Kris Alexander is a newly appointed partner at the private equity firm Kohlberg & Co. Alexander is preparing an exit proposal for one of Kohlberg’s portfolio companies, the TeeGolf Company. Alexander believes that TeeGolf has a great opportunity of selling for a purchase price that would achieve a return equal to or greater than the firm’s target IRR of 25%. However, Alexander was concerned about the viability of the sale. Specifically, he wondered: would strategic buyers, who would pay premiums to financial sponsors, actually be interested in this business? How would the firm negotiate amongst potential buyers if several submitted bids? What if there was only one buyer interested? Had Kohlberg’s valuation accounted for a potential recession? How should he account for the investment banking adviser fees in his recommendation to sell? To answer these questions, students will be required to evaluate different exit strategies from multiple perspectives, understand how to work with a leveraged buyout analysis, a discounted cash flow, and how to add in the effects of synergies. A negotiation exercise between Kohlberg and two potential buyers, private equity firm Leonard Green Partners and a strategic buyer GoGolf, can support the learnings around asymmetric information, ZOPA, and BATNA.
This case works well in a module covering firm valuations and financial negotiations. It would complement the HBS note on negotiations and cases such as Kelly Solar and Wrigley/Mars.