Ducati & Texas Pacific Group – a ”Wild Ride” Leveraged Buyout

3135 words 13 pages
Ducati & Texas Pacific Group – A ”Wild Ride” Leveraged Buyout

1. What is the nature of the opportunity? Could the Ducati brand be expanded beyond motorcycles? Why or why not?
TPG strategy is to invest in undervalued firms’ that usually have been poorly managed. The investments are made in privately hold firms that are either unlisted from the beginning or that is being delisted from the stock exchange under the LBO process. TPG wants to invest in firms with a “healthy” basis but that are experience some problems that TPG believes’ that they can fix. Does Ducati live up to this?

TGP has the opportunity, if the deal goes through, to purchase a controlling stake in Ducati Meccanico, producer of the best motorcycles in the world. The article
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To help Cagiva through its financial distress the Castiglioni brothers wanted to get a bridge loan from DMG so they contacted Razzano but he wasn’t interested in signing them a loan agreement. Instead he saw the potential of an investment and contacted Halpern since they were looking for a joint investment.

Due diligence
Due diligence is the valuation process undertaken before the parties sign the deal to identify the future of the potential investment but also to estimate the proper price for the investment. Equity firms’ usually creates a model on several hypotheses that captures the payback of the investment. Due diligence is a vital process in investigating the financial health, technology, the market, and the current management. A lot of different sources are used and in connection to this the investing firm usually signs a confidential agreement. The due diligence process generally starts after the parties have signed a Letter of Intent and paves the path to further negotiations between them. TPG have signed a Letter of Intent with the Castiglioni brothers and are trying to build a model that captures their payback. The problem for them is to separate the intertwined Ducati from Cagiva to find out what the Ducati should be earning to be able construct an international company around these assets.

If the sale is conducted through an auction by an investment bank intermediate the due diligence