Case Study Of Khakis

Submitted By bangb1
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Pages: 2
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1. Understand the Situation:
A. When:
Capital Market:
Khakis R Us feels being undervalued compared to its strong performance and balance sheet, right now Khakis is trading at 12 per share, indicating a P/E of 20x, and EV/EBITDA of 5.0x. OK, peers trading 8.0x EV/EBITDA
Economy:
2013, United States is consistently in the process of recovering, purchasing power resumes quickly, expectations is going better. Economy is recovering
Industry:
There are many large players in the men’s casual industry with fast growth, good profitability. But it is still viable to guess the industry segmented with different companies focusing on different niche markets. OK, as economy recovers, boosting purchasing power, clothing industry will also benefit

B. Who
Millie Pleater: CEO, 64 years old, want to remain in place
Max Pleater: COO, 30 years old, supported by Millie as replacement
上述两人比较看好，希望留在公司，而且希望业务往嘻哈方向走，转变定位，而且不希望退市, 因为这样，CEO当初希望作为上市公司CEO退休的愿望就泡汤
Board of directors: want young leadership, yet not trust in Max to be CEO
对现状不是很满意，希望公司注入新鲜血液，有年轻的思想，但并不一定认同Max如此激进、新潮的思路
Bino Counter CFO：认同董事会，对MAX的定位变化诉求并不是很看好
Shareholders: privatization, status quote or other, which fits best interest?
诉求的是回报，希望更aggressive的动作，股价大涨

C. What and How
Privatization offer: 100% buyout bid from NYC capital group, with 20 dollars per share, 200 million in total equity valuation, leading to a privatization, the forms of consideration does not known.

D. Why
NYC capital seeks financial return as well as strategic benefits, firstly, such a buyout will create synergies with a portfolio company named Bee Spoke Suites; secondly, there are cost-savings if brought private, 3 million of public costs, 2 million of operating expense (not sure exact number)

2. Assess the seller financially
A. Big picture of the business (retailing business)
Working capital driven, which accounts for 40%~50% of invested capital. Light asset business, net fixed assets only accounts for 10%~20% of invested capital.
Acquisition is an indispensable part of business in pursuing growth, to incorporate new brands as well as to create comprehensive product portfolio, enter more markets. Goodwill also accounts for 10%~20% of invested capital.
B. Growth and profitability
In short,
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