Hansson Private Label, Inc. Case Study Analysis
Case Study: Hansson Private Label, Inc.
Executive Summary
The owner of Hansson Private Label (HPL) must determine whether or not to accept an aggressive expansion project that would preclude the company from pursuing any alternative investment opportunities for several years. The investment, if successful, would offer numerous benefits to the company, capturing greater market share, strengthening relationships with major customers, crowding out competition and increasing firm value. Nonetheless, the decision carries significant risks and could lead to a substantial decline in firm value, if not bankruptcy, should any number of variables prove unfavorable to HPL. Moreover, the project relies heavily on a contract with a single large customer. Given the high level of risk and relatively low return associated with the project, despite a positive NPV based on pro forma cash flows, I would strongly recommend the firm consider alternative investment opportunities.
Problem Being Examined
Tucker Hansson owns Hansson Private Label, a 15-year-old private company that manufactures personal care products sold under the brand labels of retail partners. Hansson is faced with evaluating a proposal that calls for an investment of nearly $60 million, representing the greatest expansion the firm would undergo in a decade. The decision to proceed with expansion carries with it many potential upsides: HPL stands to expand and solidify its relationship with its largest customer, grow other customer relationships and usurp market share from the competition all while adding value to the firm.
The expansion project, however, is not without significant risk. For one, this single investment would close off all other investment opportunities for the foreseeable future. Furthermore, pursuing the project would raise HPL’s debt to the highest levels Hansson is willing to assume in addition to maxing out the firm’s management capacity. Lastly, the investment would add substantially to the
Executive Summary
The owner of Hansson Private Label (HPL) must determine whether or not to accept an aggressive expansion project that would preclude the company from pursuing any alternative investment opportunities for several years. The investment, if successful, would offer numerous benefits to the company, capturing greater market share, strengthening relationships with major customers, crowding out competition and increasing firm value. Nonetheless, the decision carries significant risks and could lead to a substantial decline in firm value, if not bankruptcy, should any number of variables prove unfavorable to HPL. Moreover, the project relies heavily on a contract with a single large customer. Given the high level of risk and relatively low return associated with the project, despite a positive NPV based on pro forma cash flows, I would strongly recommend the firm consider alternative investment opportunities.
Problem Being Examined
Tucker Hansson owns Hansson Private Label, a 15-year-old private company that manufactures personal care products sold under the brand labels of retail partners. Hansson is faced with evaluating a proposal that calls for an investment of nearly $60 million, representing the greatest expansion the firm would undergo in a decade. The decision to proceed with expansion carries with it many potential upsides: HPL stands to expand and solidify its relationship with its largest customer, grow other customer relationships and usurp market share from the competition all while adding value to the firm.
The expansion project, however, is not without significant risk. For one, this single investment would close off all other investment opportunities for the foreseeable future. Furthermore, pursuing the project would raise HPL’s debt to the highest levels Hansson is willing to assume in addition to maxing out the firm’s management capacity. Lastly, the investment would add substantially to the