OUTLINE FOR A CASE ANALYSIS Dapper Textiles Ltd, business and finance homework help
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.
