Summit Partners Fleetcor a

Private Equity and Investment Banking move 2010 height Partners surpassCor A 1. Summarize the proposed action top of the inning Partners proposes to FleetCor Technologies (later selectred as FleetCor or the Comp any) an investment into FleetCor for the total tally of $44. 9 million in degene roll for a post relations possession of 54. 2% in the Company and approach path down to 46% possession in the lodge aft(prenominal) newly bring aboutd declension choices for caution equivalent to 15% ownership in the caller has been completely kill and richly diluted.This investment is in the pulp of convertible preferred stock with an 8% accrued interestingness, compounding annually. As the achievement come through, heydays prefer stock go a substance be tempered fit-footing in liquidity with the separate $37. 5 million of existing preferred stock. The output from Summits investment pull up s steers be apply as followings $9. 0 million allow for be employ to redeem p art of a $15 million subordinated debt held by current investors.The remain $6 million of this debt pull up stakes be converted by the current investors into the akin strip of prefer stock which Summit proposes. About $16. 6 million willing be used as an upfront cash to buy back FleetCors vii Super Licensees The remaining $19. 3 million will be used as a cosmopolitan running(a) capital for FleetCor to fund its ontogeny duty and to buy back any new(prenominal)(a) potential licensees. 2. address atomic number 23 get wind investment strengths FleetCors management team up real well-performed management team consisting of very(prenominal) full(prenominal) quality profile and experience CEO, Ron Clarke, who has brought FleetCor back on track afterward just 18 months of working in the company. Other executives who pick out many experiences and a lot of knowledge in the manufacture including H. Steve Smith, elderly VP of Sales and commercializeing Tommy Andrews , Senior VP of Operation and Scott Ruoff, Senior VP of Business Development. FleetCor has a eminently diverseial business outline trail a very combative business as followings Middle Market Focus big merchandise for growing with very little potential competitors and high barriers to entry Local Market dispersal FleetCor has created a network of local branches with a complete staff employees including a general manager Semi-Exclusive Merchant Acceptance net income FleetCor limits the size of merchant network to picture greater traffic volume to participate retailers. Highly tacked market functions in the highly potential and continued emergence market FleetCor has 90,000 fleet customers across its sinless system comprised especially of four mammoth national accounts much(prenominal) as Sears, UPS, Aramark and subject field Line Service and everyplace 500,000 prompt witholders. ? FleetCor provided its customers the speak to-saving and customized information rep ort to really enjoy the customers and make them high reluctance to change to new card network providers, leading to low customer churn. High glaring profit margin (in compositors case of thoroughgoing(a) r razeue report) averagely 5%, double comp bed to other regular credit card way out companies or its big competitors in high-end market, however, it has smooth gained highly growing market sh ar because of its unique and differential business strategy. 3. Discuss five investment business concerns FleetCor is yet missing a financial expert who non only has experiences and knowledge in the fabrication but also has ability to travel by fully effective hump for a want-term branch by go foring a stable financial system ( signify Hiring a highly effective and see CFO. ? High communicate improvements after the achievement. The company should be a little more conservative due to the fact that on that point are always some unpredicted risks associating with the implic ation of a new change system. Suggest the company should project in the more conservative way and should establish some pr thus fartidetive control procedures to go past these risks before really testing the alter system to avoid any unthought damages and losses. ? FleetCor has not yet fabricate the final agreements with the vii Super Licensees for getting them, creating some sources of unstable and going concern business ( Suggest the company should be more specific and aggressive tour makeing with the licenses to make the final agreements. high muff prices result in a larger A/R support cost and also lead to a higher bad debt expense, even though the net revenue index still be the resembling ( Suggest implement some forms of hedging strategies against the subjoins in fluid prices such as going long on a call option at a specific gas price which might materially increase the A/R financing cost and bad debt expenses. ? FleetCor currently has weak managerial reportin g system ( Suggest carry in some more IT consultants and programmers to create a more effective managerial and financial system while working along with a CFO who is a financial expert. . Using certify 4B try the proposed acquisitions. Would you cheer purchasing all of the licenses? wherefore or why not? inform Briefly Overall, the proposed acquisitions break down the company a combined entity with much better surgical operation in term of profitability such as New combined swinish margin is 5% higher than the ft only. EBIT margin is al most(prenominal) 3. 75 propagation higher than the mingy only. EBITDA margin is oer 1. 5 measure higher than the base only.I exhort FleetCor only flummox 5 effectively operated Licensees out of the seven ones including the ones in the areas of Houston, Carolina, Mississippi, Baton Rouge, and Atlanta because the other two which are locating in Chicago and Tampa are inefficient in term of profitability. Licensee in Chicago will yield a loss of EBITDA and the one in Tampa yield only $83,000 of EBITDA which is very small compare to the cost of getting this licensee. 5. come along at the Transaction eight-folds analytic animadverting in Exhibit 5d and 6. Analyze the comparables (Exhibit 6) a.Would you recommend using all the comparables listed? Would you drum out any of the comparables? Explain your answers. I would not recommend using all the comparables listed. I would exclude all of the comparables from group of credit card issuers because FleetCor has been operating its business as a merchant card processor which is different from the credit card exertion. Basic regulation for rating using industry comparables is that we have to use comparables for the group of companies in the same industry with the nourishd company.I might want to keep the comparables for the group of other transaction processors. Through my observation, I occur that Ceridian which is in the same industry with FleetCor has the mos t similar Enterprise comfort/ revenue Ratio and Enterprise Value/EBITDA with the company (leading to that Ceridian would be a good index number for valuation of FleetCor b. Based on the comparables how would you value the proposed acquisitions of the licensees? What do you see of the eight-folds proposed in designate 5d?Basing on comparables data of Ceridian, I would value the proposed acquisitions of the licensees at 13. 1xEBITDA. I think the multiples proposed 3. 9x in 2001 and 3. 3x in 2002 in exhibit 5d are way infra the multiple of Ceridian, and even much lower when compare to the industry average 16. 9x and 15x accordingly. In general, if the final transaction is completed as proposed, the company will be much better off, and even better if the company exclude the acquisition of the two licensees in Chicago and Tampa.In addition, if all of the big seven licensees do not accept the acquisitions at this proposed multiples, Summit might suggest the FleetCors management to raise these multiples and deal specific case to case with each of the licensee. 6. have a bun in the oven the acquisitions take place on December, 31, 2001. Value Fleet or using the DCF methodology. Use Exhibit 5a, 5b and 5c to complete the valuation. Make assumptions as needed. Assume a market premium of 4. 5%. Make sure you state and apologize your assumptions. I will use the faithfulness beta of Ceridian (? =0. 9) to calculate cost of right for FleetCor because the two companies are considered comparables. Assume the market has been operating efficiency, and according to CAPM RE = RF + ? *MRP (whereas MRP market risk premium= 4. 5%, and RF = 4. 27%, 5-year Treasury interest rate). So, RE = 4. 27% + 0. 79*4. 5% = 7. 825%. Another point of view, the company has projected to have very high growth 15%,18%,19%,19%,16% in consecutive five years so that Summit Partners may have to require more rejoin on equity compensating for more risks if this projection failed. I assume that di scount rate to be reasonably 18%. The infra is my valuation Fiscal Year cease December 31, 2001 CY 2002P 2003P 2004P 2005P EBITDA in 2006 52,349 Exit Multiple 8 Terminal Value (Firm Value at Exit) 418,792 dissolveed Terminal Value 183,058 tot up Present Value to Summit 226,602 Discount Rate using 18% 7.Look at Exhibit 7. What do you think of the multiples used? What do you think of the Irrs? Explain and support your analysis. I think the multiples used are reasonable , even though, these multiples might be much below the average and the median of the industry overall, Summit should be conservative for an sales outlet multiple of 8 in case in that location are some unexpected outcomes happened after the acquisitions and from them make the projection failed. The IRRs are considered high profitable. evening in the slash case scenario, the EBITDA exit multiple is equal 6, Summit still make 23. 8 % in IRR which is over three whiles compares to the market at 7. 825%. 8. At this time would you support this transaction? Why or Why not explain. I would fully support this transaction because of the following reasons 1) FleetCors management teams with high profile, experienced, and knowledge executives will make the companys high projection come true. ) The proposed acquisitions of the big seven licensees has been settled in basis, and soon give out a very good deal for the beginning of this investment. 3) Base on my valuation given using the data in Summits projections, the NPV (Net Present Value) is way off the positive number covering that this is a very good project. 4) Even though, Summit might approach a conservative way to evaluate the EBITDA exit multiple of 8, the investment still yield a 31. 8% in IRR over the period of five years.