Bain and Dollarama

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broaden the price range, introduce product that create ‘repeat customers’ and accept other modes of payment. Overall, the company is ideally placed for further rapid expansion across all provinces along with increase in the product portfolio. The risks and challenges related to the investment are discussed below.

7. Advantages of the Deal. Dollarama is rightly poised to expand and generate far higher revenues that would get reflected in the bottom line. Dollarama needs capital and operational expertise. Bain can provide both. So, the investment would be a win-win situation for both, Dollarama and Bain. Post expansion, Dollarama would be rightly placed to be listed on stock market which would enable to secure more funds. Further, the retail value market continues to grow despite economic slowdowns. Therefore, investment in Dollarama would serve as hedge investment against economic uncertainty.

8. Risks and Challenges. The main risk is the possibility of increase in the cost of procuring products, which could be either because of currency fluctuations or increase in manufacturing costs. This risk can be mitigated to a large extent by hedging. Another challenge would be to ensure that the brand does not get associated with the tag of ‘inferior quality’. If the ‘inferior quality’ tags gets associated with the brand, it would be a disaster for the business. This could be mitigated by ensuring strict quality control over the entire product range.

9. Alternatives and Recommendations. The conditions are ideal to invest in Dollarama. Bain has two options, viz., invest as silent partner or invest as active partner. Though Dollarama is bound to grow, the current operational challenges may slow down the growth. Bain derives its strength from optimizing operations. The expansion strategy along with efficient operations would provide the required impetus to the business. It is, therefore, recommended that Bain invests as an active partner to derive the full potential of the deal.

10. Entry and Exit Strategy. Dollarama’s strengths lie in the network of stores, brand image and supply chains. Physical stores provide tangible value. Bain’s strength lies in driving bottom line growth through operational recommendations. It is, therefore, recommended that Bain proceeds to invest in Dollarama through purchase of Dollarama’s assets written up to their fair values including goodwill. Thereafter, the focus on expanding and making operations more efficient (inventory management system and bar coding). The current management is well experienced and would be retained. An annual fee of $ 3 million would be charged as management fee. It is estimated that in five years, the company would be have expanded sufficiently to go public. Through the initial public offering, Bain would recover majority of the investment and subsequently sell off the remaining equity over time through public trading or direct deals to recover entire investment and make profit.

Conclusion

Dollarama, currently, is at the juncture from where it has the potential to grow at a fast rate. The market conditions and the inherent strengths of Dollarama would strongly support this growth. The business needs support in the form of capital for expansion and expertise to grow operations exponentially. The business, with a few tweaks in operations has the potential to grow while repaying interests obligations. Dollarma has tangible assets which would ensure safety of investment and can also be used for obtaining debt. Bain has the resources for providing the capital and has the expertise to help in managing large scale operations. The conditions are ideal for investing in Dollarama. I strongly recommend investment in Dollarama.