Berkshire - Intro

1.
Summary and Issues

Berkshire Partners, a private equity firm based in Boston, was invited to bid for Carters, the
largest manufacturer of toddler and baby apparel in the United States. The invitation was
received from Goldman Sachs, the Investment Bank who was instructed to conduct the
auction. To analyze the option of a potential LBO, Berkshire assembled a five-member team
to go through initial research, due diligence, valuations and strategy all within less than eight
weeks.
The private equity firm also received a staple-on financing from GS to expedite the bid,
which has to be evaluated and compared with financial offerings from other Investment
Banks for a superior option. Given the Goldman Sachs dual role of an auctioneer and
financier, Berkshire felt, if it is left unchecked, it could pressurize the buyer to accept inferior
financing terms to win the bid. Later during the second meeting with the management GS
clarified the issue that bidder wont be disadvantaged by using a non-Goldman Source.
The only issue that lies here is to conduct the valuation in order to determine the appropriate
bid amount which shall not be less than the floor of $130 million for the auction along with
scrutinizing the prepackaged financing option to maximize the return.
2. Industry Overview
Carters swam against the tide in the highly competitive apparels industry over the course of
136 years. The industry dynamics changed and more U.S. companies started exploring
offshore sourcing options and they outsourced production abroad for cost advantage. General
merchandising retailers too started emerging. One such was Target, which had 972 stores
across the country. Carters management team after realizing the changing industry, had
discussions with Target and they struck a long term deal under which its products will be
available at their stores.
3. Motivation for Berkshire Partners to purchase William Carter Co.

Berkshire being a private equity firm had extensive investing experience in the retail and
manufacturing sectors and was drawn towards Carters due to its strong brand name it had
developed in the past 136 years of history along with the strong management team strength.
During the 1990s Carters was going through a struggling phase, the new CEO Frederick
drove the company back towards its core niche clothing focus area. By 1996 the companys
performance rebounded, this further gave confidence to Berkshire about the companies
capability.
Berkshire had their own investment philosophy in selecting the companies for investments
and Carters seemed to perfectly fit their goals. It had developed a focus on building strong,
growth oriented companies in conjunction with strong, equity incented management teams.
So Carters turned out to be the perfect choice as a consumer products company that could be
used to leverage across multiple channels. Berkshire also highlighted the fact that they had
confidence in the Carters five year plan. These are the triggering points that drove the PE
firm towards its.
4. Motivation for William Carter Co. to be in sale

From 1992 to 2000, Carter increased revenue at a CAGR OF 9.5%, with EBITDA shooting
up to 22.1% due to improved brand recognition, lower cost structure, expansion into discount
channel and outsourcing.
Investcorp the parent company of Carter were at the end of five-year period and wanted
liquidity. So after witnessing this massive growth in the financial and operating performance
of Carter, they decided to sell.
5. Goals and Outcome of the Analysis

The goal and outcome of the valuation is to first understand the right amount to bid during the
Goldman Sachs led auction. Secondly, potential realizable synergies needs to be identified.
Thirdly, given the revolver, term loan and senior subordinated notes availability, the equity
contribution needs to decided.
6. Recommendations
Carters represent an attractive LBO candidate due to the projected increasing cash flows and
strong asset base. Based on our LBO analysis we recommend a bid of $220 million, financed
with 60/40 of debt and equity. As per the projected statements, Enterprise value by 2006
stands at $488.3 million and an Equity value of $170.83 million. Even if Berkshire being a
financial sponsor sells it off in the year 2006 for a conservative $488 million, it still stands to
make $268 million in return which is a 19.7% IRR over the 5 year period.
With regards to prepackaged financing, we suggest Berkshire to utilize Goldman Sachs

stapled financing as Merrill, First Union, Bank of America and other IBs offered structures
were essentially similar to GSs offering. Overall, based on the management quality and
financial strength of Carters we suggest Berkshire to proceed with the LBO.

Berkshire - Intro

Uploaded by

Copyright:

Available Formats

Berkshire - Intro

Uploaded by

Document Information

Original Description:

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Berkshire - Intro

Uploaded by

Copyright:

Available Formats

1.

Summary and Issues

3. Motivation for Berkshire Partners to purchase William Carter Co.

4. Motivation for William Carter Co. to be in sale

5. Goals and Outcome of the Analysis

With regards to prepackaged financing, we suggest Berkshire to utilize Goldman Sachs

You might also like

Pfad - The Proxy pFad of © 2024 Garber Painting. All rights reserved.