2019 India YOUniversity Deal Challenge Presented By- Prabal Gupta Shaheed Sukhdev College of Business Studies University of Delhi India 1
Section Title Slide Number Introduction Executive Summary 3 Deliverable I Industry Analysis 4 Porter’s 5 Forces Analysis 7 Risks v. Opportunities 13 Deliverable II Discounted Cash Flows 14 Comparable Companies 17 AGENDA Valuation Football Field 19 Scenario 1: Strategic Buyer 20 Scenario 2: PE Firm 23 Scenario Analysis 25 Final Recommendation 27 Deliverable III Trademark Dispute 28 Legal Framework 29 Compensation Calculation 32 Future Plans 33 Appendix 35
Executive Summary ▪ DMA, a US- based men’s clothing and luxury products retailers, has defaulted on its principal payments and has ceded control to debtholders. Situation Overview ▪ The debtholders wish to exit the business and are looking to sell the company either to a Strategic Buyer or a Private Equity Firm. ▪ Industry Analysis, Porter’s 5 Forces Analysis and after comparing risks and opportunities, it can be inferred that DMA has a strong brand value in the market. Analysis ▪ By revamping the channels of distributions and target markets, it can turn around its fortunes and thrive in this extremely competitive industry. ▪ Based on an analysis of discounted cash flow, comparable companies and trading Valuation multiples, DMA’s valuation ranges from $390 -450 Million. ▪ After considering all factors, a PE Firm will be the most-suited buyer for DMA. It will derive the maximum value from the company through stringent cost cutting, changing Recommendation pricing of products and accessing new distribution networks. Consequently it will charge the lowest discount for the acquisition. 3
Industry Analysis ANNUAL GDP GROWTH The Global Fashion, Apparel and Accessories Source: IMF World Outlook 2017 2018F Industry is one of the few avenues that have 4.9 4.6 4.5 grown in tandem with World GDP Growth 3.7 3.6 Rates. The projections for 2018 paint a similar 3.5 picture, with the Fashion Industry expected to 2.4 2.3 2.2 2.2 2.2 2.1 1.9 grow within a range of 3.5-4.5%. While the 2 1.5 rate of growth in advanced economies has 0.7 stagnated, emerging economies continue to grow at an accelerated pace, particularly those WORLD ADVANCED UNITED EURO AREA JAPAN OTHER EMERGING TOTAL in emerging and developing Asia. ECONOMIES STATES ADVANCED MARKETS FASHION ECONOMIES INDUSTRY The Fashion Industry is changing as people’s lifestyles CATEGORIES GROWTH - 2018F change. Jewelry, Watches and Other Accessories, which 7 5.5 have in the past delivered high growth rates, have paved the way for Sportswear, Handbags and Luggage to be the 3.5 4 4 3 market drivers. This is both a challenge as well as an opportunity for incumbent firms that till now have derived a major share of their revenue from one of the OTHER ACC. JEWELRY AND HANDBAGS SPORTSWEAR FOOTWEAR APPAREL slow growth categories. WATCHES AND LUGGAGE Source: McKinsey & Co. 4
Industry Analysis – Global Fashion Industry 200% PROFIT CONTRIBUTION 150% The Fashion Industry is characterized by its capacity to evolve with social, cultural, 100% political and economic evolution. However uncertainty looms ahead as the industry Bottom 20% 144% 100% struggles to grapple with innumerable forces of disruption – Digital Media, E- 50% Top 20% Commerce, Virtual Stores, Rising Labor Costs, Trade Wars and Sustainability. 2017 saw 21-80% 18% 0% 3% -18% more than 1,875 fashion retailers shut down shop as the gap between market leaders -47% -50% and followers continued to widen. This number is expected to reach 9,452 by next year. 2005-15 2016 -100% Global Apparel And Footwear Sales Forecast In 2018, an important tipping point will be reached when, for the first time, more than half of apparel and footwear sales will originate outside of Europe and North America, as the main sources of growth are emerging market countries across Asia-Pacific, Latin America and 40% 60% 50% other regions. This is further supported by slowing growth in developed economies and the economic resurgence of emerging markets in China, Latin 2011 2018F 2025F America and South Asia. The huge population divide along with rising Western Markets disposable income is also one of the contributing factors in this trend. Rest of the World Source: McKinsey & Co. 5
Industry Analysis - DMA Real-Time Innovative Environmental Market Omni-Channel Experiential Fragmentation Shopping Commerce Demand Business Models Sustainability Customers no The industry has Fashion and Brand Loyalty has With digitization of Even though e- suffered due to retail, customers longer wish to stand been disrupted by apparel commerce has hurt augmenting market prefer a shopping store revenues, a in queues or wait a plethora of firms companies are fragmentation. platform that for season sales. that have challenge under enormous new form of New brands, offers entire range experiential retail is They want latest the incumbent pressure from designs, companies of products that and affordable business model. governments and emerging. It means and range of fulfil that that stores are products at the click Affordable Luxury environment products are particular need. of a button, making is one such agencies as their transforming from launched everyday This is a big merely a ‘ Point of Supply Chain example that has carbon footprint is perplexing the challenge for small Management a been the most one of the biggest Sale’ to a ‘ Point of buyer. and mid-size firms. Marketing’ . herculean task. profitable. in the industry. 6
Porter’s 5 Forces Analysis Power of Suppliers Power of Buyers DMA caters to two key categories of All DMA products are sourced customers: Departmental Stores and from independent manufacturers Individual Buyers. Both these groups and most manufacturing takes exert different powers are to be place outside US. handled separately. Threat of Substitute Products Threat of New Entrants The Clothing Industry in highly The Fashion Industry is, as a matter of susceptible to competition emerging fact, is not substitutable. Yet its very from new players in the market. With easy for product demand to swing Competitive Rivalry the massive rise of e-commerce, a drastically within the industry and The fashion industry faces intense new online clothing brand springs up affect the product line of businesses. competition, with every firm selling almost every other day. similar products being a potential competitor. 7
Power of Suppliers Minimum Low Forex Quality Quantity Bargaining Volatility Concerns Power Supplied Since DMA sources its Sourcing raw material from With the entire In an industry where products from different different suppliers may production capacity demand for the underlying independent lead to lack of installed outside US, the fabric changes as quickly as manufacturers, they homogeneity in production company might have to the change in latest trends, lack the ability to drive that fail to meet the bear the increased cost suppliers can put pressure prices upward or quality parameters of the of suppliers if Dollar on DMA to enter into a disrupt the supply company. Installing Quality loses value against other contract for pre-deciding chain by holding back Control checks also currencies in the global the minimum order raw material. becomes expensive. market. quantity every month. 8
Power of Customers DMA targets a very small DMA operates in a an niche of loyal consumer extremely volatile industry High Low I N D I V I D U A L C U S T O M E R S base that further affects where rapidly changing Bargaining Bargaining D E P A R T M E N T A L S T O R E S its pricing negotiations trends can shift customer Power Power with multi-chain preferences instantly. Thus departmental stores that keeping pace with market cater to a much wider movements and always audience. being relevant to the buyer is a big challenge. Upscale Departmental DMA specializes in Stores enjoy significant high-end suits, luxury leverage, as DMA is only products and fashion a tiny player in the multi- accessories, all Niche trillion dollar apparel examples of Veblen Market Changing industry with a plethora goods sufficiently Segment Loyalty of globally recognized immune to price rise. brands. 9
Threat of Substitute Products Stron ong g Produ duct ct Line ne •DMA offers a full range of men’s clothing, fashion accessories and luxury products. • This minimizes the possibility of other firms’ products eating into DMA’s Sales. Special ializat izatio ion • DMA is most popular for its high-end formal suits, and counts celebrities and high profile executives as its customers. Yet the evolving fashion landscape has seen lesser demand among millennials for formal clothing outfits. Ev Evolv lving ing Prefere erenc nces • Though demand for suits will never cease to exist, DMA needs to be prominent in other categories as well in order to maintain its competitive edge. • . 10
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