Financial Statement Analysis Assignment

Case: Dollar General Going Private

Submitted by:
(Group- 5)
Arijita Das
Mohit Kumar Yadav
Praveen Kumar
Sonal Jain
Versha Kaushik
Vision
Dollar General’s vision is to offer its consumers with food that is healthy, high in quality and
safe to eat. It wants to be innovative and at the same time comprehend the requirements and
requirements of its clients. Its vision is to grow fast and provide items that would please the
needs of each age group. Dollar General envisions to develop a well-trained workforce which
would help the business to grow.
Mission
Dollar General's mission is that as currently, it is the leading company in the food industry, it
thinks in 'Excellent Food, Good Life". Its objective is to supply its consumers with a range of
choices that are healthy and best in taste. It is concentrated on offering the very best food to its
consumers throughout the day and night.
Purpose
Dollar General Company wants to improve the lifestyle of individuals by providing healthy food.
It wishes to help the world by motivate individuals to live a healthy life and thus, forming a
much better future for it. It wants to plays its part for a healthy and better future of the society
along with being successful in the long run as a company.
Products
Business has a wide variety of products that it uses to its clients. Its items include food for
infants, cereals, dairy products, treats, chocolates, food for pet and bottled water. It has around 4
hundred and fifty factories around the globe and around 328,000 employees. In 2011, Business
was noted as the most gainful organization.
Goals and Objectives
Considering the vision and mission of the corporation, the company has actually laid down its
objectives and goals.
 One objective of the company is to reach no land fill status. It is working toward zero
waste, where no waste of the factory is landfilled. It motivates its employees to take the
most out of the spin-offs.
 Another objective of Dollar General Company is to waste minimum food throughout
production. Usually, the food produced is squandered even before it reaches the clients.
 Another thing that Business is dealing with is to enhance its product packaging in such a
method that it would help it to minimize the above-mentioned complications and would
likewise ensure the delivery of high quality of its products to its clients.
 Meet international requirements of the environment.
 Construct a relationship based on trust with its consumers, company partners, staff
members, and government.
History
Dollar General Company was founded in 1939 as J.L. Turner and Son in Scottsville, Kentucky,
DG as a wholesale business. It was a leader in deep discount retail channel and was a Fortune
500 company.
In 1995, the company pioneered the dollar-store concept, its retail stores sold all items for $1.
This format was very successful and it lead to $25.8 million sales for the company by 1965.
In 1968, the company went public on the New York Stock Exchange and changed its name to
Dollar General.
Problem Statement
To analyze the merger of Dollar General Company by the private equity sponsor Kohlberg
Kravis Roberts & Co. (KKR). Kohlberg Kravis Roberts & Co. acquisition of Dollar General
Company by would take the company private in the year 2007. Thus, the shares of the Dollar
General company would not trade on the stock exchange after acquisition.
The proposed merger had generated about 30% in premium for the stockholders over the
prevailing stock price at the time of the announcement of the deal. Thus, the merger seemed to
be quite attractive. Also, the enterprise value to the EBITDA multiple offered was higher for
Dollar General Company in comparison to the other comparable companies at that time in the
same retail industry. But few of the shareholders of Dollar General Company had claimed that
the price for the acquisition was inadequate.
A detailed analysis needs to be performed of this transaction to make a final recommendation.
The analysis required to perform:
 Financial statement analysis for the company.
 Analysis of the proposed LBO model for Dollar General Company.

Timeline of Dollar General Company

1939 – Founded by J.L turner &Son, in Scottsville, Kentucky, DG.
1955- Pioneered the dollar-store concept, opening retail stores that sold all items for $1.
1968- Tendered an initial public offering(IPO) and changed its name to Dollar General.
2003 - Dollar General entered the grocery market with the establishment of Dollar General
Market
2004- Dollar General expanded to low-cost Asian markets by opening a sourcing office in Hong
Kong.
2006- DG announced significant changes to its real estate growth strategy
Implemented new inventory management policy leading to substantially higher markdowns on
inventory.
2007- All shares of Dollar General stock were acquired by private equity investors for $22 per
share. An investment group consisting of affiliates of Kohlberg Kravis Roberts (KKR), GS
Capital Partners (an affiliate of Goldman Sachs), Citigroup Private Equity and other co-investors
completed an acquisition of Dollar General Corporation for $6.9 billion.
DG expected higher level of markdowns comparing to its previous year.
DG shareholder William Hochman filed a complaint against the company, its board of directors
and KKR arguing that the merger was pursuant to an unfair process and at a grossly inadequate
price of $22.
SWOT Analysis
Strength Weakness
 High customer loyalty  Not enough experience in
 High repeat purchase among existing international market
customers  Low profitability which can hamper
 Experience of about 140 years and new project investment
successful team  Acquisition of services like Frozen
 High target customers due to 2000 Pizza gave a negative signal to health
brand names (KitKat, Maggi, Nescafe) conscious consumers.
 High spending on R&D as compared  Financial investment in NHW method
to its competitors and development sakes are different
 NHW method  Contradictions over merger and
acquisitions
 Long time required for attaining actual
growth in sales
Opportunities Threat
 Developments in Artificial  Home market marketing technique
Intelligence won’t work in developing countries
 Lucrative Opportunities in such as India and China where scale is
International Markets prized over profitability
 Presenting more health related  Customers are moving toward mobile
products have higher acceptability first environment which can hamper
among health conscious consumers. the growth as Dollar Private still
 Acquisitions and JVs increase the hasn’t got a comprehensive mobile
marketplace share of the business strategy.
 Financial instability in nations which
are the possible markets of Dollar
General
 Shifting of products from typical to
healthier leads to additional expenses.
 Complex supply chain
TWOS Analysis
Strategies to exploit Opportunities using Strengths
Business ought to present more ingenious products by large quantity of R&D costs and mergers
and acquisitions. It could increase the marketplace share of business and increase the profit
margins for the business. It might likewise provide business a long term competitive benefit over
its competitors.
The global growth of business need to be focused on market capturing of establishing countries
by expansion, attracting more consumers through consumer's commitment. The opportunity for
growth is more in developing countries as compared to developed countries owing to its
population.
Strategies to Overcome Weaknesses to Exploit Opportunities
Dollar General Company needs to do cautious acquisition and merger of companies, as it could
impact the client's and society's perceptions about business. It needs to acquire and merge with
the businesses which have a market track record of healthy and nutritious companies.
Consumer’s perception about Dollar General would improve.
Business should not just invest its R&D on innovation, instead of it needs to likewise focus on
the R&D spending over examination of expense of numerous healthy products. This would
increase cost effectiveness of its products, which will lead to increasing its sales, due to declining
prices, and margins.
Strategies to use strengths to overcome threats
Business needs to move to not just establishing but also to developed nations. It ought to expand
its circle to numerous nations like Unilever which operates in about 170 plus nations.
Strategies to overcome weaknesses to avoid threats
Dollar General Company should sensibly control its acquisitions to avoid the threat of
misconception from the customers about business. It needs to obtain and merge with those
countries having a goodwill of being a healthy business in the market. This would not only
improve the understanding of consumers about business however would also increase the sales,
profit margins and market share of business. It would also make it possible for the company to
use its prospective resources efficiently on its other operations rather than acquisitions of those
organizations slowing the NHW technique growth.
Porter's model of five forces
High Low
Industry Rivalry 
Bargaining power of Suppliers 
Bargaining power of Buyers 
Threat of New Entrants 
Threat of Substitute 
Competitiveness
Dollar General Corporation is a chain of variety stores in America. It is one of the top players in
this competitive industry. Its main competitors are Unilever, Kraft foods and Group DANONE.
Dollar General is performing well in this industry for last 150 years. The competition of other
major players with Dollar General is rather high.
Threat of New Entrants
Entry barriers for a new entrant in the consumer food market are very high. In this industry as
there is a need to understand the consumer need which requires time. The existing competitors
are well aware these consumer needs and they have gained consumer loyalty for their products
with time. Thus, it very difficult for a brand-new player to be successful as current players have
lot of advantages. There is low risk of new entrants to Dollar General as it has quite large
network of distribution globally controlling with well-reputed image.
Bargaining Power of Suppliers
Dollar General owes the largest share of market in the food and drink market. Thus, it requires
greater number of supply chains. It has to maintain long-term relations with its suppliers for
better quality products and timely delivery. So, Dollar General suppliers do have some
bargaining power but not very high.
Bargaining Power of Buyers
Since, the industry is very competitive and there are various other options available for the
customers. This gives high bargaining power to the buyers due to large number of competitors.
Switching cost is quite low for the customers as huge number of similar items are available in the
market. Thus, the customers hold lot of power in highly competitive industry. Hence, Dollar
General have to keep its clients pleased.
Threat of Substitutes
Dollar General is facing danger of substitutes as few of the Nestlé's items such as pasteurized
milk and boiled water are being used as its replacements. Also, some of its products are not safe
to use according to few claims resulting in the reduced sale. Thus, to cope up with the
alternatives, Dollar General has begun highlighting the health advantages of its items.
PESTEL Analysis
Political
 Little dangers of armed conflict -Based on the research done by international foreign
policy institutions, it is safe to conclude that there is very little probability of country
entering into an armed conflict with another state.
 Political consensus among various parties regarding taxation rate and investment policies.
Over the years the country has progressively worked to lower the entry of barrier and
streamline the tax structure.
Economic
 Inflation rate is one of the key criteria to consider for Dollar General before entering into
a new market.
 Foreign Exchange movement is also an indicator of economic stability. Dollar Private
should closely consider the forex inflow and outflow. A number of Dollar Private
competitors have lost money in countries such as Brazil, Argentina, and Venezuela due to
volatile forex market.
Social
 Consumer buying behavior and consumer buying process – Dollar Private should closely
follow the dynamics of why and how the consumers are buying the products both in
existing categories and in segments that Dollar Private wants to enter.
 Demographic shifts in the economy are also a good social indicator for Dollar Private to
predict not only overall trend in market but also demand for Dollar Private product
among its core customer segments.
Technological
 Proliferation of mobile phones has created a generation whose primary tool of
entertainment and information consumption is mobile phone. Dollar Private needs to
adjust its marketing strategy accordingly.
 5G has potential to transform the business environment especially in terms of marketing
and promotion for Dollar Private.
Environmental
 Environmental regulations can impact the cost structure of Dollar Private. It can further
impact the cost of doing business in certain markets.
 Consumer activism is significantly impacting Dollar Private branding, marketing and
corporate social responsibility (CSR) initiatives.
Legal
 Intellectual property rights are one area where Dollar Private can face legal threats in
some of the markets it is operating in.
 Health and safety norms in number of markets that Dollar Private operates in are lax thus
impact the competition playing field.
 Political Economic Social Technological Environmental Legal
Governmental Enhanced Altering Improvements Worries over No such
Assistance market share perception in R&D and recycling influence as
towards also in QA it is
Altering healthier divisions Use of sources favorable
criteria of items
global food Introduction
of E-
marketing

VRIO Analysis
The VRIO analysis of Dollar General Company Company is a broad variety analysis supplying
the company with an opportunity to obtain a viable competitive benefit versus its competitors in
the food and beverage market
Valuable
We are determining whether the resources utilized by the Dollar General Company company are
valuable for the business or not. Such as the resources like finance, personnel, management of
operations and specialists in marketing. These are a few of the essential valuable aspects of for
the identification of competitive advantage.
Rare
The important resources used by Dollar General Company are even uncommon or expensive. If
these resources are frequently found that it would be much easier for the competitors and the
brand-new competitors in the industry to easily relocate competitors.
Imitation
The replica process is costly for the rivals of Dollar General Company Company. Nevertheless, it
can be done only in two different techniques i.e. product duplication which is produced and
manufactured by Dollar General Company Company and introducing of the replacement of the
products with switching cost. This increases the threat of disruption to the current structure of the
market.
Organization
This element of VRIO analysis deals with the compatibility of the business to place in the market
making efficient usage of its important resources which are challenging to imitate. Frequently,
the development of management is absolutely dependent on the firm's execution method and
group. Hence, this polishes the skills of the company by time based upon the decisions made by
company for the progression of its tactical capitals.
Resources Value Rare Imitation Organization Competitive
Advantage
Access to Yes Yes, as other Can be Yes Providing
Critical Raw competitors imitated by Sustainable
Material for have to come competitors Competitive
Successful to terms with Advantage
Execution firm's
dominant
market
position
Global and Yes, as it Yes Can be Yes, it is one Providing
Local diversify the imitated by of the most Strong
Presence revenue competitors diversified Competitive
streams and companies in Advantage
isolate its industry
company's
balance sheet
from
economic
cycles
Pricing Yes No Pricing Yes, firm has Temporary
Strategies strategies are a pricing Competitive
regularly analytics Advantage
imitated in engine
the industry
Network Yes Yes Close- Completely Unused
Flexibility of Sharing some consumed competition
Supply Chain same advantage
suppliers
chain
Market Yes Yes Challenging Yes Sustainable
Position competitive
advantage
Leadership Yes Yes No Yes Strong
Team competitive
advantage
Awareness of Yes Yes No Yes Sustainable
brand competitive
advantage
Financial Yes No Compatible Financial Temporary
Resources with all rivals status is competitive
sustainable advantage
Strategy & Solution
The proposed merger will highly helpful to overcome the company’s slowed growth and has
profitability. KKR can help them in growing the company with good investments not by
stripping out cost. They can improve their business and generate better financial performance at
the store level as there will be an investment of capital by KKR.
All the resources of KKR can be used to fix the issues and turn the business around to grow.
KKR can help them in developing a concise consistent business plan their ability. Dollar
General’s association with KKR can attract good quality people (employees) to them which the
key ingredient of making its business successful.
Advantages for Dollar General from merger with KKR are mentioned below:
 Merger with KKR will make the Dollar General company private with an estimated debt
of $ 380 million. Thus, then the shares of the company are no longer traded on the stock
exchange and they will not bound to present its financial results annually or quarterly to
the general public & the issues related to the regularity with all the accounting bodies are
removed completely.
 Private businesses also have more flexibility. So, Dollar General will become more
flexible in reorganizing their business profiles and also reorganizing the management
team of their company.
 Also the board members and the shareholders of the Dollar General company are
receiving a lot of financial rewards.
 Dollar General can avoid hostile takeover in future as well since public companies are
more prone to hostile takeovers.
Advantages for KKR from merger are mentioned below:
 The cash flow of the Dollar General company is positive and the level of the debt in the
capital structure of the company is low as compared to other companies in other sectors.
Thus, making it a good investment for KKR.
 Dollar General Company also owns its real estate against which KKR could also borrow
in future in order to turnaround the efforts for the company’s stores and finance the
takeover with the money.