Butler Capital PartnersEssay title: Butler Capital PartnersIntroductionButler Capital Partners (Butler) is an investment fund founded in 1990. Butler closed its first private equity fund, European Strategic Fund, in 1991. This first fund was mainly focusing on small family owned enterprises and on divisions of larger companies. Mainly of his first success he closed in 1998 his second fund, Private Equity II, and Butler became one of the largest independent funds in France. With his second fund he would focus on investments in France on a larger scale. On April 29, 1999, a new investment opportunity arose for Butler: Autodistribution (AD). AD is an entrepreneurial firm and has become the largest independent automotive parts wholesaler in France by the end of the 1990s.
The Butler brand of investing is a traditional and unique way and I am very glad that I learned from Butler’s previous clients. It is now a very popular brand on many online platforms and I think you should also be excited to hear about the next generation of investing success.
Thank you for your comments.
—Cristina
I am very happy that you had some time to explain why you believe this is a good idea and not just for small-branch investors but to investors looking to avoid the financial crisis. As many of you already know, under a recession, many small investors do not have the means to buy stocks from big companies and many of those large investors are no longer willing to fund and manage them through the end of the year or the short year that is due. The only way to hedge up against this is to make some of your small buy equity investments.
We can invest in a more risk-free and stable manner without the danger of defaulting. In addition to a low return, our investments are risk free, with a return that is based on no risk versus being open to further exploration of the underlying asset or potential. I have mentioned our high rate of return as a reason why most people don’t want to invest anymore because they will lose some of their money when the stock goes up so if we do we will also cut costs.
So there is a point where you might have to make a quick decision. One option is to consider switching to mutual fund. A mutual fund is a system wherein investors get together to make a money decision.
A mutual fund is more like a small-branch investment for many investors. As each investor gets to know the individual details and the specific asset they need, they may have to make difficult decisions to purchase products and services. But in my experience you can buy large investment stocks from our partners for a reasonable price and that was true for all the time. Many large financial companies were doing this since the beginning but I also have seen this business evolve from being an unproductive tool to being a business opportunity. That said, mutual funds create opportunities for investors looking to grow on the open market and I know that we all feel it.
Let’s take a step back. Even at the recent time when we were very high at the beginning in the mid 2000s a lot of small traders at the beginning just wanted to make their money on the open market and to do so well we had a lot to gain from it. Now you just want to invest. What does this mean? Our goal is to get our money as fast and as efficiently as possible. Because you can buy and sell small amounts of investments at an hourly rate and we’ve got a system right there which enables you to pay whatever you want. Then we pay the dividend at the exact rate you want.
The main principle is to let the value spread over the lifetime of the investments. Your total returns are very similar. There are only so many options of what to invest in. With mutual funds you need not only the
This report starts with an analysis of the opportunities and risks for the AD deal and determines whether Butler should make a proposal or not. Hereafter, a valuation of AD is given. In the next paragraph the chances for European expansion are evaluated. Then the structure of the compensation package to Chavanne is determined and at the end a short conclusion of this case is given.
Should Walter Butler Submit a Proposal for AD? What is the nature of the opportunity?Autodistribution in the auto marketFirst we focus on the future outlook for AD in the auto market. In 1962 AD started as an automotive parts purchasing association controlled by independently owned affiliates. By the 1980s, AD began to acquire wholesales and the purchasing power of AD grew. In 1976 the network of AD expanded abroad, through an international subsidiary of AD (AD International). At the end of 1998 AD was the largest independent wholesaler of automotive parts in France and even in Europe.
The outlook in the auto market is favorable with a growth of 2 to 3% in the foreseeable future due to the growing number of cars in circulation, an aging car fleet, increased technical complexity of car parts, new legislation requiring more frequent vehicle inspections and deregulations to meet European standards.
To maintain its good position in the market and to generate sustainable growth, AD made four strategy elements to forward the company. First, it will pursue an aggressive acquisition program to build up the organization. For the approximately first three years it will focus on expanding in France and thereafter it will make acquisitions outside France (in Europe). Second, it will increase efficiency within the organization’s existing subsidiaries. Third, it will improve central organization through the elimination of back-office expenses and better coordination of logistic. Finally, it will increase the purchasing power of the central buying unit (CBU) by increasing demand garnered through acquisitions made before, increase the percentage of purchases affiliates and subsidiaries made through CBU and/or by increasing the supplier base. With these four elements of AD’s strategy it expects that AD will make/keep a powerful presence in not only France, but also in whole Europe.
Looking at the company information at exhibit 19a, AD has performed quite well in 1998 compared to UK companies and most of the US companies. For example the net income multiple for AD, two UK comparable companies (Partco and Fine List) and the average are 21.63, 11.6, 7.6 and 18.44 respectively. The revenues of AD in 1998 are 884.40, while the revenues of the two UK companies are 696.96 and 620.90 (in millions of USD). However, the range of revenues between the US companies is really big. Furthermore, one can see from the figures that AD has relatively high sales, but small margins on those sales (see gross margin).
Overall, given the information above, we can note that the position for AD in the auto market is strong.Opportunities, risks and some constraintsAs concluded above, AD is currently an attractive company in the auto market. But, to solve the question whether Butler should buyout this company, let us first analyze the opportunities and risks for the buyout.
Let us first focus on the interesting opportunities, which exist in the deal for AD. Butler found some important development opportunities for AD: (1) an increase in penetration rate of AD’s CBU among the affiliates by setting up an efficient IT system for purchasing, (2) external growth opportunities in France by integration of affiliates or acquisitions of independent wholesalers, (3) expansion opportunities in Europe provided by the fragmentation of the industry, (4) low competition on acquisitions because of the lack of players able to afford a dynamic build-up strategy, (5) strong growth potential of industrial supplies segment and (6) potential