TeeGolf Company: To Exit or Not to Exit – Team 1 – Case Solution

TeeGolf Company: To Exit or Not to Exit - Team 1 case study allows students to stand in the shoes of Kris Alexander, a newly appointed partner at the private equity firm Kohlberg & Co. where he is asked to evaluate whether to exit TeeGolf Company by selling now to a PE firm, LGP, or hold the investment for one year and try to put it up for auction to strategic buyers such as GoGolf, notwithstanding the risk of not having buyers. It is crucial that a target IRR of 25% must be reached as per Kohlberg’s policy.

​Yael Grushka-Cockayne; Nick Molloy
Harvard Business Review (UV7440-PDF-ENG)
April 13, 2018

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Case answers for TeeGolf Company: To Exit or Not to Exit - Team 1

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Executive Summary – TeeGolf Company: To Exit or Not to Exit – Team 1

Kris Alexander was assigned by Kohlberg Investment Committee to present an exit proposal of TeeGolf Company, the third-party golf course management service provider. This is because the Investment Committee saw an opportunity to make the profit through selling its investment as the market is substantially growing right now.

In mid-summer 2017, the auction was held. After phase II of the bidding, there were two potential buyers; the First one was Leonard Green, the private equity firm which is similar to Kohlberg. Another one was GoGolf Company, operating a similar business to TeeGolf Company.

Kris must make the decision between two available options from these companies; whether he should sell TeeGolf (strategic buyers) to LGP(PE firm) right now, or he should keep TeeGolf for one year and then wish that he could sell the company to GoGolf at the end of 2018, which has a chance of 80%.

This case works well in a module covering firm valuations and financial negotiations. The report provides both leveraged buyout analysis, and a discounted cash flow with the add-in effect of synergies with the aim of determining TeeGolf Company’s value in the eye of PE Company and Strategic buyers.

Finally, the recommendation is made to the investment committee, showing the minimum value Kohlberg would be willing to accept from a buyer for TeeGolf and/or a strategic buyer. As a result, Option1 is more preferable for Kohlberg, but it is rarely feasible as the value worth for buyers is much smaller, compared to the value Kohlberg requires.

Overview & Situation – TeeGolf Company

Kris Alex is designated as a partner of Kohlberg & Co., a private equity (PE). He was assigned to prepare for an exit proposal for one of the companies in his company portfolio, the TeeGolf Company. In spite of uncertainty in the viability of the sale, this is a great opportunity to sell for a price that would reach a higher return due to the rising of the market from the history, seen in Exhibit 1.

Besides, as can be seen in the timeline below, the sales process could be started from the middle of 2017 and completed within December 2017.

As can be seen in the second round of bidding (August 2017), he has two options to consider:

1. Sell TeeGolf Company now to Leonard Green Partners (LGP), another private equity firm.
2. Do not sell TeeGolf and hold the investment for one more year. The expectation is that GoGolf, a strategic buyer, would buy TeeGolf (if it were still for sale) one year from now at the end of 2018.

From the options above, this is required to evaluate different exit strategies from multiple perspectives, understand how to work with a leveraged buyout analysis, a discounted cash flow, and how to add in the effects of synergies. A negotiation exercise between Kohlberg and two potential buyers, private equity firm Leonard Green Partners and a strategic buyer GoGolf, can support the decision for the optimal value.

Analysis

From the overview and situation, it is essential to consider what TeeGolf Company is worth to each potential buyer and consider what TeeGolf is worth to Kohlberg & Co. if the company decides whether to hold on to its investment or sell out TeeGolf.

Consequently, several questions came to his mind to concern about this potential early exit and variability of the sale. Therefore, we considered each problem and set the methods to compute the solution as follows…