Case Study

Bain capital
and
Dollorama

Introduced by : Ilik LIU, Amine BEKKAL, Alice ROSSI, Manar EL KABANI & Amélie PRONO
 Summary

01 Context of
investment 02 Fundamentals of
performance

03 Analysis 04 Take away

05 Recommendations
 Context of investment
Canadian market opportunity Resource-based economy and low population relative to land mass :
• Only a few businesses could fit the initial LBO target screens
• Dollarama is a firm with growth opportunities that is interesting as an LBO target

The acquisition of capital in Canadian’s stock market is easy :

• Most of smaller firms tend to raise capital at early stages and then go public.
• PE firm were considered unnecessary for firms but now they are opportunities to
raise new capitals

Acquisition, premiums or leverage as a strategy for growth were rarely used,

compared to the United States :
• Canada’s market is historically more conservative in nature, but now is a source of
new opportunities for investors

Canadian retail industry is an attractive arena only for US based private equity
investors because of the fast growing sector
Context of investment
Dollarama has 350 stores concentrated in
Quebec and is historically one of the fastest 01
growing dollar store chain in Canada 

Dollarama’s concept attract customers on a

wide variety of merchandise and has high
02 customer loyalty even if it has limited
success with millennial

Dollarama has overseas suppliers that

allows costs reduction by bypassing
distributors 03

In comparison with its competitors,

Dollarama carry a core set of products, have
04 a buying power and sourcing reach in Asia
 Fundamentals of performance
Brain Capital focuses on its growth strategy by
providing special operational especially for the The growth strategy was based on the
private equity fund. importance to avoid the hostile transactions or
The market analysis was performed on the takeovers and to work with the management of
financial performance, competitive position and the companies (restructuring programs,
analyzing the industry effectiveness. expansion programs).
Bain Capital’s
strategy

Bain Capital’s strategy from investment to exit is :

- The main strategy of the company was to identify a suitable target  that allow growth for the private equity fund
- To change the portfolio of companies to drive growth from the business
- Bain Capital avoided the hostile transactions or takeovers
- Bain Capital has always focused on working along with the management of the companies either through the
restructuring or expansion programs
- Strategic and oriented consensus at each step of the deal process where the management of the respective company
played an important part
 Valuation
Market Capitalization/Equity Net Debt EBITDA 2005 EV/EBITDA
Standard 304,7 31,5 109,7  
Shoppers Drug Mart Corp. 7587,9 741,8 636,3 13,1
Sears Canada Inc.3 1917,1 1954,9 413,6 9,4
Forzani Group 361,9 114,5 76,5 6,2
Loblaw Companies Limited 18380,8 4498 2125 10,8
Canadian Tire 5684 1086,3 695 9,7
Average multiple 9,84
Entreprise Value 1079,9
Equity Value 1048,4

Maturity stage of the sector

01 The value retail segments of Canada and the U.S are at different stages
of maturity (Oligopolistic Market in CA Vs. U.S top 5 chains capturing Sector maturity
less than 60% of the local market)
Consumers’ purchasing behaviour Why only
02 Canadian consumers have a fundamentaly different approach toward Consumers Canadian retail
purchasing, a more value oriented one. No cyclycal purchasing Behaviour companies as a
behaviour is denoted in contrast with U.S consumers
valuation sample ?
Existing Competition and market growth opportunities
03 The level of saturation with regard to dollar stores per capita is much Growth Potential
higher in the U.S compared to Canada’s one. 18 000 People per Dollar
store in the US Vs 26 700 People per dollar store for the Canadian
market in 2003.
 Take-Away
Given a moderate sustained growth of 3,49% of the EBITDA, the
FCF generated during the holding period of 5 years were able to
sustain the leverage set in the LBO.
Eventually, debt was amortized progressively over the holding period.

The Gearing ratio fell from an initial 1,25 during the LBO setting to a
0,18 at Exit.

Notable performance considering a 12x EV/EBITDA Multiple at Exit.

The Equity injected at Entry in 2005 will have increased by 125,02%

at Exit, for a money multiple of 2,8.

Given all the parameters of the valuation, we end up with an IRR

of 22% for a harvesting period of 5 years and a projected Exit
multiple of 12x the EBITDA.
 Meet Our
Sensitivity Variables        
Ebitda G IRR
4,50% 23,9%
4% 23,2%
3,49% 22,5%

Team
3% 21,8%
2.5% 21,1%
4,50% 4% 3,49% 3% 2.5%

Equity Equity Debt

35% 44% 44%
Debt Debt Equity
65% 56% 56%

D/E D/E D/E

1,84 1,25 0,80
Sources of Funds Sources of Funds Sources of Funds
Debt 700 Debt 600 Debt 480
Equity 379,90 Equity 479,90 Equity 599,00
           
IRR 26% IRR 22% IRR 19%
 A MAJ
Recommendations
Short-term Long-term

 After Dollarama's Initial Public Offering, the

• Dollorama must be careful because of the
company had become one  of top Canadian
increasing competition between stores
retailers with stores in each province, All
(traditional business) like Dollarama and
stores owned and operated by Dollarama and
online retailers
are well located in metropolitan areas, cities
and small towns. It’s a positive point that will
• Buying Dollarama shares could be a bad
promote it brand image. 
financial decision if it cannot continue to
    Besides, Bain and the management  staff
innovate and follow the fast evolution of the
have done improvements that allow
retail industry, especially in with the
Dollarama to achieve excellent results such
importance of mobile phones and artificial
as improving profitability, increase the sales,
intelligence
Customer satisfaction (the company has
already high customer loyalty),  investing in
• Dollarama should adjust its strategies to
project with a considerable returns in the
operate in environment and improve at online
future. We can add also the fact that the
sells
company’s financial statement looks strong, it
could help the company going forward.
    With an efficient business model the 
company has been able to achieve high
growth rates after the Initial Public Offering,
which is interesting for the investors.
in addition, the current economic situation in
Canada is stable, and the sales in Dollarama
continue to increase because it offers product
Thank you for Ilik LIU

your attention Amine BEKKAL,

Alice ROSSI
Manar EL KABANI
Amélie PRONO