Case Solution
Bain Capital, a world-driving private esteem firm, tries to place assets into a nonfood retail store called Edgar Consolidated Stores in South Africa. Edgar gives different open entryways, for case, stable financial and political environment, growing retail and refund stores and rising cushy class pay of Black South Africans. Regardless, the enthusiasm for South Africa furthermore acted real coin risk and complexities concerning the wellspring of impact. All things considered, the key components for quality creation are required rate of return, potential cost diminish, potential for growing worth by extension in impact and advancement rate in the economy. In light of our suppositions of 23% rate of return, 10% improvement in retail part with 1.5% incremental advancement in markdown stores, expense diminishing of 100bp and a P/E diverse of 12x, the proposed offer expense for the second round is R53 per offer. Besides, Thers has been suggested this should not be the last offer and Bain Capital should hold the versatility of modifying the offer should circumstances change decidedly or unfavorably. Finally, Bain Capital should get crucial changes the organization of Edgars and bring better utilization of advantages for grow the entry on assets if they win the offer. On the other hand, they should hold the present CEO as he has exhibited extraordinary results for the association.
Excel Calculations
Questions Covered
1. What are the opportunities and risks to consider in the proposed Edcon bid? What are the key sources of value creation?
2. Why may it not be feasible to use only bank debt to leverage Edcon? Would it be better to use all bond financing or a combination of bank and bond debt? Explain the advantages and disadvantages of each approach.
3. Using Exhibit 13, calculate what premium to the required rate of return would be needed for an investment in South Africa. Why might Bain Capital use an alternate premium?
4. Restricting yourself to the set of parameters and values in Exhibit 14, justify what price you would be willing to pay for Edcon. Specifically address the rationale behind your base case assumptions that led you to that particular bid price. What degree of confidence do you have in paying this amount?
5. Should Bain Capital make their bid “final”?
6. If Bain Capital wins the bid, should they make changes to the management team?