Falcon Investments Advisors LLC

Collinson Grant helped to assess the potential synergies and risks of combining two businesses – on separate continents

Falcon Investment Advisors LLC (Falcon) is a private equity firm based in the United States. Since its establishment in 2000, it has accumulated extensive experience in leveraged finance and private equity investment and has invested in more than 80 companies.

Falcon adopts a patient, long-term and value-adding approach to partnership with business owners, management teams and sponsors to provide capital for complex financing needs.  Falcon currently manages over US$2.9 billion of capital.

In 2014 Falcon partnered with the Chief Executive Officer and majority shareholder of one of its investee companies to acquire a complementary business in Europe. In evaluating this investment, Falcon sought the help of a consultancy with significant experience of operational due diligence and integrating acquisitions, particularly in the relevant geographical market.

Collinson Grant was asked to assess the potential synergies and risks of the proposed business combination. Our work aimed to achieve a holistic understanding of the underlying performance, future plans and prospects of each business, identify complementary areas and the scope for potential synergy.  This involved meetings with senior managers, site visits and analytical review of relevant information and data.

We focused on providing:

  • a profit and loss model to estimate earnings before interest, tax, depreciation and amortisation (EBITDA) for the combined business
  • a set of discrete scenarios under which the sensitivity of EBITDA to changes in revenue, margin and cost assumptions and inputs could be tested
  • assessments of the risks to be managed during integration of the acquired business and of the anticipated synergies.

We established a robust pro forma EBITDA projection for the combined business that was well ahead of the requirements for the investment. And as a backstop position, to test for any shortfall in the order book, we calculated a ‘bottom end’ pro forma EBITDA that still met the investor’s expectations.

Although the pro forma EBITDA was not considered to be an aggressive stretch target, achieving it would still require concerted attention and action by managers. So we also recommended a number of commercial, operational and organisational actions and decisions that would improve the business performance of the target company including:

  • determining the most appropriate organisational structure for the target business and creating the required controls and reporting processes
  • improving the effectiveness of the sales function
  • enhancing the effectiveness and efficiency of demand forecasting, capacity planning, purchasing, coordination of R&D activity and standard cost estimation.

Falcon acknowledged our contribution to its assessment of the potential combined business and subsequently provided a flexible capital structure to the acquiring company that minimised the reduction in the majority shareholder’s equity, enabling him to maintain control of his company while bringing in a partner to provide the capital.

Our Clients