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1- What is the nature of the opportunity? Denton Vacuum Inc (DVI), a New Jersey based manufacturer of vacuum deposition equipment for precision optics decided to acquire Singulus, a compact disc metallizer business in Germany that Oehrlikon-Buhrle Holding AG (OBH) has put up Singulus for sale. DVI choosed Schroder Ventures, one of the first LBO group in Germany, as financial partner on this deal. The market for metallizers was dominated by two companies, Balzers (a subsidiary of OBH) and Singulus (owned by Leybold). In November 1994, OBH acquired Leybold, bringing Leybold under the same ownership as Blazers, meant that 90% of CD metallization business would be under one single ownership. OBH had to sell one of the two-metallization businesses, and Singulus has then been put up for sale. Friedrich von der Groeben, Managing Partner of Schroder Ventures Frankfurt office, found the deal very interesting: DM30 million purchase price for a DM 30 million in revenues and DM8 million in EBIT firm. However, beside attractive figures, the deal was not turned out to be a simple one. In fact, the nature of the deal was unusual: First, the market for CDs was highly seasonal, with a peak during Christmas. Demand was difficult to predict in advance and in 1994, capacity was only used at 44% (demand for CDs was 2.1 billion, output was 3.2 billion and capacity was 4.8 billion). Then, OBH didn’t sale a company or a manufacturing plant, but intellectual property. The acquirer would then possess property rights, a customer database, processes and technologies. The deal was not made of any tangible assets. Moreover, the selling parent would become Singulus main competitor, giving OBH an interest in selling to the weakest bidder. Another issue was that there would be business interdependence between Singulus and Leybold, even after the deal was complete. Leybold was a major supplier and customer of Singulus and used to share sales, marketing and service with it. On the other hand, the deal offered excellent returns and could put Schroder Ventures in good position in the emerging market for corporate buyouts in Germany. The metallizer market also looked promising with an expected doubling CD production capacity over the next four to five years, an increase of 60% in CD demand for the next 4 years (exhibit 9) and a relative low threat of new entrants. Singulus purchase price was set in between DM30 to DM40 million. Schroder Ventures would put up just over DM11 million. The rest would be covered by contingency payments, other shareholders equities and loans. A high need of cash is required to take the business over, so loans represents 78% of the total Schroder Ventures investment (DM8.65 million). Finally, the deal economic transfer would be done on May, 1st 1995 and be finalized until around December of the same year, giving Schroder Ventures less than two weeks to make a decision. 2- What will it take for Schroder Ventures to make this deal happen successfully? Schroder Ventures has to address several issues to make the deal successful. First, none of the key staff has interest in leaving Leybold to join Singulus.
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