Detailed Laguna Background

Detailed Laguna Background - Laguna Case Study Class...

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Laguna Case Study Class Assignment You are responsible for identifying, evaluating and recommending acquisitions in China for a global Private Equity Company The CEO of the Laguna Company is prepared to sell equity in his Company Price expectations based on buying into a “dynamic China growth story” Investment attractiveness hinges on the potential of the ‘Laguna’ brand You will be asked to defend a of view on this investment opportunity If your surname ends in the letter A to M….be prepared to argue “in favor” If your surname ends in the letter N to Z….be prepared to argue “against” Details of the Laguna Company are covered by both the following memo as well as an attached power point presentation prepared by management consultants acting on behalf of your Private Equity Company Situation Overview The deal team would like to make a control investment in a mid-end Chinese white liquor company, Liuyanghe Liquor Industry Co., Ltd (“Laguna”). The deal we propose is to invest between $147 and $155 million to purchase primary and secondary shares for 70% to 75% of the Company, valuing it at 2007 and 2008 post money P/E of 15.4x and 13.8x, or 2007 and 2008 EBITDA multiples of 7.7x and 6.0x. After a weak seven years between 1998 and 2005 which saw sales volume drop from 8MM tonnes to around 3MM tonnes, as a result of government’s effort to reduce excessive capacity, especially smaller-sized players (production volume of less than 20,000 tonnes per year) and migration of demand to other types of alcoholic drinks, the Chinese white liquor industry began to rebound in 2005 and has entered a steady volume growth and average selling price (ASP) increase stage. The industry sales are predicated to grow at 10% - 12% CAGR over the next few years, with the market size reaching RMB 200 billion ($28 billion) by 2010. Mid- to high-end sectors are expected to outgrow the overall market as a result of increasing disposal income. At the same time, the migration from traditional white liquor to other alcoholic drinks, including beer and wine, has arguably reached an inflection point with white liquor representing approximately 10% to 15% of the overall alcoholic beverage consumption. We believe that an investment in the white liquor sector will benefit from the healthy secular growth potential of one of defensive consumer segments and its consolidation trends. Laguna was founded in 1998 by Mr. Peng, a local entrepreneur with sales background, after he purchased a state-owned liquor plant established in 1956 with the “Laguna” brand which was registered in 1979. Prior to 2006, Laguna marketed and distributed low- to mid- end white liquor manufactured by Wuliangye (“WLY”) branded Laguna. The Company started it own manufacturing in 2006 and plans to increase self produced liquor going forward. Driven by OEM relationship with WLY, a high-end liquor
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This note was uploaded on 04/12/2010 for the course MBA na taught by Professor Rofessorcassiancheung,professordanyangxie,professordavidzweig,andprofessorheliwang. during the Winter '10 term at HKUST.

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Detailed Laguna Background - Laguna Case Study Class...

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