DAG Case Key Exhibits

1
DAG CaseKey Exhibits

• 305 4924 4024

Wednesday, August 08, 2001
2
EXHIBIT 1 PEOPLE, CONTEXT, OPPORTUNITY DEAL
ANALYSIS
I have analyzed the potential along the dimension
s of people, context, opportunity deal
Evaluation of potential along four key dimensions
Pros
Cons
Overall Assessment Rationale

• ASSESSMENT OF P, C, O, D
• Despite the fragmented nature of the industry and
  the intense (and sometimes irrational)
  competition, a turnaround deal could be highly
  attractive if financial risks are limited
• Furthermore, the potential to develop national
  brand/franchise is attractive

3
EXHIBIT 2 OUTLINE OF APPROACH TO OPPORTUNITY
5 Ps
The intention of Chris and Val is to develop a
premium priced, highly profitable dry cleaning
operation either thru turnaround or organically
and potentially roll this concept out to a
national branded network later
Product, Placement, Promotion, Price/Performance
Value Proposition

• Product
• Highly reliable, convenient and same-day dry
  cleaning and alterations service located at
  nearby superstores

• Promotion
• Based on having a well placed superstore which is
  convenient for the affluent customers to visit
• Concentrating on customer loyalty which is the
  key driver of profit
• Given pricing will not enter into price
  competition
• Presumably, word of mouth will be essential for
  this strategy to work

• Value Proposition
• Thru our convenient superstores, we offer our
  affluent customers the best service, open long
  hours and 7 days highly reliable with additional
  services and money back guarantee, for a premium
  price
• Backed by unconditional guarantee

Val and Chris are attempting to develop a premium
price, well loved dry cleaner which people from
the affluent neighborhoods go to

• Price Performance
• Priced 10 to 15 premium over competition, but
  for much more convenience and relaibility
• Highly reliable, conveniently located superstores
• Long hours, 7 days per week
• Same-day, credit card, alterations, etc
• Additional services offered, alterations etc

• Placement
• Superstore, conveniently located near the
  affluent customers homes
• Large stores means quick to access and very easy
  to see

Source Analysis of Case
4
EXHIBIT 3 WHAT CAN GO RIGHT/WRONG ANALYSIS
I have analysed the upside downside of this
opportunity below

• Although if things go right there is substantial
  upside, plenty of things can go wrong.
• Whilst most of these risks are hedgable, -- such
  as the overpayment (using a note) that which can
  be least well mitigated is the potential for
  limited exit options of an even successful
  business turnaround

Source Analysis of Case
5
EXHIBIT 4 POTENTIAL OF SIZE OF OPPORTUNITY
Given the 4bn potential market size and industry
profits of and estimated 240m (assuming 6
profit margin) the potential market size for a
national chain is large, furthermore a turnaround
with incentives aligned of an existing player
could yield substantial returns
Base Case
Categorization of Opportunity Size
Conclusion of Analysis
OVERALL MARKET SIZE 4bn OVERALL INDUSTRY PROFIT
240M POTENTIAL TURNAROUND VALUE 5 - 15M
Opportunity Size

• Assessment of opportunity
• The development of a chain of stores thru a
  franchise method has the potential to capture a
  large chunk of a 240m p.a. profit market
• A turnaround of the Dynasty business for example
  could be worth between 5 and 15m USD (see exhibit
  5)

Source Analysis of Case Financial Model
6
EXHIBIT 7 PROJECTED CASHFLOW REQUIREMENTS OF
BUSINESS TURNAROUND OF DYNASTY
A turnaround of Dynasty, if carried out quickly
and successfully may not be cash intensive
however there is substantial downside risk if the
turnaround fails
Base Case
Under a base case assumption of a turnaround
which takes place over 18 months, would consume
around 15k HOWEVER THIS ASSUMPTION IS
CRITICALLY DEPENDENT UPON THE ASSUMPTIONS MADE
AROUND HOW LONG A TURN AROUND COULD TAKE AND WHAT
THE RESTRUCTING COSTS ARE
Source Analysis of Case Financial Model
7
EXHIBIT 9 OUTLINE OF KEY RISKS OF AN ACQUISTION
OF SUPERB
I have carried out a risk analysis along the
following dimensions
_
Actions taken and key conclusions
Risk
Key Questions
People risk

• Are these the right people for the venture?
• Can they execute?
• Do they have the contacts necessary?

• The people are good given their HBS MBAs and dry
  cleaning experience however they have yet to
  prove their execution skills

Market Product risk

• They have not yet proven that the market for a
  premium dry cleaners is there they will need to
  do this on a small scale first

• Does the market exist and in large enough size to
  justify our investment?
• Can we get necessary market share
• Do we solve a customers need?
• Does this product solve the customers need?

• Downside financial risk of superb acquisition can
  be limited to 200k
• However business model and execution risk remain
  to be proven

Business Model Risk

• Does this business model work?
• Is it the best one for the market?

• The premium dry cleaner business model is not yet
  proven they will need to do this on a small
  scale first

Financial Risk

• Do the numbers make sense?
• Does the business have enough cash to achieve
  breakeven burn rate?

• The financial risk can be limited substantially
  by use of the note to purchase the store
• Risk is then limited to burn rate capex if
  they purchase a profitable player such as superb,
  then only capex risk is incurred

Execution Risk

• They have not yet proven execution, however the
  downside risk of a failed execution of Superb is
  limited to opportunity cost capex (50k) 1/3
  of note (450k) -200k

• Can the people execute?
• Can the team cope with bumps in the road?
• Can they overcome competitors?
• Can they recruit and build the business
  effectively?

Source Analysis of Case