growth even during its major expansion. It would be hard to compare Dollarama to fellow Canadian Companions such as Shoppers Drug Mart, Loblaw, Sears or Canadian Tire primarily due to the nature of goods offered to sale, size and company scale. Truth of the matters is, these companies might offer some value products but they are not in the $1.00 price business. It would make more business sense to compare Dollarama to companies with similar EBITDA, growth rate, EV and net debt figures. In that context, we can easily compare Dollarama to few American companies such as 99 Cents Only Stores, Family Dollar Store and Dollar general Corp (see Exhibit 1). Exhibit 1 shows that Dollarama runs with similar growth rates as leading American Dollar store companies, we will therefore use these to generate certain important assumptions. 5
For instance, we need to come up with a reasonable EV for Dollarama. To do this we will look into the set of comparable companies and take an average of their multiples of EV/EBITDA in order to determine the right entry and exit multiples to use for Dollarama as shown on Exhibit 5. 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 6
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 7
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 corporate purchase fees, as seen on Exhibit 7c. Exhibit 7c Assuming the above valuation we should look into the projected debt levels based on the proposed excel model by Louis. These values show that after the LBO Dollarama will still be able to meet its debt obligations. After the LBO, Interest Coverage ratios are expected to remain as follows per Exhibit 8. Exhibit 8. It would be interesting to review the debt situation of Dollarama prior to the LBO in the year 2005.
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- Management, Price point, Dollarama