Tad O Mally Case Study

Working Paper | HBS Working Paper Series | 2018

Private Equity, Jobs, and Productivity: Reply to Ayash and Rastad

Steven J. Davis, John Haltiwanger, Kyle Handley, Ron S. Jarmin, Josh Lerner and Javier Miranda

Ayash and Rastad (2017) express several concerns about our 2014 analysis of private equity buyouts. We welcome their interest in our work but think their criticisms are off the mark. Some of their claims reflect a misunderstanding of the Census Bureau’s Longitudinal Business Database (LBD) and its underlying data inputs. Because the LBD has emerged as a major laboratory for empirical studies in economics and finance, we use this opportunity to reiterate and clarify some of its important features. In a similar spirit, we elaborate on steps taken to develop our large sample of private equity buyouts. We also address Ayash and Rastad’s remarks about the empirical design of our establishment-level analysis, our methods for distinguishing between leveraged buyouts (LBOs) and other private equity transactions, bankruptcy rates among firms acquired in LBOs, their assertion that we undercount large public-to-private LBOs, and other matters.

Keywords: Private Equity; Leveraged Buyouts; Jobs and Positions; Performance Productivity;

Citation:

Davis, Steven J., John Haltiwanger, Kyle Handley, Ron S. Jarmin, Josh Lerner, and Javier Miranda. "Private Equity, Jobs, and Productivity: Reply to Ayash and Rastad." Harvard Business School Working Paper, No. 18-074, January 2018.  View Details

Tad O’Malley: The Investment Conundrum
By: Evan Olsthoorn

After the following analysis, I have chosen the EF Investment for further due diligence primarily due to the multiple exit strategies, along with steady growing cash flows and cost savings opportunities. It allows for a potential quick win to enhance investor confidence for the upcoming Empire Fund.
The Coming Homing Funeral Services investment provides a steady cash flow business, with a very strong management team. Recent bad rumours about unethical practice, which the company has now been proven innocent had rendered the sales and EBITDA growth stagnant.   However, the forecasted revenue growth is 2.7% and the EBITDA growth is at 10%. Due to the price insensitivity of the industry, prices can be increased at a rate above inflation also boosting EBITDA. The growth numbers hinge on price increases due to the fact that death rates and market share are forecasted to stay constant. There may be a conflict with foreign management with competitors and in-country management, but upper management is eager to make a deal , which Empire can easily finance with $200 million in debt and subordinated debt. The exit strategy will have to be through IPO because Coming Home has grown beyond acquisition, however management in place has run Coming Home’s pre cursor companies as public firms. This investment will provide a win and will encourage investor confidence for the upcoming fundraising.
The 3F AG opportunity also provides a steady cash flow business, which is easy to finance, with a management team that our German office already has a relationship with. This will also give the German office, which has been indulging in far too much rugelach, a bigger and more profitable deal. The growth numbers are 1.5% revenue growth, 5.3% EBITDA growth and 7.2% EBIT growth annually and added value can be achieved through supply chain efficiency, trimming of the management ranks, reinvigorated R&D and continued growth of...

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