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| Case Study 2 |
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- OBJECTIVE:
An assessment of the current and potential market for a catalyst in the petroleum industry.
- BRIEF:
A global private equity player is looking to invest in 5 industrial chemical manufacturing plants owned and operated by an entrepreneur of the region. The investment is in the form of a partnership with a profit sharing ratio of 35:65 for the client. He wants to assess the feasibility of the project with respect to the current and future demand and financial indications.
- ACTION:
A leading financial research and strategic consulting firm was hired in early 2007 to provide supportive research for a reasoned decision-making. Planman Consulting's Global Strategy & Investment Consulting was responsible for a market study of the current and potential demand and financial analysis of the project.
- APPROACH:
The project was based on secondary research with interviews of leading position holders of related companies. GSIC had to provide deliverables in an extremely short span of time and therefore the focus on quality and results required even more attention.
- REQUISITES: The task for GSIC entailed 4 core aspects:
- The current and potential demand for the chemical.
- Competitor analysis (fundamental and financial).
- Valuation of the project.
- Future estimations for the overall market.
- METHODOLOGY: The study enclosed an exhaustive data search of the relevant perspectives of the case incorporating the following:
- Detailed discussion with the client regarding the investment objective and strategic plans.
- Information search from the internal and public data domain.
- General perspective telephonic interviews with the executive heads of related companies from the production and strategy side.
- OUTCOME: The basic details of the project outcome were as follow:
- Deliverables - A detailed report covering the following:
- Current and potential demand in the target market and rest of the world.
- Fundamental and financial competitor analysis in the target market.
- Valuation of the 2 operational plants that will initiate the investment as per the client's requirements.
- Results -The study explicated a major flaw in the assumptions for the investment with respect to the production volume changing the entire market demand projections by as high as 4 times. The demand for the chemical was substantial in the coming years especially in the target market but the valuation showed that the price per share of one of the companies was inflated by over 150 per cent while the second company was relatively fairly valued with a minor difference of 5 per cent on the lower side.
- POST-MORTEM REVIEW:
The private equity player was able to successfully draw an indication towards what the investment situation depicted. The client based on the demand potential of the chemical initiated an investment in one of the manufacturing plants while the others were put on hold till an initial review of the current investment was analyzed.
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