Overview
Lewis Byrd, a partner of Opportunity Capital Partners and the lead in the Dogloo investment, is currently facing the issues below: * Dogloo is in the lawsuit regarding Doskocil’s trademark infringement, which is consuming large amount of money and management time thus detrimental to Dogloo’s healthy growth. * Dogloo’s products are facing significant increasing market demand, which exposed its outsourced manufacturers’ inability to increase capacity and led into lost sales. * Aurelio Barreto, CEO of Dogloo, is not meeting expectations to work within the financial and organizational constraints of the company, despite his strong product development and marketing capabilities.
The proposed solutions are outlined below respectively: * Barreto is asking for potential more funds, about $1.5 million, to help Dogloo cover current operating expenses and expansion, however Byrd must consider the reputation of OCP and maintain OCP’s strong track record of success. * Dogloo is rapidly expanding its facilities in order to accommodate the increased market demand and it has decided to bring all key manufacturing in-house, which would require large amount of capital to fulfill this expenditure. * Byrd is trying to provide counsel and support to Barreto.
Analysis – Valuation
Dogloo is a fast growing company with strong competitive advantage in the pet industry. With a huge untapped market, Dogloo has great potential for future continued growth which makes it an attractive investment target. Taking management’s estimates, Dogloo is worth approximately $213 million in equity value in 1995 assuming 15% cost of equity (Exhibit 1). In the past years, Dogloo has experienced rapid growth. As a result, the management estimate of 30% revenue growth rate is, in fact, a moderate assumption and very likely to be maintained (Exhibit 2). Sensitivity analysis