DOLLARAMA LBO
TO: BAIN CAPITAL
FROM: ANALYST GROUP
MICHAEL MALO
SEBASTIEN HUBERT
IVANINA MINCHEVA
SUBJECT: INVESTOR RETURNS
DATE: NOVEMBER 20th, 2004
DOLLARAMA LBO
TO: BAIN CAPITAL
FROM: ANALYST GROUP
MICHAEL MALO
SEBASTIEN HUBERT
IVANINA MINCHEVA
SUBJECT: INVESTOR RETURNS
DATE: NOVEMBER 20th, 2004
TABLE OF CONTENTS
INTRODUCTION 4
INDEPENDENT VALUATION OF DOLLARAMA 5
POTENTIAL IMPROVEMENTS TO DOLLARAMA OPERATIONS 11
RECOMMENDATION 17
APPENDIX 19
INTRODUCTION
We are a group of consultants from Montreal hired by Bain Capital to assess the profitability of the Dollarama leverage buyout option and to determine whether or not Bain Capital should go on with this opportunity.
In this analysis, we will
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Therefore for the analysis of Dollarama we will chose an entry multiple of x11.1.
We also know that Louis was contemplating a possible IPO exit strategy before the end of the holding period term. To estimate a multiple for this IPO exit, we need to look at the Price/Earnings ratio for Dollarama. Using the same methodology as above, we compared Dollarama to the same group of companies and computed the average P/E ratio for the set, see Exhibit 6a. We will consider the values for the year 2005 and will take a multiple of 24.6 for an eventual IPO exit.
Using the above multiples we are able to come up with the following price estimations for the LBO of Dollarama. With an entry multiple of 11.1 Bain will have to purchase Dollarama for the amount of $1.218 billion (excluding fees).
Exhibit 7.a
The Transaction would be structured in the following way as per Exhibit 7b.
Exhibit 7b
Bain will pay for Dollarama by borrowing $600 million and the rest will be contributed as Equity amounting to $640 million. Louis is suggesting that her institution will provide the financing, but will find it more profitable to later syndicate the debt, once the deal is closed.
Total transaction breakdown where 98% of total cost represents the purchase price and 2% of total cost represents
Swan-Davis, Inc. (SDI) manufactures equipment for sale to large contractors. The company was founded in 1976 by Tom Stone, the current chairman, and it went public in 1980 at $1 per share. The stock currently sells for $15, Stone owns 14 percent of the shares, and other officers and directors control another 13 percent. The industry is cyclical, and competition is strong, so profits are some-what unstable. Tables 1, 2, and 3 provide historical balance sheets, income statements, and ratios for the company for the period 1994–1996, Table 4 provides industry average data for 1994-1996, and Table 5 provides one security analyst’s forecasted data for the company based on assumptions
This assessment will evaluate different views of capital structure using Home Depot financial information from March 10, 2014. The evaluation will compare Home Depot to its largest competitor (Lowes) discussing similarities and differences. It will then provide examples supporting Modigliniani and Miller’s (MM) findings around the impact financing decisions have on a firms value.
COMPONENT PERCENTAGES INCOME STATEMENT (each item is expressed as a percentage of net sales revenue)
The share price of $270,000 was significantly higher because the “fair value” as perceived by the dissenters, which accounted for the chance of an IPO. Taking into account the recently traded Kohler Co. share prices, the book value of a share, and the possibility of an IPO greatly inflated what the perceived value of each share should be. While Kohler believed their voting control and ownership structure would remain the same, the shareholders believed otherwise. Because shareholders assumed Kohler would go public, they argued for a higher valuation so as to receive the highest price, and thus profit, in the buyout. So based on the highest MVE, we picked Masco as the comparable firm of choice. Using Masco’s MVE, $9838.8, and LTM EBIAT, $437.3, we solved for Masco’s P/E ratio, which was equal to 22.5. By multiplying the P/E ratio by Kohler’s LTM EBIAT (22.5 * $93.76), we projected a market value of $2,109,610,000. To solve for estimated share price, we divided the projected market value by 7,587.89, the number of shares outstanding to obtain an estimated share price of $278,023.47. This estimate is near the $270,000 per share offer price.
4) Do you think the total market value of Redhook, Pete’s and Boston Beer (at your proposed IPO price) makes sense, given the total size and profitability of the beer industry, and the craft-brewing segment? What profitability and growth assumptions are necessary to justify the total market value of these three craft brewers? (Hint: First determine the total market value of these three companies. Then figure out what the average after tax operating profit margin is for these three companies. Figure out what the value of these three companies would be if their after tax earnings continued forever, but did not grow at all. Then take the difference between their total Market Value and this (no growth) perpetuity value. This difference reflects the market value due to GROWTH. Try to figure out what growth rate in revenues is implied here by projecting total revenues for 10 years, and finding the after tax earnings for 10 years, and then discounting the after tax earnings at the cost of equity. Don't forget to calculate the terminal value (grow earnings at 4% after year 10.)
4) Do you think the total market value of Redhook, Pete’s and Boston Beer (at your proposed IPO price) makes sense, given the total size and profitability of the beer industry, and the craft-brewing segment? What profitability and growth assumptions are necessary to justify the total market value of these three craft brewers? (Hint: First determine the total market value of these three companies. Then figure out what the average after tax operating profit margin is for these three companies. Figure out what the value of these three companies would be if their after tax earnings continued forever, but did not grow at all. Then take the difference between their total Market Value and this (no growth) perpetuity value. This difference reflects the market value due to GROWTH. Try to figure out what growth rate in revenues is implied here by projecting total revenues for 10 years, and finding the after tax earnings for 10 years, and then discounting the after tax earnings at the cost of equity. Don't forget to calculate the terminal value (grow earnings at 4% after year 10.)
in our calculations, as this company exhibited dramatic value differences to others in the sample, (likely to skew our results and prove misleading). Using the average of the revised sample field for each ratio, we inserted Torrington’s values where appropriate to generate an entity value. The findings generated two values for Torrington, 606 million and 398 million. Taking the average of these two numbers, Torrington exhibited a relative value of 502.41 million. Because of the lack of related information given in the case, and the often large differences in measures amongst competitors, different capital structures, internal management strategies, there remained many unknowns in our model. We decided it would be best to use this valuation to reaffirm our assumptions in our DCF valuation. (Please see exhibits)
In a first step we have to postulate when the successful exit is going to happen. Normally this period is assumed to be between 3 and 7 years long. In our case, we make the assumption that a successful exit is going to happen in 1999. Since we are only concerned about the successful scenario, we go along with the projection of AccessLine, which is probably overoptimistic, and use its expected revenue of 208M at the time the exit happens. After the IPO, we presume the company will grow at a high rate for the next five years in the 75 percentile as proposed by Metrick, Andrew and Ayako Yasuda in their “Venture Capital and the Finance of innovation” book. We chose five years since the typical firm reaches maturity within five years after the IPO. Besides, we assume a tax rate of 30.64% given by the industry average (Damodaran 2013). As a discount rate, we use simply the industry average. Alternatively, we could use the Betas of the comparable companies. This gives us an unlevered average beta of 0.5*(1.39+2.03) since both companies are completely equity financed. The risk free rate was given by 7.1%, if we assume a risk premium of 5.79% (Damodaran for 1.4.13) we get a cost of capital of 16.9% using the CAPM equation. Because we only have two comparable companies we opt to do our calculations with the industry wide average discount rate. The operating margin at the exit date is estimated in a way that we reach a Net
Aritzia is a rapidly growing, innovative design house and fashion retailer of exclusive brands. With 57 stores in Canada and 18 stores in US, Aritzia is continually expanding and innovating. Aritzia plans to open 25-40 more stores by 2021. In reaching overseas market, Aritzia recently expanded their E-Commerce business. The IPO of Aritzia is underwritten by CIBC Capital Markets, Merrill Lynch Canada and TD Securities on October 3, 2016. It is Subordinate Voting Shares. The issuer is Aritiza Inc. The IPO issued 25,000,000 Subordinate Voting Shares. It is priced at $16 per SVS. The Over-Allotment Option is 15% of the offering. The offering size is approximately $400 million, prior to the over-allotment option. The stock performed well, as on the first day it was already trading at $3 above the IPO, it was trading at $19. Based on the capitalization to support growth figure, the total debt is 148 million, the total cash and cash equivalents is $10 million. The total debt/ LTM Adjusted EBITA is 1.58x.
It is important for stockholders to continuously re-evaluate their investments. Although some investors do this more frequently and thoroughly than others, the majority of shareholders do so at least once each year. Therefore, Torres’ desire to update her analysis in order to determine whether Costco was still operating efficiently makes perfect sense. After thorough examination, my analysis proves that Costco remains one of the industry’s leading competitors and there seems to be no reason for Torres to sell her shares as long as she wishes to retain holdings of a retail wholesale club in her portfolio.
The management of JetBlue and its underwriters can also price the IPO using valuation multiples. JetBlue can employ the most current comparable data of the most appropriate competitors in terms of value in the airline industry. Valuation multiples that can be employed include, but are not limited to P/E multiples, EBIT multiples, EBITDA multiples. In this scenario, I choose to use Southwest airlines and Ryanair as the major benchmarks, because they are both considered as major low –fare airlines, and are key competitors in the United States and Europe. Nevertheless, I believe the P/E ratio is the stronger valuation tool to determine the true value of a firm. Using this method we come up with a share price of $19.32 for Southwest
4. The article said that K12 was the closest comparable company to Rosetta Stone. Rosetta Stone is marketable to a larger consumer base than K12, so I think that it should be able to charge a higher IPO. The case said that book was more than 25 times oversubscribed during its road show which means Rosetta Stone could charge a much higher price. But these subscriptions are volatile and the economy is recovering, so a price too high could deter many investors. For my analysis I took the EBITDA margin for years 2006-2008 and found the average increase during that time to be 9.93%. I then took the estimated share value from 2008 and multiplied it by 1.0993 to factor in the average increase in share value. This resulted in a price of $19.22. Given this number I would increase the current range from $15-17 to $19-24. The reason for the increased range is because of the
& Ljungqvist, A. (2000) used the natural log of sales as a measure of firm size. Younger and smaller companies are more underpriced because they are riskier. (Ritter, 1984); (Ritter, 1991); (Megginson & Weiss, 1991). Bortolon, P. & Junior, A. (2015) used the average of the logarithm of revenue to measure the size of the firm. Michelsen & Klein (2011) argue that the variable company size acts as a vital role whether to go private or not. According to the authors, when compared to large corporations, the chances for the small and mid-sized companies to experience undervaluation of their assets is higher, and they are more prone to delisting. The increasing of the information asymmetry that determines company's undervaluation, and, as a result, attractiveness of delisting. This is because small and mid-sized companies produce information less visible and less interesting to market
Organizations need investment banks to relegate a worth to the business and handle financial specialist relations. To allocate a worth to a company, an investment bank has two alternatives: Use a genuine illustration of an IPO for a comparable company or compute the net present quality (NPV) of the company. In the event that an investment bank utilizes a true illustration, the company whereupon it bases its IPO valuation must be comparative in size and have comparable income streams. In the event that the investment bank ascertains the NPV of a company for IPO valuation, it investigates the company 's advantages, liabilities, money inflows and development potential.
Initial public offering refers to the sell of new shares in the primary market for the first time to the general public. This research paper tries to explain the IPO, IPO methods and IPO pricing phenomena. This study has collected all those IPOs which are listed at National Stock Exchange during the study period January 2014 to November 2015. This study focuses on the IPOs price performance whether it is overpriced or underpriced. The IPOs price performance has been calculated by the IPOs post listing data. This study evaluates the IPOs risk and return performance by using three different measures as Sharpe’s, Treynor’s and Jensen’s Alpha measure. And also try to keep an eye on market index performance during the study period. In this study, the IPOs return has concluded that the IPOs are underpriced and three models have also showed the superior return performance of IPOs than the market index performance. The investors are earned profits from their rational IPO investing decision. Due to the overperformance of IPOs and risk return analysis, it is concluded that the IPOs investment is less risky than the benchmark performance in the study period.