managements are putting efforts to maintain its market position. These figures are in line with that of competitors that are currently presented in the market as shown in exhibit. 2005
Page | 8 2006 2007 2008 2009 EPS .95 .60 .70 .94 1.44 Sales 633646.00 728914.68 838507.00 964576.52 1109600.61 Net Income 47681.00 30178.74 34974.17 46766.51 72087.58 Gross Margin 32.77 29.93 29.93 29.93 29.93 NPV of Net Cash flows 11155.85 Terminal Value of future CF from 2009 163747.48 Valuation of Dollarama 174903.33 IRR 42% For this purpose, we need to determine changes in Sales, net Income etc, Companies positions will determine the impact of changes on investors Internal rate of return. For instance, we need to come up with the result of the calculation of Internal rate of return. This would help us to determine the postion for correct exit and entry strategies for Dollarama. Using the calculation that we have calculated in Excel, we can conclude the price estimate for the Leveraged Buyout (LBO) of Dollarama. Based on calculation, Bain will reach a purchase price of Dollarama of around $174 millions with Internal rate of 42%. However, this does not include the fees that would be required at the time of taking place of LBO. Bain will finance the purchase of Dollarama with the mixture of both the equity and finance. Below are the positions of Dollarama’s after takeover. 2005 2006 2007 2008 2009 Debt Equity ratio % 9% 17% 17% 17% 17% Financial 1.08 1.26 1.05 0.94
Page | 9 Leverage Ratio 1.15 WACC 14.16 13.6 13.33 12.8 12.8 EBIT/Interest Expense 6.19 2.03 2.04 2.46 4.86 It is very crucial for Bain to understand the future environment in which Dollarama would pass so as to evaluate his judgment regarding acquisition. The current growth rate is critical in this scenario as Bain would want that the company prosper with this rate in the future as well. Subsequently, it is difficult to compare the position of Dollarama with the Canadian companies such as Loblaw, Sears, Shoppers Drug mart and Canadian Tire due to the fact that these companies provide different nature of goods with difference in size and the company scale. However, it would make sense to compare and contrast Dollarama with the companies that has similar earnings before interest and tax. Therefore, in this situation, certain assumptions need to be put before making any evaluation. However, it will be a good decision if Management decide Leverage Buyout will be a fruitful for the company based on the assumption we made.
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- Spring '12
- Jun Wang
- Leveraged buyout, Dollarama