Exxel Group: September 1995 Case Study Help
Introduction
Exxel Group is a well-known organization that presents itself as a group of investors in the year (1991). The organization aims to offer private equity practices in the region of Argentina. Juan Navarro is the president and executive director of the organization since 1991. At the current time organization present itself as an acquirer of Argencard 56% stakes by offering ($136.5) million and it believes it to close the transaction deals under 45 days before expiring Exxel exclusive rights for the transactions.
To complete this transaction there is a need to raise funds for the organization from its limited or other partners under the given period. Argencard presented its services as a credit card processor under the license of MasterCard. To move forward with this acquisition process Exxel group faced different challenges in terms of qualitative and quantitative and there is a need to analyze all these factors and come up with the best strategy to overcome the rising problems.
Problem Statement
The case revolves around the acquisition process of Argencard by the Exxel Group. Exxel Group proposed a bid of ($136.5) million to get control over the (56%) interest of the Argencard buyout under the MasterCard license agreement. Exxel Group is a private equity organization based in Buenos Aires.
There are various challenges raised in front of the organization to complete this acquisition process in terms of raising finances and getting highly valuable investors for funding. After analyzing the potential of acquisition few concerns were raised inside the organization that relates to the reasonable offer price, appropriate transaction structure and involve MasterCard International as an investor.
Situational Analysis
Raising Funds in a Short Period
While Exxel had made a bid to acquire Argencard, the transaction had postured some issues. Exxel had to raise the funds in a short time. Raising such a big amount of funds could be a problem for Exxel as it had to complete the transaction within 45 days before the right of Exxel to acquire Argencard expires. The additional financing would be raised from different sources. Hence, this idea seems to take a lot of time to be carried out with the structure developed by Exxel for raising the funds.
Establishment of a New Credit Card Company
Exxel had planned to establish a new company named Credit Card Holding Company. The stakes of BNL would be purchased from the new company to raise the amount of the fund. Unlike other consortium banks that are likely to combine the operations of a credit card with those of Visa, Exxel will operate a separate credit card company as combined processors could be cost-saving but will lead to a devaluation of MasterCard franchises in the long term in Argentina.
Additionally, it possessed the only credit card processor in Argentina. While the merging of two processors will increase the cost and weaken the service quality of the process. Therefore the proposal would prove to be beneficial as there is low market competition and product differentiation and would add potential growth in the future.
Involving (MCI) as an Investor
One of the concerned questions in funding the said transaction is whether Navarro could convince MasterCard International (MCI) a parent company of the MasterCard family based in (New York) to be one of the investors in Argencard. Involving MCI would benefit immensely to Exxel in increasing Argencard value. Exxel would have to convince MCI that the investment will provide potential financial returns and strategic benefits in the future.
Challenges Relate to Gaining (MCI) Interest
By looking at concerned challenges regarding attaining the interest of MCI in the proposed investment, Exxel had to complete the transaction in a limited time and get the MCI’s interest in a short period. Exxel would have to convince MCI that the proposed transaction is worthwhile. As MCI has never invested in its franchisees, Exxel had to adopt strong negotiation skills and provide a potential ROI to attain MCI's interest in the investment.
Risks Associated With the Acquisition of Argencard
While Argencard appeared to be a valuable project, some risks are associated with the acquisition of Argencard that need to be assessed. The company had to fund the transaction within a set period i.e. 45 days. If it does not complete the transaction in the given time its right to the agreement would expire and the bank consortium would again return to bidding.
Getting MCI into investment is a challenge as it had never invested in any of its franchises and if MCI refused to invest it would have to face problems in attracting other investors in this short time. Exxel should also be concerned about whether the ROI of this transaction would be beneficial or not. Strategic analysis is further discussed over the risk associated with the acquisition in (Appendix 1).................
Exxel Group Analyzing Strategic Issues in 1995 (1)
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