Berkshire Partners Case Study Essay

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Headline 1: Aritzia, Inc.: Is This A Bad Deal for Investors?

Headline 2: Aritzia IPO structure seems like a losing deal for investors. • Aritizia, Inc. (TSX:ATZ) shares recently debuted in October in what appear to be a “bad deal” for long-term investors.

• It’s likely possible that Berkshire Partners will gradually liquidate its Aritzia, Inc. shares after its lock-up period.

In a bad year for initial public offerings, Aritzia, Inc. bucked the trend. The selling shareholders, Berkshire Partners and its founder and CEO sold $460 million worth of subordinated shares.

Even at first glance, this appears to be a win-lose situation favoring these shareholders. The shareholders have already pocketed substantial capital gains on the transaction but would still be able to retain 97% of the voting control of the company through …show more content…
It could be something out from the textbook cases, which would result in disgruntled investors and prolonged depressed share price.

Store expansion could be key to growth, but where is the cash?

One of the company’s growth stories is to expand its store network with a minimum of 20 to 25 stores over the next five years. Furthermore, the company will also invest in the infrastructure of its E-Commerce business to improve its overall contribution to the company’s topline.

It expects that Adjusted EBITDA will grow from $85 million in fiscal year 2016 to maximum of $220 million by 2021 after considering these expansions. Of course, this looks promising but growth is not free.

Based on the estimates, the company will most likely spend around $2.5 million per store or a total of $63 million shares. Additionally, the company will invest around $11 million in infrastructure investment and a maintenance capital expenditure of $25 million. All in all, the capital requirement appears to be a lot with an aggregate amount of almost $100
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