Case Study Analysis- Lady M by Deepak for GGU

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Golden Gate University *

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300.C1

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Business

Date

Jun 21, 2024

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pdf

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Uploaded by MateProton24101

1 A case study analysis: The Valuation and Financing of Lady M Confections by Deepak Student ID: 609585 Master of Business Administration Golden Gate University, San Francisco, CA Google Drive link for Excel sheet: https://docs.google.com/spreadsheets/d/1yn5MXPm_TBz8KYkmY8d2cHU6FJlIzFmn/ed it?usp=sharing&ouid=115515844216057711288&rtpof=true&sd=true September 09, 2023

2 1. How many cakes would Lady M need to sell in a year in order to break-even? Does this number seem feasible? Answer: Lady M would need to sell 23,600 units of cake in a year in order to break-even. The total fixed expenses in the first year is $943,994 while the contribution equals to $40, making the total of cake that Lady M needs to sale in one year in order to reach break- even is 23,600 for the first year when it opens the World Trade Center location. This figure will give Lady M boutique a needed amount of 65 cakes per day to sale. It is feasible to sale 23,600 unites of cake per year. This assumption is based on the area of the World Trade Center forts customers, the surrounding businesses, and its opportunities to expand its target audience. The boutique can be a way to attract people in the professional area and upper class, which will increase the number of customers. 2. What is your recommendation? Should Romaniszyn open the new location in the World Trade Center? Answer: Based on current projections, opening a new location at the World Trade Center appears promising. However, the recommendation shouldn't solely rely on replicating the sales patterns of the Bryant Park location. Instead, it should focus on leveraging effective marketing strategies unique to the World Trade Center. While following the Bryant Park model, Lady M would need to sell 39 cakes daily to break even. Therefore, the World Trade Center location should aim to sell an additional 26 cakes daily. The prediction shouldn't hinge solely on Bryant Park's revenue, as customer preferences and promotional techniques may differ significantly. To make sales feasible, Lady M could employ various marketing strategies, such as local newspaper and magazine ads, direct mail, TV commercials, and social media promotions. Targeting nearby businesses with postcards and special reward packages could also be effective. Embracing technology, like apps, online ordering, or AI, would enhance the customer experience and boost sales. Considering these assumptions and marketing strategies, it is

3 advisable for Lady M to open a new location at the World Trade Center. This strategic location attracts a diverse clientele, including professionals and elite groups, presenting opportunities not only for cake sales but also for corporate catering. 3. What is Lady M's enterprise value? Does it matter if one uses an EBITDA multiple or a perpetuity growth formula for a terminal value? How much of an equity stake should they be given up to the Chinese investors? Answer: Lady M is also considering to accept a $10 million equity-stake offer from investors from China, giving franchising rights to China. In order to calculate the enterprise value, the two kinds of methods that can be used in this case is either perpetuity (with a 4% growth) and EBITA multiple (12x). Based on calculations in "Tab #4" in excel supplement, the enterprise value is amounted to be in a range of $56,957,585.39 to $82,764,000.00. This calculation implies that if Lady M receives the $10 million offer from the Chinese investors, Lady M will be going up between 12.08% and 17.56% of their company to the Chinese investors. Either method of EBITDA multiple of perpetuity growth can be used for valuation. 4. What do you think of Romaniszyn's and Tom's baseline assumptions? Are they realistic? Answer: Some of their baseline assumptions are in accurate. For an example, it is not realistic to use the Bryant Park location to predict revenue due to the difference customer styles and target

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4 audience. Another inaccurate assumption is the expectation that capital expenditures will be as low after 2015, since there is an expected sales growth of 13.20% during those years. Lady M should have a balance of increasing both their capital expenditures and sales growth. 5. Do you think they should take the Chines investors' offer? Why/why not? Answer: Based on the underlying assumptions and calculations, Lady M should decline the $10 million equity stake offer from Chinese investors. Accepting this offer would entail relinquishing franchising rights to the investors, resulting in a change in business management. This change could potentially alter the boutique's original style, reputation, and business culture. It's crucial for Lady M to be mindful of these risks before making a decision. Instead of accepting the Chinese investors' offer, Lady M should consider opening a new store at the World Trade Center location and seek funding from alternative sources, such as securing a bank loan. Given the company's strong reputation and positive projected cash flow with expected sales growth, obtaining a bank loan appears to be a feasible option.

Case Study Analysis- Lady M by Deepak for GGU

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