The Carlyle Group And Axalta Case Solution And Analysis, HBR Case Study Solution & Analysis of Harvard Case Studies

The Carlyle Group And Axalta Case Solution

DPC enjoyed a strong market position, i.e. being number 1 and 2 in the markets of its all four business segments. (Exhibit 8 –Case Study)
DPC operated in industries, whereby the threat of new entrants was quite low due to strong entry barriers, especially in refinishing and OEM business segment; whereby, the threat of new entrants became lower for DPC due to the higher fixed costs of start-up and differentiated products with a high switching costs for OEM manufacturers.
Carlyle believed that DPC had a strong market reputation. The company would only be requiring the financial resources and management’s focus, ultimately improving the profitability margins.

Increase in Axalta Value – Post Buyout

The value of Axalta increased dramatically within 18 months because of the strategic decision taken by Carlyle’s management for DPC. The key strategic decisions chosen by Carlyle were shifting the DPC’s headquarters to Philadelphia and building up a new corporate culture forDPC as a separate business unit. After the buyout, the management devised a complete restructuring program for the DPC business segment; whereby, the management focused on reducing the overhead which were deemed to be unnecessary and if reduced, would ultimately increase the business’s profitability. In addition, the management focused on building up a separate resources procurement system, which helped the company in reducing the costs significantly. The company also replaced 17 key executives, which were not considered for possessing the required skill set. Conclusively, the management completed the restructuring program, which significantly reduced the risks and extraordinary overhead and procurement's costs associated with DPC. These all strategic initiatives, helped the company's profitability to grow and increase the worth of DPC within just 18 months of its acquisition.

Carlyle’s Exit Decision from Axalta – Reason

Being a private equity firm, it’s crucial to generate significant returns in the form IRR from an investment or an acquisition. A reason behind the company’s exit from Axalta revolves around the key objective of a private equity firm to acquire the mature or the profitable companies or business segments, then getting the management’s focus towards improving the acquired business profitability and ultimately selling the acquired firm at a higher selling price.

The other reason behind the exit strategy is that the management had achieved the target profitability. As mentioned already, the company had achieved significant profitability and the overall worth of DPC had increased, which was be a positive sign for the investors and it was high time for Carlyle to take an exit from the Axalta investment. The EBITDA of the Axalta was significantly higher than the anticipated figure and the investors had built an optimistic view about the growth of the coating industry. (Exhibit 12- Case Study).

Lastly, it was obvious that the equity market indexes were showing record levels, and an IPO was considered to secure the margins attained from the Axalta’sinvestment. The market sentiments were positive, the market indexes like S&P 500, were reporting a record high levels and most importantly; the EBITDA margins from the Axalta investment were quite highest, and it was further expected to generate more margins. So, an IPO was chosen as an exit strategy by Carlyle, to secure the return in a positive market sentiment of investors. The other different transactions, which could have been used by Carlyle, include the strategic acquisition (consolidation of both companies) or the management buyout; whereby Carlyle’s management could have purchased the key asset and liabilities of Axalta investment, as the management had become specialized in managing the business.

Carlyle’s IRR on Axalta Investment

Appendices 1-3 show the IRR, gross IRRs and the equity value using the EBITDA multiple. First of all, an IRR is determined based on the assumption that at the end of 2017; the company will sell out the Axalta investment at 9.9 times of the EBITDA. The cash flows are determined by adjusting the EBITDA with tax and ten subtracting the capital expenditures and interest expenses. The IRR for the Carlyle investment is determined as 24%.

Secondly, the year share selling strategy is determined for Carlyle; whereby, it is assumed that the company will sell 25% of its shares each year. The gross IRR in each year case, are shown in Appendix 2. Lastly, the equity value is determined by using the EBITDA multiple average (Exhibit 17), which is determined as $7,072.80, as shown in Appendix 3...........................

The Carlyle Group And Axalta Case Solution

This is just a sample partial case solution. Please place the order on the website to order your own originally done case solution.