An email popped up in my inbox on Dec 22 with a random question. "Hi John. You were an analyst at Harris Williams, correct?" Well yes, I was -- why are you asking? It turned out that a second-year classmate was in search of a fourth team member for an upcoming case competition. I mulled over the opportunity for a good 10 days, and ultimately committed myself on the day I was leaving for a Wisconsin study abroad trip to South Africa. Little did I know that my first week of school (late January) was shaping up to be very hectic, yet rewarding!
On the Friday before classes officially began, our group received case materials for the 2012 ACG Cup. This is a case study competition designed to give students from leading MBA programs across the country real-world experience and invaluable insights into mergers and acquisitions, investment banking, financial advisory and private equity. According to the Association for Corporate Growth (ACG), "Each case study provides students with a unique opportunity to present valuation, capital markets and M&A strategic advice to a panel of seasoned M&A professionals from within the ACG community." Given my banking and private equity background this competition suited me well. Our team of four students had one week to dissect a case, crunch numbers, analyze various outcomes, and ultimately present our findings to a panel of judges.
The case at hand focused on an IT staffing company and our key responsibilities included:
- Valuing the business
- Analyzing two "current" offers to acquire the business (one from a strategic buyer, the other from a private equity sponsor)
- Provide a recommendation / course of action
- Offer any ancillary notes, analyses, recommendations, strategies, etc.
Our group kicked off the process with a Google+ video conference over the weekend wherein we allocated responsibilities for the project. I provided insight based on my experience (valuation approaches, offer analyses, recommendations, etc). This was also a good ice breaker for me with the team since I didn't know any of the guys prior to the competition. Over the next week, we chipped away at the case and collaborated on many issues in the case.
The valuation we crafted followed a traditional investment banking process, including public comparable, precedent transaction, discounted cash flow, and leveraged buyout analyses. We ultimately arrived at what we felt was a "fair" value based on the data available to us. Next we analyzed the two current offers, both quantitatively and qualitatively. The numbers are generally black and white, yet the "soft" aspects of the deal often require deeper analysis and reflection. What are the owners (shareholders in this case) goals? How old are they? Do they want to stay with the company or exit immediately? Should they take one of the offers, or run a broader auction process in the market to potentially unearth a higher valuation? So many questions to answer....
The group ultimately decided to recommend pursuing the private equity offer. We were confident in our recommendation based on our sound financial analysis and consideration for the owners' interests. The last part of the process entailed creating a PowerPoint deck that would serve as the basis of our presentation for the judges.
Friday arrived, and we were the last of three groups to present. Our meeting lasted 30 minutes during which each of us took part in the presentation. We felt the presentation was well received, yet we were peppered with tough questions throughout from the judges. The panel included one professor and three banking and private equity professionals. Fortunately, our group had anticipated most of the questions we faced, and we were well prepared with responses.
Following our presentation, the judges deliberated for 15 minutes and called all three groups back to deliver the results. The winner would proceed next week to a final regional competition based on a new case and presentation in Milwaukee.
Sad to say, we finished as a runner-up. Long story short is that the judges felt our valuation, though realistic, was too low. Our primary fault was that the group didn't do a good job of assuming the investment banker role, i.e. selling our services and pounding the table that we'd deliver the best offers/valuation to the shareholders. This is often the case in the real world for investment bankers and one of the biggest challenges when preparing to pitch a potential client. Is our valuation too low, modest, or too high? What is plausible and realistic, and what will win the new business for us? How do we align our upside (fees) with the shareholders outcome? All these questions arise and make the process challenging.
While we didn't move on, I have to say that I am somewhat relieved since school work is beginning to pile up; however, it would have been a great experience to continue in the competition. It was a great learning experience for me and one usually only available to second-year students (I was a last minute addition to a team in need). And the bonus was getting to know three classmates that are great guys. There is always next year!
Miguel Mireles - Peter Robbins - Kyle Nakatsuji - John Hames
Winning Team: Jon Horne – Kyle Baker – Megan Johnson – Alex Davydov