Actis: Private Equity Investments in a Capricious Market
This case is set in September 2008, and begins with Joseph Li, the investment principal of Actis in China, a global private equity firm, preparing to present an investment proposal for 7 Days Inn, the fourth largest budget hotel chain in China, to the Investment Committee (IC). Just a day before the IC meeting, Li hears news about the Lehman bankruptcy.
How might the news about the collapse of Lehman Brothers impact the 7 Days deal? Will it change the industry and company forecasts, which he and his team have meticulously calculated? Will the Actis team be able to convince the IC that 7 Days Inn is still a good investment? Most importantly, should Actis go ahead with the proposal or should they re-consider?
This case looks at the front end of a private equity deal cycle. It is particularly suited for understanding the deal process and its associated challenges. Students will learn about the deal origination process, and will discuss how a proactive sector approach can help identify promising target companies, and win deals. Students will also develop skills to evaluate a business from the point of view of private equity funds, and can debate on the options faced by the protagonist in pursuing such an investment in a highly volatile market.
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