Bain Capital & Dollarama Case Solution And Analysis, HBR Case Study Solution & Analysis of Harvard Case Studies

QUESTION 1

This case is based upon the evaluation of the profitability of the Dollarama leveraged buyout option. The valuation estimates and as a starting point to determine the true value of Dollarama fall in the range of 900 million to 1.2 billion. However, in order to find out the attractiveness of the company to Bain Capital the right price needs to be determined for the company based on the multiples at the time of the entry and exit. This means that what profit the company is going to acquire from a holding period of around 5 years.

The Canadian market and economy had been defined by the experts of the country. This is highlighted by the following points:

The population of the country was quite low relative to the land mass of the country and the economy of the country was heavily resource based. Therefore, due to these reasons most of the companies in Canada did not fit for an LBO target and most of the growth opportunities for these companies were constrained.
The stability and size was lacking in most of the Canadian firms and they were not able to generate the 25% average return that was normally generated by the private equity fund partners.
The acquisition of capital in the Canadian stock market is relatively easy and therefore, most of the smaller companies in Canada tend to raise capital at their earlier stages and then go public. This has reduced the popularity of private equity firms as the providers of capital and therefore, they are considered as unnecessary by many of the firms.
The nature of the market of Canada was more conservative in nature as compared to the nature of the United States market. This meant that acquisition, premiums or leverage as the recommended strategy for growth were rarely used as compared to their use in United States.

In the year 2004 and 2005, the management of the company had generated EBITDA on sales of around $91960 and $584603 in each of the years respectively. All of these results show the outstanding performance of the company. Further, the EBITDA margins and the gross margins for the company stand at 30.8% and 32.9% with 17% of EBITDA margin in both of the years respectively. If we analyze the figures of the peer companies in exhibit 1 then it could be seen that the EBITDA and gross margins of Dollarama are similar to that of the peer companies.

Dollarama has also plans to open new stores after the LBO takes place, and the growth rate of the new store sales for Dollarama is on number one in the list for the year 2005 standing at 14%. The plans for Dollarama include to open around 50 new stores over the next coming 5 years, therefore, this is an important indicator to judge the suitability of Dollarama for Bain Capital.

QUESTION 2

From entry to growth and then finally to exit, the investment approach of Bain Capital had always focused on driving bottom line growth for the private equity fund. The main strategy of the company was to identify a suitable target and then the company makes operational recommendations to the acquired company and after a detailed analysis of the growth in the market, Bain makes changes to the portfolio companies to drive growth from the business. The market analysis was performed on the basis of the financial performance, competitive position and analyzing the industry effectiveness.

Bill Bain’s had realized that the market capitalization or the per share stock values of all those companies that were the clients of Bain Capital were much higher than those of the peer companies. Therefore, the company had the firm belief that its consulting techniques could lead the private equity firm to yield the superior returns from all of these clients

Bain Capital & Dollarama Case Solution

Apart from this, the growth strategy of Bain focused on avoiding the hostile transactions or takeovers. On the other hand, Bain Capital has always emphasized to work along with the management of the companies either through the restructuring programs or expansion programs. The success of Bain Capital usually depended upon the consensus oriented partnerships where at each step of the entire deal process the management of the respective company played an important part.........................

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