OUTLINE FOR A CASE ANALYSIS
For this finance project there is a Business case example that needs to be read and analyzed. The outline for the case analysis is printed towards the bottom of the short story. Ones done reading the short story please answers the questions in the Outline for a Case Analysis. Make sure to put just the headliners for each of the questions 1-7. This must be in APA format and be 3 ½ pages long. Please let me know if this project will work for you.
Dapper Textiles Ltd.
Dapper Textiles is a business created through a management buy-in. The business was originally a subsidiary of a larger firm and it was sold off to raise funds for a new venture about 10 years ago. Three entrepreneurs, an accountant and two experienced textile business owners, were approached by the original owner to see if they were interested in the deal. At the time, the business had a turnover of about $1 million per year with pre-tax profits of $100,000 and a workforce of 10 long-term employees. The firm specialised in high-quality, low-volume, customised curtain production. In many cases, these were one-off designs for the heritage/conservation market. The business was offered for sale at $500,000. The price – equal to five times current profits – appeared high but it did include the freehold of the old traditional production site in the north of England plus the business had a reasonable and stable forward order book. The prospective management team were interested but could not raise the $500,000 asking price. Indeed, the three investors could only collectively manage $60,000. As a result, funding for the deal was sourced from the private equity market. The funding was secured from a private equity fund that targeted buy-in or buy-out deals. They acquired 88% of the equity (and the right to appoint two non-executive directors) based on a five-year business plan for diversification and business growth which included: The development of an off-the-shelf range of products to build on the firm’s heritage reputation. This would include curtain manufacture as well as associated household furnishings. A doubling in the firm’s export sales. Improved production quality and flexibility achieved through investment in new production and design capabilities. Diversification into direct sales via a mail order operation and a factory shop on site. At least a five-fold rise in pre-tax profits after five years. The transformational change in the plan should have created a business with a value in excess of $2.5 million by year five, when the management team envisaged an exit from the investment would be achieved through on-sale. The funding agreement also included strict objectives around management costs and fees. Although two of the three directors had a track record in delivering a plan of this scale before, all three of the buy-in team would have a large part of remuneration linked to growth and business performance and eventual sale. Ten years on and Dapper Textiles continues to trade. The buy-in appears to have done a very good job in delivering the original plan and going beyond that phase into one of further growth. However, the original private equity deal proved to be only the start of a number of phases of external finance raising and activity to achieve the goal. In year one, the main emphasis was on revamping the existing production line with new tooling and equipment to allow both production quality to be increased and to prepare the factory for diversification of the product range. The firm was acquired debt-free with a freehold on the site and a largely unutilised overdraft facility. However, new equipment was almost exclusively acquired through a finance lease. Technology was evolving rapidly at the time with the introduction of computer-controlled weaving and cutting facilities. This increased the attractiveness of renting equipment with a maintenance deal rather than purchase and ownership. The business also had a steady order book to fund lease repayments. Also in year one greater attention was paid to the export market with the appointment of three overseas sales executives. This activity needed funding and the cost of overseas travel proved more expensive than budgeted. The three directors met this unexpected cost by investing the proceeds of their annual performance bonus as a cash injection to purchase new equity (the equity fund managers agreed to this and a modest dilution in the majority shareholding of the fund from 88% to 80%). In years two and three, Dapper concentrated mainly on new products and developing a direct retail activity. Orders had begun to rise based on work done in year one. The firm had to begin using its long-standing overdraft facility for cash-flow purposes. However, overall profits increased as well. With the agreement of the equity fund, the profits were used within the business rather than paid out as dividends to fund a new in-house design team and household furnishing products to sell alongside curtains. However, additional funding was needed during year three to develop a retail outlet on vacant land at the production plant and to invest in a new website and retail order facility (the plan to develop a mail order business was dropped). This was funded in part through a commercial mortgage on the production site (with repayments linked to the rising order book). However, this was not enough to fund the next expansion phase. The equity fund agreed to a second round of funding provided all three of the original directors took part as well so shareholdings were not altered. A second round of $100,000 equity was raised this way in year three to complete the work. The final part of the original five-year plan saw the business grow and build upon the changes made in years one to three. Profits increased to close to $700,000 by the end of year five, exceeding the plan. Total staff employed rose to 60. The higher level of profitability came mainly from the new products and the direct retail sales, both of which were higher margin activities than first planned. Export sales concentrated on more traditional products. At the end of year five, the private equity fund reviewed its investment. The company was valued at $3.5 million (net of debts – the commercial mortgage of $75,000). The book value of the fund’s total investment was $580,000 but no dividends had been paid in the five years. The equity partners now had a shareholding valued at $2.8 million (the three founder directors had shares valued at $700,000). For both the equity fund and the buy-in team, these results represented a substantial return on the original investments (in excess of 400%). In the subsequent five years, Dapper has continued to grow, although sales did plateau in 2010–2012 before growing again in 2013. It now has nearly 100 staff and an annual turnover of $7 million. The original equity partner did not sell on the investment in full. Rather, it was agreed to sell half its stake (40%) to a follow-on equity fund for $1.5 million with one of the non-executive director roles being transferred as well. The business has continued to invest, mainly using finance leasing for its production facilities, although the commercial mortgage is being paid off as well. However, spurred on by the needs of the new equity partners, the target is to seek to pay a dividend each year now, subject to market conditions. As a result, Dapper has funded the most recent expansion to its retail activities using debt rather than equity (assisted by a tie-in with a national retail chain and a heritage charity with over three million members). Discussion The example of Dapper Textiles illustrates how the correct approach to business acquisition and planning requires both entrepreneurial people and funding. In this case, apart from a very small amount of personal investment by three people, the key to unlocking the potential for growth was achieved by linking these entrepreneurial people with a suitable equity investor. While the private equity industry has at times received a degree of criticism from commentators about its scale of commitment to the SME sector, in reality the example of Dapper Textiles shows how this source of funding can help three entrepreneurs execute a well thought out business plan. The scale of change in the business has been very significant and the number of firms that achieve the growth on a scale like Dapper is very small but they do exist. This case study also illustrates additional issues such as: The interaction between private equity and other forms of funding, notably the overdraft, commercial mortgage and leasing, to fund different aspects and phases and growth. The linkages between different parts of the private equity market. The initial investment was undertaken by a specialist fund concentrating on management buy-in transactions. Half this stake was then sold after five years to a fund looking for more mature medium-term investments. Of course, the funding needs of Dapper Textiles continue to evolve. The next phase may well have to address the future plans of the three original investors. They have now all made a significant gain on their original investments. Also, the 40% ownership stake from the first equity fund is likely to come up for review and they may be looking to withdraw totally.
OUTLINE FOR A CASE ANALYSIS
1) EXAMINE AND DESCRIBE THE BUSINESS ENVIRONMENT
a) Describe the nature of the organization under consideration and its competitors.
b) Provide general information about the market and customer base.
c) Indicate any significant changes in the business environment or any new endeavors upon which the business is embarking.
2) DESCRIBE THE STRUCTURE AND SIZE OF THE BUSINESS
a) Analyze its management structure, employee base, and financial history.
b) Describe annual revenues and profit.
c) Provide figures on employment. Include details about private ownership, public ownership, and investment holdings.
d) Provide a brief overview of the business’s leaders and command chain
3) IDENTIFY THE KEY ISSUE OR PROBLEM IN THE CASE STUDY
a) In all likelihood, there will be several different factors at play.
b) Decide which is the main concern of the case study by examining what most of the data talks about, the main problems facing the business,
c) Examples might include expansion into a new market, response to a competitor’s marketing campaign, or a changing customer base
4) DESCRIBE HOW THE BUSINESS RESPONDS TO THESE ISSUES OR PROBLEMS
a) Draw on the information you gathered and trace a chronological progression of steps taken (or not taken).
b) Cite data included in the case study, such as increased marketing spending, purchasing of new property, changed revenue streams, etc
5) IDENTIFY THE SUCCESSFUL ASPECTS OF THIS RESPONSE AS WELL AS ITS FAILURES
a) Indicate whether or not each aspect of the response met its goal and whether the response overall was well-crafted.
b) Use numerical benchmarks, like
i) a desired customer share
ii) show whether goals were met
iii) analyze broader issues
iv) employee management policies
v) talk about the response as a whole
6) POINT TO SUCCESSES, FAILURES, UNFORESEEN RESULTS, AND INADEQUATE MEASURES
a) Suggest alternative or improved measures that could have been taken by the business
b) Using specific examples and back up your suggestions with data and calculations
7) WHAT WOULD YOU DO?
a) Describe what changes you would make in the business to arrive at the measures you proposed
b) Include:
Finance strategy
c) changes to organization
e) management.
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