ways / methods of addressing or solving ‘Problem 3’? Less than 200 Characters

Ans- Due diligence test of other rival firm after the end of exclusivity period. Increased expenditure on in-house R& D for development of equivalent software.