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PE Portfolio Strategy

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Difficulty: Intermediate

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Profitability analysis Growth strategy

Case Prompt:

We are a private equity firm operating primarily in the automotive industry. We would like you to figure out whether we should increase our portfolio in the sensor market or not.

We would like you to do a profit/margin growth potential analysis and tell us how we can add value to this company given the other companies in our portfolio.

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Sample Structure

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I. Background

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Note for Interviewer

Wait for the interviewee to ask questions regarding the background of the case. A few sample questions are shown below. You could use them to help the interviewee with information if he's stuck.

1. Could you offer some insights on the market potential?

Interviewer’s answer: It is expected to keep growing. Electronics content in an average vehicle is expected to represent 17% of total purchased materials by 2006. As per a previous study conducted by us, approximately $150 on average per vehicle will be represented by sensors by the year 2005.

2. Is there any growth potential beyond automotive industry?

Yes, in aerospace, medical devices, semiconductors, and consumer electronics. Automotive and aerospace are the biggest growth areas.

3. Do we have any data on the investments required to operate a company in sensor market?

A recurring investment of $10M, $11M, and $12.1M respectively starting years 0, 1, 2. We also expect a cash flow of $12M after the first year growing at a rate of 5%. Following our internal investment rules, we usually do a three-year outlook to decide whether we should go ahead with an investment or not. In the past, we assumed the cost of capital as 10%.

4. Do we have any idea about the key demand drivers?

Increasing consumer demand; government regulation for safety, environmental, and comfort in automotive.

The customers of sensor manufacturers are OEMs. Since electronic systems are seen as a source of differentiation, they place a high value on leading-edge technology.

5. How does the competition look like?

Fragmented. Leading sensor companies are growing by using acquisitions and partnerships to expand their product, industry, geography, and/or new technologies.

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II. Analysis

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III. Concluding Observations

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Further Questions

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PE Portfolio Strategy i

Case Prompt:

Sample Structure

I. Background

II. Analysis

III. Concluding Observations

Further Questions

PE Portfolio Strategy