DuPont Corporation Case Study Help
The Attractiveness of DPC as an Acquisition to a Potential Buyer:
Potential buyers of DPC includes strategic buyers and financial buyers (private equity buyers). Strategic buyers are the operating related companies that provide the products and services (can be called competitors, suppliers, and customers of the company) and the operating unrelated companies who want to grow by diversifying their operations. While financial buyers include private equity firms such as financial sponsors, venture capitalists, hedging funders, investment offices, and other individuals. The main motive of these investors is to maximize the return from the company through investments(Boyte, 2014).
In order to analyze the risks and rewards that are associated with DPC for potential buyers, a deep analysis of DPC’s background and the current market situation is required(Susan Chaplinsky, 2014).However, due to the extensive worth of the target such as $4 billion, Private Equity firms are largely probable to bid the price because DPC is one of the 8 business units of DuPont Corporation. Its core offerings include the high-performance liquid and powder coatings. The current worth for the business unit as computed in Exhibit 9 is around $ 4 billion.
For this purpose, the risks and rewards for strategic buyers and financial buyers are described below;
Rewards for Potential Buyers:
There are multiple rewards for potential buyers (strategic and financial buyers) in which main points are:
- It offers high-performance liquid and powder coatings which could provide potential buyers quality products with higher return as compared to its competitors.
- Due to diverse customer category, the company would have an opportunityto increase the number of customers for potential buyers in the future.
- Growth in emerging markets like India and China is an opportunity that could only be exploited with increasing operations along with the introduction of new products and services.
- Its high-quality performance liquid and powder coatings provide a better competitive position.
- And, the utilization of buyout funds.
Risks for Potential Buyers:
Along with the benefits and rewards, there are some risks for potential buyers (strategic and financial buyers). The main point includes the:
- As known that the main customers of DPC are motor vehicle sector but the decline in this sector has been observed for upcoming years
- A rapid increase in prices of raw materials constituting 50 % product cost
- An increase in customer’s demands for technological advancement in the operations to cut costs and increase efficiency
- A rapid increase in total variable cost of DPC
- Strong perfect competition in the performance coating market
- A decline in Refinishing due to low rates of collision
- Low GDP growth around 1 to 2% in the economy and the revenues from DPC is completely tied with GDP growth
- Over time, a gradual increase in environmental compliance costs
Dollar Increase in DPC’s Value by PE Fund:
By considering the three given scenarios, the dollar increase in DPC enterprise value has been observed in part one at 5 % and 4 % revenue growth per annum are $ 889 and $ 0 respectively with the percentage increase by 22 % and 0 % respectively, in part two at 5 % and 4 % revenue growth per annum are $ 1132 and $ 119 respectively with the percentage increase by 29 % and 5 % respectively and in part three at 5 % and 4 % revenue growth per annum are $ 1380 and $ 413 respectivelywith the percentage increase by 35 % and 10 % respectively. The summary of these calculations is shown in Exhibit 1 of the document while all the calculations can be looked after in the excel spreadsheet.
Maximum Enterprise Value (EV):
If PE considers an IRR of 20% then it could offer a maximum enterprise value of $ 3755 and $ 4472 under the consideration of part A and B at 4 % and 5 % revenue growth per annum respectively. The price under part A and B with leverage and 5 % revenue growth per annum are however higher than the stand-alone value projected by the company which is $ 3970 while the price under part A and B with leverage and 4 % revenue growth per annum are lower than the estimated price of $ 3970. The summary of these calculations is shown in Exhibit 2 of the document while all the calculations can be looked after in the excel spreadsheet.
Minimum Bid Price for DPC:
The minimum bid price for DPC should not be less than the estimated stand-alone enterprise value (EV) which is $ 3970, as the lower price would reduce the shareholder’s value which the company cannot afford. The offered price, if the PE would go for purchase by using the debt which is higher than the minimum bid price showing a positive point for DuPont. Moreover, the minimum bid price through calculations for all 3 scenarios is $ 3970 which is shown in Exhibit 1 of the document......................................
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