Private Equity Case

Pernille Møland Kjær Andersen

Student thesis: Diploma thesis


This project concerns the infranet company Eltel Group. Challenges with internal processes and projects in Africa and Norway have led to writedowns and has affected Eltel's image. The main purpose of the assignment has been to find the fair value of Eltel's equity, and then assess whether a Private Equity fund will purchase them. I have used discounted cash flow and residual income method to find the fair value of the company and then validated the value with the peer group. Both valuation methods are based on an accounting of Eltel's future economic conditions. The RIDO method discounted the residual income, that means the amounts of by which profits are expected to exceed the required rate of return on equity. Then it is credited to the book values of the net operating assets on the balance of the company. The DCF model discounted all future cash flows. Cash flows are estimated based on future estimations. Based on the valuation methods and sensitivity analysis, I find a fair value of equity of 519.62 Mill. EUR. This gives a premium of 52,25 percent relative to the current share price. The branch is characterized by outsourcing of private and public sector technical functions such as communication systems, monitoring of a company's IT operations, etc. Political factors are of major importance to the industry developments. Eltel will be able to grow in several of their market areas. They have strong customer relationships that make them a strong player in the market. The biggest question in the thesis was to answer if a Private Equity fund sees Eltel as a potential target. To answer this question, I have examined the criteria a Private Equity fund select their target companies. Private Equity funds select target companies based on the following criteria: cash flow, good market position with opportunity for expansion, growth opportunities, opportunity for efficiency, competent management and a clean balance and low debt. Based on analyzes and assessments, I can find that Eltel will be attractive to a Private Equity fund. Eltel has a high debt ratio, which is negative from the Private Equity fund's point of view. Eltel has business areas including the African market, which is not profitable and can therefore be sold. The money from a divestment can be used to reduce the debt. The company meets the other criteria of being attractive for a Private Equity fund.

EducationsGraduate Diploma in Finance, (Diploma Programme) Final Thesis
Publication date2017
Number of pages96