XX SEMEADSeminários em Administração

novembro de 2017ISSN 2177-3866

LINX CASE STUDY: CAPTURING OPPORTUNITIES VIA ACQUISITIONS

BERENICE RIGHI DAMKEINSPER INSTITUTO DE ENSINO E PESQUISA (INSPER)bdamke@gmail.com

RICARDO HUMBERTO ROCHAINSPER INSTITUTO DE ENSINO E PESQUISA (INSPER)humberrocha@uol.com.br

LEONARDO PAGANOINSPER INSTITUTO DE ENSINO E PESQUISA (INSPER)leopagano@uol.com.br

RENATO STAVROPOULU BARCHAINSPER INSTITUTO DE ENSINO E PESQUISA (INSPER)renatobarcha@gmail.com

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LINX CASE STUDY:

CAPTURING OPPORTUNITIES VIA ACQUISITIONS

Summary

In 2008, Linxi was a BRL 20 million annual sales company in the retail management

software segment. By that time, Linx’s executives realized that important competitors, Totvsii

and Bematechiii, were growing in its segment and Linx must grow too. Thus, acquiring

Quadrant would be their chance to grow fast. Otherwise, Quadrant could be sold to another

competitor and Linx would be overwhelmed.

To fund Quadrant and other 20 companies’ acquisition from 2008 to 2015, they faced a

dilemma: seeking for new loans, new shareholders, or preparing the company to an IPO?

Funding strategies along the years would change not only Linx’s capital structure but

also its cash availability to acquire competitors and/or peers and grow.

In addition, they faced the challenge of making all the mergers and acquisitions

successful deals, with no disruptions in the Linx’s fast growing path.

Learning goals: (i) Debate odds and evens of acquiring a similar size competitor; (ii)

Understand the company’s strategy and sources of funding; (iii) Comprehend the step by step

of an IPO; and (iv) Evaluate the reasons why Linx IPO and strategy were successful.

Key Words: Linx; Technology; IPO; Acquisitions; Strategy.

1. Linx and the challenge to grow

It was a cloudy afternoon in the beginning of 2008 in Brazil, when Dennis Herszkowicz,

the CFO (Chief Financial Officer) of Linxiv, was analyzing the financial and commercial

position of his company. He was preparing some reports to meet with Linx’s shareholders next

morning. The meeting was to discuss which strategies they should adopt to grow in its fragment

segment, of retail management software in Brazil.

By that time, Linx was a BRL 20 million net revenue company, focused on a single

vertical (apparel). In this niche, its main competitor was Quadrant, with almost the same market

share. In addition, there were other two important competitors growing fast and Dennis was

convinced that Linx should speed up its growth – or the company could be out of the game in

the next few years.

In this context, Denis focused on analyzing funding strategies to make it possible Linx’s

growth by acquiring Quadrant – and others retail software companies in the future. It was not

an easy task since Linx had a high leverage, which means high credit risk and increase its cost

of funding. As of December 2009, the company’s debt was 3.3 times the shareholder’s equity

(please see Figure 4). Therefore, the only chance to make acquisitions viable was to bring new

shareholders, who could make new equity capital injections into Linx.

2. Company’s History and Strategy

Linx “began its operations in 1985 at the initiative of Nércio Fernandes, the current

chairman of our board of directors, and other founders who subsequently left the company

during the early years of IT (Information Technology) acquisition by Brazilian companies.

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From the beginning, Linx S.A., along with the Linx Group, have specialized in systems for the

retail sector, which has since become its strategic focus”v.

This is a 30 years old company, which growth is deeply connected with acquisitions of

its peers and competitors and with its IPO in February 2013 at BM&FBovespa, among other

funding strategies that made 21 acquisitions possible from May 2008 to September 2015.

In December 2015, Linx was responsible for a 35.5% market share in its segment,

almost 3 times larger than its closest competitorvi. With a large portfolio of services and

customized softwares for retailers, Linx sales revenues was BRL 449.2 million as of December

2015. In the 4Q15, EBITDA reached BRL 121.7 million, increasing 16.6% in comparison with

4Q14 – despite of the economic depression of the country (Brazilian GDP was negative in

approximately 3.5% in 2015). In the last five years, its EBITDA margin has been close to 30%.

Linx customer base expanded from 12,771 in 2012 (before their IPO) to approximately 39,060

as of 2015.

Linx has a competitive advantage on its segment, of softwares for retail sales

management, that is to provide integrated software solutions, which include P.O.S. (Point of

Sales) and E.R.P (Enterprise Resource Planning). P.O.S. is a kind of software that helps

cashpoint on the daily retail sales. E.R.P. controls the company back-office, integrating

inventories, production, commercial planning, accounting, fiscal issues, financial control, etc.

3. Competitors and the strategic decision: to acquire or to be acquired?

In 2008, when the Brazilian economy was growing more than 5% per year, Linx was

one of the most relevant companies in its fragmented segment of retail management software,

focused on the fashion wear (apparel) vertical, with annual sales of BRL 20 million. In this

niche, Linx’s main competitor was Quadrant, with almost the same market share.

By that time, Linx’s executives recognized that there were two competitors, which could

threaten the company’s market and growth: Totvs, the largest Brazilian company in managerial

softwares for retail sales, offering its products and services to all segments and sectors; and

Bematech, focused on commercial automation, in special on producing fiscal tickets printers.

Both Totvs and Bematech were listed at BM&FBovespa in 2008, and were expanding fast by

acquisitions of software companies. Totvs made its IPO on March 2006 and Bematech, on April

2007, before the financial markets crisis.

In May 2008, Linx’s executives, Alberto Menache, Nércio Fernandes, Alon Dayan and

Dennis Herszkowicz, found themselves in a dilemma: risk to buy a similar size competitor

(Quadrant) in a market with few participants, starting the sector’s consolidation, or leave other

large companies to grow in its sector and maybe to be acquired in the future?

Linx’s executives believed that, as a matter of survivor, they must grow too. Dennis

Herszkowicz did a great job while mapping the financial and commercial situation for that

morning meeting with shareholders and directors. They were convinced that acquiring Quadrant

and merging it into Linx would be their chance to speed up the company’s growth. Otherwise,

Quadrant could be sold to a competitor, like Totvs or Bematech, and Linx would be

overwhelmed.

Linx knew very well Quadrant’s business and clients, since they were operating in the

same niche. However, Linx’s ERP was superior to Quadrant’s ERP and it meant synergy on

their merge, since Linx was a specialist on ERP solutions and could help Quadrant’s clients to

grow. Taking advantage of the synergies, Linx’s revenues would double, reaching BRL 40

million per year, by acquiring Quadrant.

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4. Decision made: growing by acquisitions

In this scenario, in May 2008, Linx’s executives decided to buy Quadrant and start

growing by acquisitions. It was an offensive movement but also defensive, since it mitigated

the risk of new players enter in the retail sales software segment.

In terms of funding, the acquisition of Quadrant was negotiated in installments so that

extra cash generation, which came from synergies, was enough to pay for it. No new bank loan

nor shareholder’s equity was necessary to pay for Quadrant. This way, Linx’s capital structure

and financial leverage remained the same as before Quadrant’s acquisition.

The experience was so positive that Linx “developed a strong capability and track record

of identifying, negotiating and integrating acquisitions”vii. From 2008 to September 2015, Linx

acquired 21 companies in Brazil, to enhance retail vertical breadth, expanding its operations

into new regions and adding new technologies. Some examples are of those acquisitions,

besides Quadrant (in 2008, in the State of Rio de Janeiro) are: Custom, in 2011, in the southern

region of Brazil; Compacta, in 2012; Seller and Direção, in 2013; Big Systems and Softpharma,

in 2014; and Pharma and Chaordic, in 2015.

It allowed Linx to diversify its portfolio of software solutions, entering in different

verticals such as: food services; gas stations and convenience stores; fashion and accessories;

drugstores; and dealerships. In Figure 3 it can be found the detailed Acquisition History and

Rationale.

5. Making the homework to take advantage of the synergies

In 2008, before acquiring Quadrant, Linx had 100 employees and BRL 20 million

annual revenue. In the end of 2012, the company had almost 1,000 employees and BRL 231

million annual revenue, as per Figure 4, which states their growth along the years.

According to the Linx’s CFO, Dennis Herszkowicz, “the company made its

homework”, which means, in his view, investing in a corporate structure that allowed this

important growth. In practice, according to him, they: developed standardized automatic

internal processes; hired new experienced executives; created the legal and auditing

departments; developed internal controls and a succession planning; implemented

methodologies of risk mitigating and control. All those together gave a corporate governance

framework necessary for a sustainable long-range growth, besides of being ready to list at

BM&FBovespa.

6. A Brief History about Linx’s Funding Alternativesviii

Quadrant was acquired in May 2008 by Linx with no new debt or equity, but with the

company’s own cash generation – in part due to the synergy and important increase on Linx’s

revenues (from BRL 20 to 40 million in one year). However, executives decided that it was

important to strength the company’s cash and short-term reserves to support the growth as well

as to avoid illiquidity.

Linx’s executives now were in a funding dilemma to keep growing by acquisitions:

make a new bank loan, increasing the company’s leverage; prepare the company to an IPO, to

be listed at BMFBovespa, in Brazil; or search for another equity alternative? This decision

would affect not only Linx’s capital structure and cost of funding but also the whole company

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strategy and market share. It would be the difference between survive and grow or to be out of

the game.

Thus, they decided to apply for a BNDESix loan facility designated to software

companies (“PROSOFT”, in Portuguese). They got a BRL 8 million loan facility, linked to

future interest rate payments. In addition, they received an offer of BRL 50 million from

BNDESpar, which is a BNDES parent company that acts like a private equity. BNDESpar

would invest on Linx if they find three companies to acquire until the end of 2009. As far as

they accept the BNDESpar offering, BNDESpar would become a new Linx’s shareholder.

It seemed an appealing offer to Linx’s executives who decided to search for new

companies to acquire. They found three companies, which they considered to add value to

Linx’s businesses: on the building vertical; on the large retailers (with above one billion annual

revenues); and, another focused on small retail sales companies, located in Minas Gerais (a new

location, out of São Paulo and Rio de Janeiro, where Linx was already strong on the segment).

BNDESpar made its analysis, validated Linx’s choices, and made it viable the

acquisitions of Inter Commerce, Formata and CSI, with a BRL 50 million funding, in the end

of 2009. This way, BNDESpar became a new shareholder with 21.7% of the Linx’s equity.

In November 2010, Linx got new loan facilities to acquire two new companies: Dia

System and CNP. Still in 2010, aiming to avoid a high leverage, Linx hired BTG Pactual, one

of the most prominent investment bank in Brazil, to search for new investment funds which

would be interested in a private placementx, becoming minor Linx’s shareholders.

On June 30, 2011, at an extraordinary general meeting, Linx’s shareholders approved

the issuance of 2,759,983 preferred shares. In the same day, the preferred shares were purchased

by GA Brasil II Fundo de Investimento em Participações (a General Atlanticxi private equity

investment fund), for BRL 129.2 million. Approximately BRL 0.5 million of which was

allocated to a capital increase and BRL 128.7 million was allocated to the company’s capital

reserve account. Thus enhancing the shareholder’s equity and preventing Linx of a high

leverage, aiming to make its growth through acquisitions possible.

To avoid a dilution of BNDESpar participation in shareholder’s equity, on June 30,

2011, at our extraordinary general meeting, it was also approved the issuance of 764,906

preferred shares. On July 26, 2011, BNDESpar it for BRL 35.8 million, of which approximately

BRL 0.2 million was allocated to a capital increase and BRL 35.6 million was allocated to the

capital reserve account.

The main objective of that capital injection was to keep up acquisitions and consolidate

the retail sales software’s segment. It was what happened in 2011 and 2012, when Linx bought

other five new companies: Custom, Spress, Microvix, Compacta and Bitix.

7. The decision of going public and making an IPO (Initial Public Offering)

Since 2008, when Linx decided to speed up its growth by acquisitions, its executives

Alberto Menache (Chief Executive Officer), Nércio Fernandes (Founder, president of the board

and Research &Development Vice President), Alon Dayan (shareholder and director) and

Dennis Herszkowicz (Chief Financial Officer and Investor Relations director) discussed the

idea of getting public and listed at BM&FBovespaxii. In a first moment, they decided to remain

private and fund Linx via private banks and BNDES loans, as well as equity via BNDESPar

and General Atlantic private equity investment fund.

However, in May 2012, in a board meeting they decided it was the time for an IPO.

Consequently, other important decisions had to be make: which bank should be hired to assist

them? How was the step by step of an IPO? How should Linx internally prepare itself in terms

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of corporate governance and structures? How to maximize the chances of being successful in

the IPO?

Linx’s executives searched about critical factors of success in an IPO. One of the main

conclusions was that they should make their offer in the beginning of the year, when investor’s

cash flow uses to be higher. Thus, Linx decided to be the first to offer its shares to the investors,

in the beginning of 2013.

To make it viable, as well as to get the regulatory approval of CVM (Comissão de

Valores Mobiliários – the Brazilian Security Exchange Commission) to become public, Linx

hired Credit Suisse, together with Morgan Stanley, BTG Pactual and ItauBBA, all very well

reputed investment banks in Brazilxiii. Aiming to find investors with appetite to buy their shares,

in November 2012, Linx and the hired banks did the Pilot Fishing xiv, and in January 2013, the

Road-Show xv.

On February 8, 2013, Linx concluded its BRL 459 million Initial Public Offering (IPO)

at BM&FBovespa Exchange (São Paulo Securities, Commodities and Futures Exchange). Linx

listed in the “Novo Mercado” segment, which meets the highest level of corporate governance.

In its IPO, 17,000 shares were offered, at BRL 27.00 per share, which gave the company an

approximately 67% free float (shares that are not held by controlling shareholders). In the first

trading hour, its stock price rose to BRL 30.38, signaling the investor’s appetite for Linx’s

shares, as well as the good job of the company’s executives and the banks’ successful task force.

The proceeds from the primary offering (BRL 459 million) were used to assist in the Linx’s

growth through acquisitions and to supplement working capital.

By that time, in February 2013, besides Linx, there were four other Information

Technology companies listed at “Novo Mercado” segment: Bematech, Positivo Informática,

IdeaisNet and Totvs.

8. The strategy of growing by acquisitions and Linx’s results

Reviewing Linx’s history of acquisitions (please see Figures 1 to 4), it is possible to

note that funding’s strategies changed along the years, from May 2008 when Quadrant was

acquired to September 2015, when Chaordic was merged into the company. Different funding

strategies brought positive and/or negative impacts to the company’s leverage, capital structure,

credit risk and market value along the years.

Table 2 shows that, in 2008, Linx was a very high leveraged company. However, since

when BNDESpar and General Atlantic entered the company, it became a low leveraged

company with an average 20% debt/equity ratio.

Figure 1 gives a flavor of the impact in Linx’s stock return of all these financial and

commercial movements. It shows that since the company listed at BM&FBovespa (February

2013) it far and consistently outperformed Ibovespa (the stock index of the São Paulo

Securities, Commodities and Futures Exchange), in terms of return along the years. It signs a

resilient company, which seems to be growing in a sustainable path, despite of the Brazilian

economic depression in recent years.

Analyzing these figures Dennis Herszkowicz gets proud of his initiative to convince

Linx’s shareholders and executives to growth through acquisitions. He believes that it was the

right decision to make. Nowadays, his is preparing for the forthcoming steps, in a scenario that

Brazil is getting out of the recession and Linx should keep growing.

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Figure 1: Linx stock return and Ibovespa Stock Index return in the last five years

Linx’s stock return is the orange line, in the positive area, accumulating 66% return

since its IPO in February 2013. Ibovespa Stock Index return is the blue line, ranging in the

negative area most of the time from 2013 to 2016. Source: Bloomberg

Figure 2: Linx’s Market and financial data as of December 2015

Source: Linx’s website (4Q2015 Corporate Presentation).

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Table 1: Acquisitions History, financial information and strategy rationale

Source: by the authors, based on Linx’s information and website (Acquisitions History).

Table 2: Linx’s Net Revenues, EBITDA, EBITDA Margin, Net Income and Capital

Structure along its 21 acquisitions, from May 2008 to September 2015.

All financial data is from the Consolidated Financial Statements, in BRL million, as of

December (4th quarter) of each year.

Source: by the authors, based on Linx’s information and website (Results Center).

DateCompany Merged

into LinxRetail Vertical / Technology

Cost of

Aquisition

Retail

VerticalRegional

Product/

Technology

(in BRL

million)

May-08 Quadrant Apparel x 39.9

Dec-09 Formata Apparel x 10.0

Dec-09 Inter Commerce Home Centers x 13.6

Dec-09 CSI Eletronics, Supermarkets and Drugstores x x 41.2

Dec-10 DiaSystem Dealer Management Software x 13.8

Dec-10 CNP Dealer Management Software x 16.0

Feb-11 Custom Apparel and Eletronics x 4.7

June-11 Spress Software Dealer Management Software x 29.7

Dec-11 Microvix Franchise / Cloud x 42.0

Aug-12 Compacta Tecnologia Food Services / Cloud x x 46.2

Oct-12 Bitix Mobile / Cloud x 0.7

February-13 Linx IPO at BMFBovespa

March-13 Seller Gas stations / Convenience stores x 10.1

March-13 Direção TEF for samll retail chains x 26.5

July-13 Opus Software Services Retail x 9.0

November-13 Ionics Gas stations / Convenience stores x 12.0

November-13 LZT Sistemas Gas stations / Convenience stores x 30.5

May-14 Rezende Sistemas Gas stations / Convenience stores and Food x 49.9

Oct-14 BIG Sistemas Drugstores x 28.5

Dec-14 Soft Pharma Drugstores x x 44.0

Sep-15 Neemu E-commerce x x

Sep-15 Chaordic E-commerce x x

Key Rationale (Strategy)

78.6 (Neemu +

Chaordic)

DateCompany Merged

into Linx

Linx Net

Revenues

Linx

EBITDA

EBITDA

Margin

Linx Net

Income

Capital

Structure

(Debt/

Equity)

Loans and

Financing

(ST + LT)

Share

holder's

Equity

May-08 Quadrant 20 n/a n/a n/a n/a n/a

Dec-09 Formata 73 22.9 31.4% 12.5 336.5% 24.9 7.4

Dec-09 Inter Commerce 73 22.9 31.4% 12.5 336.5% 24.9 7.4

Dec-09 CSI 73 22.9 31.4% 12.5 336.5% 24.9 7.4

Dec-10 DiaSystem 129.5 43.6 33.7% 22.5 78.7% 54 68.6

Dec-10 CNP 129.5 43.6 33.7% 22.5 78.7% 54 68.6

Feb-11 Custom 197.4 47.5 24.1% 21 7.6% 18.9 247.2

June-11 Spress Software 197.4 47.5 24.1% 21 7.6% 18.9 247.2

Dec-11 Microvix 197.4 47.5 24.1% 21 7.6% 18.9 247.2

Aug-12 Compacta Tecnologia 231 59.8 25.9% 17.3 20.4% 47.6 233.5

Oct-12 Bitix 231 59.8 25.9% 17.3 20.4% 47.6 233.5

February-13 Linx IPO at BMFBovespa

March-13 Seller 295.5 87.1 29.5% 62.4 8.0% 47.1 586.4

March-13 Direção 295.5 87.1 29.5% 62.4 8.0% 47.1 586.4

July-13 Opus Software 295.5 87.1 29.5% 62.4 8.0% 47.1 586.4

November-13 Ionics 295.5 87.1 29.5% 62.4 8.0% 47.1 586.4

November-13 LZT Sistemas 295.5 87.1 29.5% 62.4 8.0% 47.1 586.4

May-14 Rezende Sistemas 368.8 104.4 28.3% 67.6 11.4% 72.2 634.2

Oct-14 BIG Sistemas 368.8 104.4 28.3% 67.6 11.4% 72.2 634.2

Dec-14 Soft Pharma 368.8 104.4 28.3% 67.6 11.4% 72.2 634.2

Sep-15 Neemu 449.2 121.7 27.1% 63.8 19.3% 128.4 665.2

Sep-15 Chaordic 449.2 121.7 27.1% 63.8 19.3% 128.4 665.2

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TEACHING NOTE

“Linx Case Study: Capturing Opportunities via Acquisitions”

Summary

Linxxvi is a retail management software company in Brazil, with 35.5% market share,

39,060 clients, 449.2 million sales revenues and 27% EBITDA margin as of December 2015.

Its sales increased 21.8% in 2015 in comparison with 2014, despite of the country’s economic

depression. This is a 30 years old company which growth is deeply connected with acquisitions,

in special from 2008 to 2015.

In 2008, Linx was a BRL 20 million annual sales company in the fragmented retail

management software segment. Its main competitor was Quadrant, with almost the same market

share. By that time, Linx’s executives realized that other important competitors, Totvsxvii and

Bematechxviii, were growing in its segment and, as a matter of survivor, Linx must grow too. In

this context, acquiring Quadrant would be their chance to grow fast. Otherwise, Quadrant could

be sold to another competitor and Linx would be overwhelmed.

To fund Quadrant’s acquisition, they faced a dilemma: make a new loan, increasing the

company’s leverage, prepare the company to an IPO (at BM&FBovespa) or search for another

equity alternative?

Funding strategies along the years would change not only Linx’s capital structure but

also its cash availability to acquire competitors and/or peers and to grow. It would be the

difference between survive and succeed or to be out of the game.

In addition, they faced the challenge of making all the mergers and acquisitions

successful deals, with no disruptions in the Linx’s fast growing path.

Key Words: Linx; Technology; IPO; Acquisitions; Strategy.

Leaning goals of this case:

(i) Debate odds and evens of an acquisition of a similar size competitor in a market

with few participants;

(ii) Understand the company’s strategy: “defend itself attacking” (via acquisitions) and

sources of funding;

(iii) Comprehend the step by step of an IPO and different governance levels at

BM&FBovespa in Brazil;

(iv) Evaluate the reasons why Linx IPO and strategy was successful.

From the Financial Perspective, you can ask your students to analyze how Linx’s

revenue, EBITDA and net profit evolved along the time with acquisitions, and decide if this

strategy created or destroyed value for the company. The value of a company can be estimated

in different ways but one of the most popular methods is the DCF (Discounted Cash Flow –

please see DAMORADAN, 2012). Running a DCF is a time consuming and a bit complex

process but you can encourage your students to analyze the evolution of the equity market value

of Linx, based on Bloomberg graphics and on the Figure 1, which compares Linx to Ibovespa

(the market index of BM&FBovespa) in the last five years.

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It is important to understand that, along this period, Brazil came from a positive 0.9%

in 2012 to a negative 3.5% growth in GDP in 2015 and in 2016, which means that Linx grew

its business through acquisitions despite of the Brazilian economic and political crisis in this

period. This case begins in 2008, when Brazil grew its GDP in 5.1%, despite of the US financial

crisis, according to IBGExix.

To analyze how Linx’s revenue, EBITDA and net profit evolved along the time with

acquisitions, your students may base in summarized information at the Figure 4. However, not

only. Encourage them to visit the company’s website, where they will find detailed information

about Linx and its Financial Statements (http://ri.linx.com.br), as well as the BMF&Bovespa

website, to check information about the stock price from 2008 to 2017.

Regarding to the Capital Structure and Funding alternatives, you have the

opportunity to introduce the Capital Markets perspective, as an alternative to traditional bank

loans. You may debate the step by step of an IPO in Brazil and how it works to be listed at

BM&FBovespa, in special in the “Novo Mercado” segment, which is a listing segment that

includes companies with the highest corporate governance level in Brazil. Useful and

interesting information can be found at http://www.bmfbovespa.com.br/en_us/listing/

equities/ipo/how-to-go-public/.

Debate odds and evens of being listed at BM&FBovespa, including time involved on

the step-by-step process, agents and costs. Connect it to the Pecking Order theory (Myers and

Majluf, 1984) in terms of funding alternatives, credit risks and value of the company.

You can also explore pros and cons of BNDESpar: is it interesting to have BNDES,

which is a public bank in Brazil, as a shareholder to be able to growth through acquisitions?

This debate about BNDES facilities is a hook to discuss with your students capital

structure: odds and evens of higher leverage against accepting a new shareholder. Remember

that increase on leverage tends to bring negative impact on the credit risk and, consequently,

may increase Linx’s cost of funding, decreasing the company’s value. It also connects to the

Pecking Order theory that Linx did not full accomplished.

From the Strategy Perspective, you may encourage your students to search about the

Information Technology and Software segment, not only at Linx’s website but also at

Bematech, Positivo Informática, IdeaisNet and TOTVS Investors Relation website. Ask them

to make a Porter Five Strengths and Weaknesses.

You may give to your students, as a direction, the link to the Mind Tool’s website, where

they will find a video and summarized information of Porter (1979):

https://www.mindtools.com/pages/article/newTMC_08.htm

As a suggestion, you may encourage them to join in small groups, make a map together

and, afterwards, share in with the whole group Linx’s Five Forces Porter diagram, creating

one single class diagram.

Students may also identify Linx’s Core Competences, based on Prahalad and Hamel

(1990).

In addition, you can ask them to search for the evolution of Linx and its competitor’s

market share. Useful information can be found at the Investors Relations website of the

companies (Linx, Bematech, Positivo Informática, IdeaisNet and TOTVS).

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References

BERK, Jonathan and DE MARZO, Peter. (2014) “Corporate Finance”. 3rd ed. Pearson.

BREALEY, Richard, MYERS, Stewart, and ALLEN, Franklin. (2013). “Principles of

Corporate Finance”. 11th ed. McGraw-Hill/Irwin, New York.

DAMODARAN, Aswath. (2012) “Investment Valuation: Tools and Techniques for

Determining the Value of any Asset”. 3rd ed. Wiley Finance.

MYERS, Stewart C.; MAJLUF, Nicholas S. (1984). "Corporate financing and investment

decisions when firms have information that investors do not have". Journal of Financial

Economics 13 (2): 187–221

PORTER, Michael E. (1979) “How Competitive Forces Shape Strategy”. Harvard Business

School Publishing Corporation.

PRAHALAD, C. K. and HAMEL, Gary. (1990) “The Core Competence of the Corporation”.

Harvard Business School Publishing Corporation. May-June, 1990: 79-91.

ROSS, Stephen, WESTERFIELD, Randolph and JAFFE, Jeffrey. (2013) “Corporate Finance”.

10th ed. Irwin McGraw-Hill Publishers.

Websites:

Bematech’s website: http://www.bematech.com.br/

BM&FBovespa:

http://www.bmfbovespa.com.br/en_us/bm-fbovespa/institutional/who-we-are/

BNDES: http://www.bndes.gov.br/SiteBNDES/bndes/bndes_en/

CVM (Brazilian Security and Exchange Commission): http://www.cvm.gov.br/

subportal_ingles/index.html

DAMODARAN webpage: http://pages.stern.nyu.edu/~adamodar/

IBGE: http://www.ibge.gov.br/english/

Linx: http://ir.linx.com.br/

Totvs’ website: http://en.totvs.com/management-software-erp

i Linx’s website: http://ir.linx.com.br/. ii Totvs’ website: http://en.totvs.com/management-software-erp. iii Bematech’s website: http://www.bematech.com.br/. iv Company’s website: http://ir.linx.com.br/. v Company’s website: http://ir.linx.com.br/. vi According to the International Data Corporation market research. vii Company’s website: http://ir.linx.com.br/. viii Information from the Linx’s website

(http://ir.linx.com.br/conteudo_en.asp?idioma=1&conta=44&tipo=50273) and from the company’s executives

with who the authors of this case were in contact. ix BNDES is the “Banco Nacional de Desenvolvimento Econômico e Social”, in Portuguese, or National Bank

for the Economic and Social Development, in a free translation into English. It is a public bank in Brazil that

offers long-term loans for a subsidized cost (cheaper than the cost of opportunity in the country). x Private Placement is a kind of private investment made by a private equity investment fund. 2 Dennis Herszkowicz, Linx’s CFO, shared with the authors precious information to make this case possible,

since by that time (before February 2013) the company was not public yet. xi General Atlantic web page is http://www.generalatlantic.com/about-us/a-proud-legacy/. xii BM&FBovespa website is http://www.bmfbovespa.com.br/en_us/bm-fbovespa/institutional/who-we-are/ xiii All details about Linx IPO and the offer can be found at the “Prospecto Definitivo” (in Portuguese, or Offering Brochure, in a free translation into English) at http://www.itaubba.com.br/arquivos/portugues/pdf/prospectos/Linx%20SA/2013/Oferta%20P%C3%BAblica%

11

20Inicial%20de%20A%C3%A7%C3%B5es%20(IPO)/Oferta%20P%C3%BAblica%20Inicial%20de%20a%C3%A7%C3%B5es%20da%20Linx%20S.A%20%E2%80%93%20Prospecto%20Definitivo.pdf xiv Pilot Fishing is a kind of market reading to understand the investor’s appetite for the offering. xv Road-Show is a presentation to the potential investors some weeks before the IPO, to introduce and to “sell”

the company to the market. It is crucial to define the fair price for the offering (stock price). xvi Linx’s website: http://ir.linx.com.br/. xvii Totvs’ website: http://en.totvs.com/management-software-erp. xviii Bematech’s website: http://www.bematech.com.br/. xix IBGE is the Brazilian Institute for geographical and statistical data.