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There are many risks and complexities with cross-border deals due to cultural, legal, and economic issues. Some of these are apparent with this specific deal. It mentions a legal deal because of the constant change of regulation. Italy changes their policy up to four times a year which creates uncertainty that usually increases the risk of the deal. There is also a financial risk with the inspection into TeamSystems’s taxes by Italian authorities. This can distract managers and could delay the company going public. Palamon had to use companies outside of Italy to value the company due to the lack of comparable valuations in the Italian market which is not ideal. Lastly, whenever dealing across borders there is currency risk because the value of the investment changes with the currency exchange rates.

In conclusion, Louis Elson should recommend that Palamon Capital Partners acquire TeamSystem S.p.A at the current offer price. Non-price issues that are important to recognize are the exit strategy, current management, a tax inspection, and technological change. Palamon Capital Partners will need to determine what exit strategy they will want implement, whether to sell the company through an IPO or to another private investment firm. The current management relies heavily on the founder, Giocanni Ranocchi, who as a part of the deal will be guaranteed two more years of employment. There are concerns if the management will be able to make strategic decisions without constant oversight after Ranocchi’s contract. TeamSystem is currently facing an inspection by the Italian tax authorities. This posed a financial risk but is more likely to delay the company’s ability to go public. TeamSystem frequently invests in development of software to keep customers happy and loyal. The case noted that 95% of customers renewed their maintenance contracts every year. A nonprice risk in this transaction is the company’s ability to adapt to technological change to continue to have repeat business. TeamSystem has multiple products that run on older platforms. They will have to reprogram and integrate products with the internet to keep up with growing competition. We believe that Palamon Capital Partners can add value to TeamSystem S.p.A and would be a wise investment.

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TABLE 3

Terminal Growth

6%

WACC

14%

Enterprise Value Including Debt

$162,072

Less debt

($45,559)

Enterprise Value of Equity

%116,513

Exchange Rate

1936.27

Equity Value in EURO

$52.75

51% of Equity in EURO

$26.9