Capitol Digital

Richard  Ruback; Royce  Yudkoff

Case | HBS Case Collection | August 2017 (Revised November 2019)

Capitol Digital

Abstract

The case describes the acquisition of Capitol Digital, which specialized in litigation support and digital forensics, including due diligence findings and first year operational plans.

Keywords: Mergers and Acquisitions; Planning;

Language: English

Format: Print

7 pages

Educators

Citation:

Ruback, Richard, and Royce Yudkoff. "Capitol Digital." Harvard Business School Case 218-019, August 2017. (Revised November 2019.)

Soon after Robin Kovitz (MBA 2007) acquired Baskits Inc., the largest gift basket company in Canada, she became convinced that the business needed to make significant operational improvements. In her first year as CEO, she introduced an ERP system to help with sales and purchasing and relocated the business to a more efficient facility. She wondered if she moved too quickly.

Case | HBS Case Collection | August 2019 (Revised October 2019)

Systems Design West

Richard Ruback, Royce Yudkoff, Richard Ruback and Royce Yudkoff

Jenn Braus (HBS 2013) was halfway through the 90-day exclusivity period for her proposed acquisition of Systems Design West (SDW). She had completed her business and accounting due diligence. Just as she was about to ask her lawyer to begin drafting the purchase agreement, she received a call from the seller that the company had reached agreement with a large new client that would increase revenue by roughly 20%. The seller asked that the success be reflected in an increased offer price, although he had not specified the amount of the increase.

Braus needed to decide on an appropriate response. Should she stand fast? In her mind, she had already agreed to pay a premium price for SDW, with a higher than typical multiple of EBITDA. Part of her rationale for the high multiple was that she believed the company had significant growth potential. Paying a higher price in response to the new customer seemed like paying twice for the growth. However, because the new customer was so large, Braus imagined that it would nudge the run rate EBITDA for SDW to about $1 million, eliminating a concern she had about the small size of the business. If she decided to negotiate a higher price, how much of an increase was appropriate? Simply applying historical margins would imply that a 20% increase in revenue would correspond to a 20% increase in price. Alternatively, it could be more as margins improved with operating leverage, or it could be less if significant fixed costs were required to on-board the new customer. Additionally, Braus was concerned that a new customer was inherently riskier than SDW’s typical customer that had a history of recurring revenue.

Keywords: Acquisition; Price; Negotiation Offer; Decision Making;

Citation:

Ruback, Richard, and Royce Yudkoff. "Systems Design West." Harvard Business School Case 220-004, August 2019. (Revised October 2019.) View Details

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