Luxottica, Cole National, Acquisition Dynamics in the Optic Sector - DDIM 2011, Group 9
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Finance case on the Acquisition price for Cole National by Luxottica.
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Similar a Luxottica, Cole National, Acquisition Dynamics in the Optic Sector - DDIM 2011, Group 9
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Luxottica, Cole National, Acquisition Dynamics in the Optic Sector - DDIM 2011, Group 9
- 1. Luxottica – Cole National Acquisition Dynamics in the Optic Sector Group 9 Yu Yu Gao Yi Ling Sun Marta Caccamo Marta Cenni Flavia Assogna Wei Liu Daniele Corti Vito Margiotta
- 4. Largest optical retailer in North America through acquisition of LensCrafters and Sunglass Hut Sales by Product and Category Sales by Geographic Area LUX ’s Sales
- 8. Post integration actions Please see additional notes below.
- 10. Main business: Optical Retail The company operates 3 different businesses: Cole Licensed Brands, Pearle Vision and Cole Managed Vision. 21% participation in Pearle Europe (the third largest optical retailer in Europe with around 700 million USD of annual sales and 1200 locations) Approximately 3000 stores - 400 in franchising Mar ket Cap italization: US$ 321 Million in euro 7.6% US Market (US$ 17 Billion) COMPANY OVERVIEW
- 12. Mainly present in US and Mexico through 490 vision centers, the company has been closed to bankruptcy in 2001 and it is actually still undergoing a major restructuring process. Not suitable for comparison. The company operates through 9 owned and 5 franchises managed stores. Too small in size for comparison. COMPARABLES ’ ANALYSIS 1/3 National Vision Emerging Vision De Rigo One of Europe ’ s largest optical retailer. Retail operations represent 70% of company ’ s total revenues. Roughly one third of company ’ s stores are under franchise contract. Very internationalized – active in over 80 countries worldwide.
- 13. COMPARABLES ’ ANALYSIS 2/3 Alain Afflelou One of the largest French optical retailers. Franchise business accounts for 95% of its total revenues (in this respect the business model of this company it is not suitable for comaprison with our). Not active internationally. OPSM Grand Vision The largest French optical retailer, multibrand. Mainly active in the French domestic market (47%), UK (40%). The remaining part comes form rest of Europe. Market leader in Australia, multibrand (5 brands owned). Broad product offering; 590 stores in 5 different countries – Australia and Hong Kong being the major ones.
- 14. COMPARABLES ’ ANALYSIS 3/3 Fielmann The largest German optical retailer. Most of the revenues (85%) come from the domestic German market. Particular attenction has to be given on the impact the recent change in legislation - German healthcare reform - had on the company. EBITDA for 2004 is, in fact, expected to decrease by roughly 40%. Oakley Paris Miki Japanese large optical retailer. Mainly active in the domestic market. The company has recently undergone a strategic shift toward franchise business, that now accounts for 47% of its total revenues. American producer of sunglasses and prescription lenses; operates marginally in retail market. Business Model not suitable for comparison.
- 15. Selected COMPA RABLES - De Rigo - OPSM - Grand Vision - Fielmann
- 18. PRICE CALCULATION Assumptions: We will look at the 3 months average instead of point-in-time. This will give us a fairer view of the company value. We decided to eventually adjust values that include specific unusual events or extraordinary performances due to external factors. FINAL PRICE PER SHARE = US$ 22.03 Please see additional notes below. See appendix 1 for further details
- 21. PRICE CALCULATIONS Please see additional notes below. In this case Price per Share represents a good proxy of how much companies paid in the past for similar transactions ( it could include possible synergies, mark-ups, ect.). FINAL PRICE PER SHARE = US$ 30.09 See appendix 2 for further details
- 22. Even if the price that LUX has to pay to conclude the deal will be higher than the one it offered at the beginning, the choice to counter bid Moulin’s last offer of 25 US$ per share is justified by the estimated value of synergies emerging from the acquisition. SYNERGIES !! LUX CNJ LUX CNJ SYNERGIES INCREASE TOTAL VALUE
- 24. Observing the prices got from transaction and market comparables analysis and taking into account the synergies that can arise from the deal, we estimate a reasonable price range in between 25 and 27 $ per share. Please see additional notes below.
- 25. appendix
- 26. Appendix 1: Price per share evaluation – market multiples
- 27. Appendix 2: Price per share evaluation – transaction multiples
Notas del editor
- POST INTEGRATION ACTIONS Important for success: START PLANNING EARLY no wait until the deal is officially enacted Decide a POST INTEGRATION PLAN that would be implemented after acquisition by a post integration team made by representatives of both parties The plan must concern: ROAD MAP DOCUMENT: to explain the acquisition an communicate new strategies and business objectives based on the original rationale for the transaction to all the members of the two companies. Stress the importance of communication btw all members. CULTURE plan: full assessment of corporate strategy of both parties. Identify factors of culture that are incompatible, identify areas of compatibility and focus on actions to implement desired factors and practices (try to capture best practices of the acquired company) HUMAN RESOURCES plan: creation of a cross company committee with managers and union representatives of both parties to Focus on employees and corporate governance matters: carefully think about allocation of responsibilities both at top positions and at lower levels. The committee is in charge of: - Being sure that everybody has understood the rationale for the acquisition. - Do not impose chances and new corporate values ( might make internal resistances to arise) BUT: - Due diligence of the target, assessment of existing roles and practices in place, eliminate what is very not in line and integrate best practices. - Negotiations with unions representatives. - Implement a measurement system and a continuous benchmarking process for the first period. PRODUCT AND TECHNOLOGIES INTEGRATION PLAN: D efine the go-forward product mix, set priorities for new product development and define feedback mechanisms to track progress and obstacles. OPERATIONS INTEGRATION PLAN prepare a detailed plan for operations, including all functional areas, such as accounting, distribution, engineering, manufacturing, marketing, purchasing, and sales.
- The main factors we consider in assessing the suitability of the several companies as comparables were Business Model, Size/MarCap and Market Coverage. Regarding Business Model, only those companies with a business model based on optical retailing were selected. As far as size, we used market capitalization as a proxy of size. In this regard we considered as comparable only those companies with a MarCap in between US$ 200 Million and US$ 900 million. Concerning market coverage, domestic market leader have been preferred from the others. Even if this measures is not the most objective one, in fact, it could probably gives us some useful hints for comparables ’ selection. It would be beneficial to run an analysis based also on companies' financial leverage. However, due to the lack of data, we could not perform it.
- We chose the multiples of 2004, the year of the offer, for DeRigo, OPSM and Grandvision. For what concerns Fielmann we decided to do the average of the multiple of the years 2003 and 2004 in order to overcome the distortion created by the German healthcare reform (higher sales in 2003 and lower sales in 2004). After calculating the EV we subtracted the net debt in order to obtain the equity value. Net debt, in particular, was composed by: Long-term debt + Accrued Interests – Cash and Equivalents. Dividing the EV by the fully diluted outstanding share (17.5 ml) let us find the price per share. In this case Price per Share represents the fair value of the company without taking in consideration possible synergies that can be created putting Cole National and Luxottica together.
- The stability of the industry allows us to take in consideration also a transaction of the year ‘98.
- We used the same procedure we performed for the market comparables. We used Ebitda multiples of the selected Transaction, we calculated EV and from it we derived Equity value and Price per Share. In this case Price per Share represents a good proxy of how much companies paid in the past for similar transactions ( it could include possible synergies, mark-ups, ect.).
- Even if the price that LUX has to pay to conclude the deal will be higher than the one it offered at the beginning, the choice to counter bid Moulin’s last offer of 25 US$ per share is justified by the estimated value of synergies emerging from the acquisition
- N.B.: Comparing the EBITDA margins of the comparable companies that we considered in the calculation of the share price with that of Cole National, we can see that the CNJ value is far below the average level. For this reason we can expect that a possible future acquisition of the company by Luxottica could increase this margin increasing the value of the share of CNJ. We have also to remember that we can take advantage of the bargaining power derived from the previously stipulated break-up fees that are quantifiable in 0,6857$ per share.