Academic journal article Journal of the International Academy for Case Studies

Informatica De Sistemas, S.A. Earnout Negotiation

Academic journal article Journal of the International Academy for Case Studies

Informatica De Sistemas, S.A. Earnout Negotiation

Article excerpt


Denshi Global Holdings is a Japanese diversified holding company with a dynamic portfolio of subsidiaries spanning global software, information technology, computer science, and semiconductor technologies companies. Through its portfolio of twenty-eight companies, ranging in (U.S. dollar) revenues of $58 million to $360 million, the company takes advantage of valuable synergies among the holding company and portfolio companies to maximize revenue growth, internal development, and strategic acquisitions. In fiscal 2008, Denshi companies generated in excess of $1.85 billion in revenues with pre-tax profits of $237 million on a consolidated basis and projects fiscal 2009 revenues of $2.27 billion and pre-tax profits of $276 million.

Denshi implements its growth strategy through the acquisition of companies meeting the following criteria:

* attractive fundamentals, including annual revenue between $40 million and $200 million, EBITDA (earnings before interest, taxes, depreciation, and amortization) of at least $10 million, EBITDA margins of at least 10%, 3 years of profitability and positive free cash flow (cash flow from operations--net capital expenditures)

* modest capital requirements

* low cost of goods sold (gross margins in excess of 45%)

* high barriers to entry and switching costs

* operating in the software, information technology, computer science, or semiconductor technologies industries

* ability to sustain high rates of organic growth, where future growth is driven by steady demand that is not subject to above-normal volatility

* potential to grow faster than the markets they serve

* an international focus

* strong, highly motivated entrepreneurial management team

* potential for future growth through follow-on acquisitions within the same or an adjacent industry

* stable and long standing customer relationships

* deal size between $50 million and $500 million

Denshi has a global acquisition perspective, believing that global diversification of its portfolio companies reduces the volatility of the holding company's revenues and earnings, as well as the volatility of its stock price. Denshi stock, traded on NASDAQ, has performed well over the past eight years since the meltdown of technology stocks (Figure 1). Denshi had not been spared from the late 90's excess valuations and the subsequent descent into reality, but its global diversification strategy helped in maintaining more price stability than most NASDAQ stocks during the period. The current price of Denshi stock is $22 with a P/E ratio of 25.3, a 31% premium over the average P/E for the S&P 500 companies.



Javier Portilla was born in Madrid, Spain, in 1960. He received his undergraduate degree and Ph.D. from Complutense University in Madrid while there from 1978 to 1988. He served eight years on the faculty at the Universidad de Santiago de Compostela, Spain, as Professor of Applied Mathematics (Matematica Aplicada). In that position, he produced ground-breaking research in the area of load balancing, a technique to spread work between two or more computers, network links, CPUs, hard drives, or other resources, in order to get optimal resource utilization, throughput, or response time.

In 1996, Javier became Director of the university's Computer Science Institute where he extended his research in applied mathematics to grid computing, an optimizing technique for workloads which consist of many independent packets of work without data sharing requirements. His work went far beyond any that the field of computer science had ever seen. His research reports, published in the most prestigious academic journals, were eagerly awaited by both academicians and business information technology professionals. In 2000, Javier received Spain's prestigious Prince of Asturias Prize for Scientific Research for his landmark work in the "creation of revolutionary advances in applied mathematics for the benefit of mankind. …

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