Dollarama Inc. Case Solution
Introduction
Dollarama Inc. is a leading retailer of dollar stores in Canada, having experienced exceptional growth since its leveraged buyout in the year 2004 and an extremely effective (IPO). The corporation springs most of its merchandise from Asia, benefiting from robust brand appreciation and inexpensive benefits in procuring merchandising, and operations (Perold, 2010).
In response to margin burdens, Dollarama has shifted from a single price point to multiple price points, which offer some flexibility but could potentially impact customer demand for products priced above $1. Despite concerns about supply chain disturbances and upsurges in produce prices from complex contribution charges, the corporation remains on a fast growth track. While the company appears overestimated based on multiples examination, it is underestimated grounded on a DCF analysis.
Dollarama's Current Position and Business Strategy
In the year 2010, Dollarama was a successful and rapidly growing dollar store chain in Canada. At the time, the company had over 600 stores across the country and had recently completed a successful IPO in 2009. Dollarama's business strategy in 2010 was similar to its current strategy of offering a wide range of low-priced products sourced primarily from Asia. The company's focus on providing value to customers through low prices and a high-volume, the low-margin business model was a key part of its success.
Dollarama was also expanding its store network across Canada. The company opened 57 new stores that year and was targeting a total of 1,000 stores in the long term. Dollarama's expansion strategy at the time was focused on opening stores in smaller towns and cities where there was less competition from other retailers.
Another key part of Dollarama's business strategy in 2010 was optimizing its product assortment to better meet customer needs. The company was focused on improving its product mix, including adding more branded items and expanding its food offering.
Financial Analysis
Evaluate Investment Multiple and IRR
After analyzing the case using the information provided, Dollarama was doing well in December 2009, with its shares transaction at ($23.05) and the organization's EV at ($2.1 billion). However, the Bain Capital team was worried about emerging headwinds and the sustainability of Dollarama's strong performance. Bain Capital's investment in Dollarama has yielded an impressive return, with an internal rate of return (IRR) of approximately 77%. This means that the investment has generated an average annual return of 77% for Bain Capital since they purchased their 80% stake in Dollarama in 2004.
Bain invested $374 million in their stake in the Canadian retailer and received $195 million in distributions from the company through debt-financed dividends and the IPO. The investment has also appreciated significantly, with Dollarama's enterprise value increasing to $2.1 billion in 2009 from the $1 billion valuation at the time of the leveraged buyout in 2004. This high IRR indicates that Bain Capital's investment in Dollarama has been extremely successful.
However, the firm still faces potential headwinds, and the Rossy family, who are broadly elaborate in the everyday supervision of the corporate, continues to monitor the competitive landscape and global economic circumstances for potential threats. Nonetheless, the strong performance of the company to date is a testament to its successful business strategy, including sourcing merchandise mainly from Asia and upholding robust brand appreciation and inexpensive benefits in processes, acquiring, and retailing.
In the case of the Dollarama investment by Bain Capital Partners, the TVPI of 2.54x indicates that the total value realized from the investment was 2.54 times the amount of capital that was initially invested. This means that for every dollar that Bain Capital invested in Dollarama, they received $2.54 in return.
A TVPI of greater than 1.0x indicates that the investment has generated positive returns, while a TVPI of less than 1.0x indicates that the investment has not yet generated a positive return. A higher TVPI indicates a more successful investment, as it indicates that the investor has received a greater return on their investment compared to the amount of capital they invested.
Multiple Analysis
To perform the multiples analysis, there is a need to compare Dollarama to other publicly traded retailers that are similar. For further calculations put focus on the US Dollar Stores/Discount/Off-Price Retailers. Using the data from Exhibit 4, calculate the revenue and EBITDA multiples of the selected companies. The revenue multiple is deliberate by separating the market value of equity by the last 12 months revenue. The EBITDA multiple is deliberate by separating the market value of equity by the last 12 months' EBITDA................
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