Best Buy Leveraged Buyout Case Study
In this case study, you will analyze Best Buy Founder Richard Schulze’s offer to acquire the remaining 80% of Best Buy Co. (he already owns 20% of it) for between $24.00 and $26.00 per share (implied purchase Enterprise Value of approximately $10.5 billion for 100% of the company at $25.00 per share).
First announced in August 2012, the deal instantly drew attention because it would be one of the biggest buyouts since the financial crisis – and the largest retail leveraged buyout since Toys ‘R’ Us in 2005. It also drew much attention because Schulze would have to recruit private equity firms to raise the required debt and equity to complete the deal, and because the company itself was in a tenuous strategic position and in need of a turnaround.
So not only would the numbers themselves have to work, but the turnaround strategy would also have to work – and Schulze would have to raise a very high amount of debt to complete the deal.
Best Buy is a leading retailer of consumer electronics, computing and mobile phone products, entertainment products, appliances, and related services. While it survived and thrived as similar companies such as Circuit City went bankrupt, it now faces increased competitive pressure from Internet retailers such as Amazon, and is struggling to expand and improve profitability at the same time.
Homework – Part 1
In part 1 of this case study, you’ll simplify an existing 3-statement operating model for Best Buy and make it suitable for use in a leveraged buyout analysis. You’ll have to think about which items are absolutely essential vs. which items are “nice to have” and can be cut in a time-pressured environment. You will also do some qualitative research about the market, the competition, and the turnaround strategy and draw initial conclusions based on that.
Homework – Part 2
In part 2, you’ll complete the leveraged buyout model using your operating model from part 1 as the starting point, and then use the output from the model and the qualitative research to answer the discussion questions and create slides with your recommendation on whether or not to do the deal.
Watch the Training Replay
Answers to Your Questions
We received several questions during this week’s training session on the Best Buy LBO Case Study.
Brian DeChesare, the founder of Breaking into Wall Street, answered the questions and you will find the PDF document with the questions you asked below:
LBO Questions and Answers Document
These answers should help deepen your understanding of LBO’s.
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