Challenges of Gemcom Software Australia Inc - Case Study Example

Gemcom Software Australia Inc. Name: Course Professor’s name University name City, State Date of submission Executive Summary This report authorized by the senior managers of Gemcom Software Australia aims to provide a robust advice to this business on issues pertaining to the private equity acquisition of a new company and the return to better performance of the Kazakhstan agent. The objective of the report is to assist the management to make and informed decision on the issues that they currently face. Difficult as they may have previously seemed I have used my professionalism to raise recommendations on what the management should look at when they are making a decision forward in the above mentioned issues. To give these recommendations, I have sourced research from other competing companies on their reaction when faced with such an issues as well as literal sources concerning private equity companies. The main recommendation is based on the role that Private equity companies take in the partnering of new companies or the already existing companies and the considerations they take in the decision making process. Introduction Gemcom Software, Inc is the largest global supplier of mining software solution1. Its subsidiary in Australia is based in Ottawa, Ontario with an employee base of between 20 to 500 employees. The managing director of Gemcom Software Australia is Andrew Pyne. In this capacity, Mr. Pyne manages the company business involved in the region of Asia, Australia and Russia. This report aims to give a professional business advice on the subject of the Russian loyal company that was the company’s agent who has heavily invested in the company to a point of also established a team in his company that was solemnly focused on the marketing of this company. His team left his company and went forward to create their own company that saw their new leader approach the current management to convince them to switch the existing relationship to follow the new company. Thus the company faces a dilemma to either remain with the loyal company with the owner who has invested a lot for the company or shift to the new team newly formed with a capacity to achieve the company’s goals. The lady saw an opportunity to take over from the executive partner the business and she did so. There was no reported issues between her and the executive partner as a matter of fact the lady had been taken by the partner from Belarus from Russia and had continued to assist her. The company’s Russian market is not important; however, its profit stream is of interest more, with a contribution of between four to five percent of the total earnings. Zero risk is involved in this revenue; however the company had invested in the translation of two products in Russian as a measure to act as a catalyst in the growth of the company's business in the region. This industry requires a high staff turnover as even the scarcity of technical labor is important. This is even crucial in the fact that we only have five or four companies that can go head to head with us on the market share. The companies produces unique technology the assists geologists in strategic mining. The main difference between us and the other companies is that we the company is listed and it is also owned by private equity out of the US and also one out of Switzerland. The company’s competitors are still owned by their founders. This is a proof that the company is run by powerful individuals in most cases. Being in this state, the company has a potential to invest because it has a larger a ray of funding. The company has the opportunity to invest in an unlisted company at the beginning of its growth journey and while still it is in private status. The taking of another company by this company that is unlisted and taking them private would increase their market stock[Lis15]. However, in decision making the management has the responsibility to drill down possible options first while they look and understand the potential risks of investing in any of them first. This is due to the fact that the management of such a company is answerable to shareholders thus the best of decisions must be made. With such characteristics at stake, it is difficult to do a deal with the new company in a flash. The process of the negotiation of this deal is very complex and it is advisable to have a team that is experienced in the Russian market as well as a team of lawyers and advisories that will help the company in this deal2. Of substance is that private equity companies must make their objectives to be grown rather than loyalty or turn around. This makes it similar to the venture capital, which is sometimes considered a subset of private equity3. The main characteristic to note, however, about growth capital is that it tends to focus on larger and more matures, companies that are not in the early stages as in the venture capitalists. Before a decision is made a consultation should be made to make sure that the stakeholders of this firm are in agreement with the deal that is proposed in order to avoid any conflicts that might arise. The point of eligibility of Gemcom is also a matter to be considered. The firm has to have a certain type of companies they invest in. The company must be large enough to support the investment that will quite follow after the partnership. Since the company is a profit driven firm then the newly acquired firm should be able to offer relatively large profits over a short period of time. In short terms the new company should have strong growth prospects or rather its financial difficulties should be currently undervalued, additionally the new company should be able to give the equity company a lucrative deal at the end of a five year period4. Such a good decision is seen in the acquisition of Surpac Minnex Group in 2006 that finally resulted to all time high performance of the companies to both the staff and the customers. The acquire had very good technology that did not reflect at first, but after twelve to twenty-four months the experience became quite different. The revenue growth went so high and then the acquisition was considered a productive change. Little is known about the new company, at first the benefit of acquiring it may not be seen but times down the line the revenue might likely change5. A private equity company definition of profit is limited in that it focuses on the financial value of the business in a certain date about five years after the investment was initially made. It often has little concern on relationships with employees’ and customers and reputations6. Recommendations Decision making in the private equity company follows a specific path. It involves exploring different factors to know whether an investment decision is worth being considered. And if it is appropriate for the firm. Research needs to be undertaken to know the other companies Market potential and position, the industry trends and the available debt financing available7. In the Case of Gemcom firm it should be able to evaluate the position its own needs in the new venture that they have in Russia. It should also do a due diligence in the company as well. The new company or the company with the loyal customer should portray multiple avenues of growth. It should have a possibility to expand in the near future thus giving an incentive to Gemcom that the future will see an increase in revenues rather than a decrease or even a stagnant revenue stream. Both or ether should also show a strong market position and a sustainable continuous competition with its competitors to be considered a perfect LBO candidate. In this the company should be able to show intent and the ability to have new ideas that would see it being at the edge in the market. This means a constant production and a core built of perfect innovation criteria8. Gemcom Software ought to invest in that company that has a stable, recurring cash flow. Unlike that company where the employees have newly created that has no cash flow to consider. Here the best decision would be to continue investing in the old company that had loyalty as it has a cash flow to consider. Further investment in the old company would mean a low capital expenditure to use as there is no money used in new procurement of assets. The new company would mean the purchase of the assets that they did not have previously that may prove costly9. The LBO should show a favorable industry trend in the past so that the private equity company would be able to know the ability of the company to raise profit. As stressed earlier, the company is more interested in the four to five percent of the total revenue they receive in the region rather than the market share that exists in Russia. Additionally the company should have a strong management team within the organization to allow for team work to be established and limit controversies that may be in existence in the company10. The management headed by Mr Pyne should be keen to identify that company that the private equity can be able to create value in the future. This would include the sell of under performing assets, pricing optimization, the efficiency of the operation and the organization and re-organization of the company’s structure and additional diversification of the customer base11. Additionally the management or the decision makes on the action to be taken also need to conduct due diligence in that they should conduct the commercial due diligence to understand the companies value its historical performance the industry trends that have seen the company to its existence and the ability to foresee the forecasted projections12. Various options exist on what should be done to an underperforming agent in a business situation. The private equity can either terminate the partnership or change the management of the company in Kazakhstan and input a better performing management team. This is possible because of the private equity acquisition of the company that makes it possible for the company to be included in the management board of the company. Conclusion The body of this report consists of the explained situation of what the company management and decision makers face in the choice they have to make to whether stay with the loyal customer or to jump ship and undertake the new customer that consist of the former employees of the previously loyal customer. The recommendations here forth are a combination of all the aspects that the private equity company considered before making and informed decision on what to do in the presence of competing LBOs. It has a detailed analysis on primarily what to consider in the continuation of an acquisition. The difference between the two LBO exists in the situation that one is an upcoming LBO while the other has been in existence and is also a loyal company to Gemcom software. There is also recommendation on what the manager Mr. Pyne should do on the under performing agent in Kazakhstan. Reference Lis15: , (Listed Private Equity 2015), Read More