Apex Investment Partners Case Study

Working Paper | HBS Working Paper Series | 2018

Private Equity, Jobs, and Productivity: Reply to Ayash and Rastad

Steven J. Davis, John Haltiwanger, Kyle Handley, Ron S. Jarmin, Josh Lerner and Javier Miranda

Ayash and Rastad (2017) express several concerns about our 2014 analysis of private equity buyouts. We welcome their interest in our work but think their criticisms are off the mark. Some of their claims reflect a misunderstanding of the Census Bureau’s Longitudinal Business Database (LBD) and its underlying data inputs. Because the LBD has emerged as a major laboratory for empirical studies in economics and finance, we use this opportunity to reiterate and clarify some of its important features. In a similar spirit, we elaborate on steps taken to develop our large sample of private equity buyouts. We also address Ayash and Rastad’s remarks about the empirical design of our establishment-level analysis, our methods for distinguishing between leveraged buyouts (LBOs) and other private equity transactions, bankruptcy rates among firms acquired in LBOs, their assertion that we undercount large public-to-private LBOs, and other matters.

Keywords: Private Equity; Leveraged Buyouts; Jobs and Positions; Performance Productivity;

Citation:

Davis, Steven J., John Haltiwanger, Kyle Handley, Ron S. Jarmin, Josh Lerner, and Javier Miranda. "Private Equity, Jobs, and Productivity: Reply to Ayash and Rastad." Harvard Business School Working Paper, No. 18-074, January 2018.  View Details

Apex investment partners Case Solution

AccessLine an attractive investment opportunity

The AccessLine is operating in the growing industry of telecommunication which indicates that the company has potential to grow its turnover which leads to enhanced profitability. In addition the company has most competent and innovative senior management who creates the better and effective strategies and polices in order to reduce operational cost and enhancement of corporate revenue.

In addition to this the marketing strategy of the company is very effective as it aware the customer base new product range which is not in the market before. The company’s strategic actions differentiates it from its competitor as the company intends to provides better services and improved feature in it product.

The biggest example of the betterment in product is integration of different services such as paging, call etc. To enhance the economic viability of its products the company makes strategic relationships with the telephone companies. Apart from investment opportunity the AccessLine Company has many risks.

Risks associated with the investment

The growing companies are more risky than Blue Chip Companies as these companies have high volatility in cash flows and any single inappropriate strategy will leads to broke of strategic relationship which in turn reduces value to the firm. In addition AccessLine is dependent on small number of customers that increases the risk for the company as loss of single customer will reduce revenue substantially.

AccessLine financed itself to date

McCaw Cellular Communication has the strategic relationship with the AccessLine Company. The McCaw Cellular provides assistance in launch of the product of AccessLine and in addition provides financial assistance as well. Initially the AccessLine is opted to finance its operational requirement through private placement option. The company chosen this option as the private placement will maintain the control of existing management in the company.

There is no issue of equity for the new financier which eliminates the risk of loss of control over company. Another reason to execute the above option is that the company does not require providing financial records on regular basis. Apex is looking for a growing stage company as most of its portfolio is rich with these types of companies.

Dan Kranzler now considered to raise funds from Apex

The AccessLine Company meets the investment criteria of the Apex Investment as the company has strong future financial prospects. Dan Kranzler is concerned for the equity value of existing shareholders and He wants to provide enhanced benefits to them. The premium price Series B investment undertook by the Apex Investment will increase the return for existing shareholders that is why Dan Kranzler is considering for raise finance from Apex.

Attractive Terms to Apex for the Series B financing

The term sheet for Series B indicates that the new investor which is Apex which get 13% equity stake in the company as the percentage is quite reasonable the Investor can pressurize the senior management to formulate those strategies which are in line with the Apex strategic objectives. In case when the management announces dividend to its equity holder the Series B investor will get 8% fixed dividends on its shareholding.

Address the risks of the investment

The Series B investor has another attractive redemption option which provides them to sell back to the company at the rate of initial purchase. The redemption option will reduce the risk of investment for the Apex Investments. The Series B investors will get anti-dilution on its shareholding in case when the company issues new equity shares.

Issues For Apex Investment

This attraction will reduce the risk of volatility in returns for the Investor. The single problem for the Apex Investment when consider for investing in AccessLine technology is the Higher Price of per unit. The higher price per unit will increase the investment for less holding percentage in the company. It could be solved by the AccessLine Management to reduce the per unit price which is acceptable to the Apex Investment.................................................

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