Polaris' Leveraged Buy-out of Mols-Linien

Niklas Juhl Nielsen & Robert Alexander Henning

Student thesis: Master thesis


The purpose of this master thesis is to analyze and determine the underlying motivation for Polaris’ LBO of the Danish small cap company, Mols-Linien. In addition to the underlying motivation - measured by return, value capturing and value creation - the thesis analyzes and predicts the expected return (IRR) that Polaris can obtain with the investment.
In order to do so, it was necessary to gain an in-depth knowledge of Mols-Linien. A number of external and internal analysis showed that the company provides a very competitive alternative to Storebæltsbroen, its chief competitor. Since 2011, Mols-Linien has worked thoroughly with the implementation and execution of a turn-around strategy in order to regain profitability. The strategy focused on improving efficiency and simplifying the business model with fewer routes, which is serviced by larger and more efficient ships. This vastly improved the overall financial situation of the company, which in 2014 became profitable again and further improved their results in 2015.
The Danish Private-Equity fund, Polaris, submitted an offer to purchase all the shares of the company on the 3rd of July, 2015. Polaris was successful in purchasing approximately 80% of the shares, almost exclusively from large institutional investors. A large part of the remaining minority shareholders formed a resistance group in an effort to prevent Polaris’ plan to take Mols-Linien private. The resistance arose due to an assessment that the offer of 34 DKK, did not reflect the underlying value of the company.
The thesis therefore sets out to investigate whether this assessment is justified. This was done by a DCF valuation of the company by using publicly gained knowledge of the company. The valuation estimated a fair price of 70.28 DKK which exceeds the initial offer by 106.7%. This difference represents the value capturing that Polaris achieved with their buyout. The subsequent sensitivity analysis showed that the results were generally robust, but moderately affected by the volatility in the oil price.
Furthermore, the thesis investigates the expected return of Polaris’ investment. In regards to this we created two scenarios; one with a continuation of the existing business model and market (LBO 1), and one where Mols-Linien achieved the rights to service the Bornholm-routes, which represented the most logical expansion-possibility. In both models we found that the expected IRR exceeded the previously estimated limit for an acceptable return by a significant margin. The limit was set for 21.85% based on a literary review, and the models’ base-case IRR was 31.48% and 31.99%, respectively. The sensitivity analysis once again showed that the price of oil was a significant parameter, only surpassed by the importance of the exit multiples.
In an effort to study the contribution that Polaris has to the value creation in the company, the LBO- models were modified to not account for the undervaluation (value capturing). By doing this, the thesis proved that Polaris would in fact be able to create substantial value. It should be noted, however, that the expected return in this model is markedly lower when compared to the original model. It is therefore the conclusion of this thesis that a large part of the motivation stems from a great value capturing opportunity due to the fact that Mols-Linien was severely undervalued by the market, but that value creation is possible. Furthermore, we found that Polaris has made a great deal and can likely expect a large return when exiting the investment.

EducationsMSc in Finance and Accounting, (Graduate Programme) Final Thesis
Publication date2016
Number of pages210