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Dollarama LBO Analysis and Strategy

Dollarama is considering an LBO acquisition by private equity firm Bain Capital that would provide up to $600 million in financing. Key criteria for evaluating the transaction include Dollarama's current and projected performance under Bain's ownership, financial covenants and buffers, the purchase price, and management team. Dollarama is seen as a good LBO candidate due to its market growth opportunities in Canada and the US, limited cyclicality, potential for efficiency gains, debt capacity, and stable cash flows. Bain could help Dollarama with expansion strategies and an eventual exit such as an IPO or strategic sale.

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Kenton Parrott
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361 views2 pages

Dollarama LBO Analysis and Strategy

Dollarama is considering an LBO acquisition by private equity firm Bain Capital that would provide up to $600 million in financing. Key criteria for evaluating the transaction include Dollarama's current and projected performance under Bain's ownership, financial covenants and buffers, the purchase price, and management team. Dollarama is seen as a good LBO candidate due to its market growth opportunities in Canada and the US, limited cyclicality, potential for efficiency gains, debt capacity, and stable cash flows. Bain could help Dollarama with expansion strategies and an eventual exit such as an IPO or strategic sale.

Uploaded by

Kenton Parrott
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd

Dollarama

Problem

- We are the bank- lending to bain to acquire Dollarama


o Up to 600M
 Term A, B, Senior unsecured

Decision Criteria

- Dollarama’s performance (current)


o With Bain (Future)
- Covenants, Performance, Buffers  Amount
o Interest Rates
- Price being paid by Bain  Amount
- Transaction costs, balance sheet impact
- Management team

Is Dollarama a good LBO Candidate?

- Market is growing in Canada + US, but more room in Canada


- Not cyclical in Canada (vs in the US)
- Room for efficiency gains/margin improvements
o Price points: increase in consumables, inventory management, payment options
- Debt capacity little existing debt
- Good market position in Canada
- Tangible Assets—Only Inventory is tangible assets (bad). They lease their sores
- Stable and predictable cash flows
o Net income 2x
- Bain- Can they help? Yes
o Help with growth
o Exist strategy: IPO- Strategic Buyer- Financial Buyer
o Most viable is strategic buyer and Financial Buyer
 Strategic buyer will pay more (CFs plus synergies)
 Financial buyer will pay more (Just CFs)
-

1. What is Dollarama’s growth strategy and financing needs over the coming years?
2. Why might Dollarama prefer an LBO to going public through an IPO at this time?
3. Assess the attractiveness of Dollarama as an LBO candidate using the criteria
outlined on page 4 of the Tuck “Note on Leveraged Buyouts” in the casebook.
4. Who is Bain Capital? Why might Bain be a better partner for Larry Rossy than other
private equity firms?
5. Briefly lay out Bain’s strategy from entry to exit.
6. What range of EV/EBITDA entry and exit multiples might be appropriate for
modeling the Dollarama LBO? Defend your choice.
7. How does adding debt affect the value of Dollarama? What internal rate of return
(IRR) can Bain earn by simply adding leverage?
8. What other steps must Bain take to achieve their return objectives with Dollarama?
How will these changes affect Bain’s IRR?

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