1. What is the Purpose of This Assessment?
The following table shows which of the module learning outcomes are being assessed in this assignment.
Use this table to help you see the connection between this assessment and your learning on the module.
Module Learning Outcomes Being Assessed
– Pitchbook structuring/preparation
– Advanced valuation analysis and modelling
– Independent research/reading, synthesis of evidence and justification of assumptions made
– Critical evaluation of strategic alternatives for a company
2. What is the Task for This Assessment?
Task (attach a separate briefing document if required)
You are a team within the consumer retail group at a leading investment bank. Burberry Group has approached your IBD to explore the option of selling the company along with other potential strategic options.
Burberry Group plc, is a UK based leading luxury fashion house that designs, produces and sells products under the Burberry brand. Its distribution network consists of almost 500 directly operated stores
including more than 200 concessions within department stores and outlets in more than 50 countries. The Company engages in the retail/wholesale of luxury goods through Burberry mainline stores, concessions, outlets and digital commerce as well as Burberry franchisees, prestige department stores globally and multi-brand specialty accounts. It has operations in Europe, Middle East, India, Africa, US and Asia Pacific region and is listed on the FTSE100.
By January 2020 Burberry was trading at an almost double share price than its bottom back in 2016. Back then the company was the fifth most shorted in the FTSE 100 as it was believed to have been a victim of the general
market sell-off and concerns over slower sales growth affecting most luxury brands due to an economic slowdown in China and terrorist attacks in Europe among other factors. Company sales have suffered recently
especially in Asia Pacific while Chinese shoppers in Hong Kong and mainland China account for around 40 percent of Burberry’s global revenue. Yet, the Brexit vote and the slump in sterling that followed the
referendum has delivered a big boost to Burberry’s sales powered by overseas shoppers who have flocked to the UK to stock up on branded goods. Some of the top brands have resurfaced from the challenging
environment even stronger than before since the hard work put into the revitalisation of these brands in terms of new products and innovations is paying off.
Investors and retail experts also recently welcomed Christopher Bailey’s decision is to cede control of the company’s day-to-day management ,and eventually leave the company, as part of a boardroom overhaul amid criticism from investors. The luxury goods veteran Marco Gobbetti who took over as chief executive in 2017 had an outstanding track record of delivering growth in the luxury industry and pushed ahead which has seen
the company shifting further upmarket. Despite this a number of analysts still point out today the slow-paced nature of the brand’s turnaround. In an effort to take further control of pricing, Burbery is closing 1 in 10 stores
worldwide and focusing on improving and renovating stores to attract its desired clientele as well as a new creative direction. In order to pull off his strategy, Gobbetti will rely largely on building demand and maintaining
loyalty among Chinese consumers. As part of this, Burberry has struck a deal with Chinese technology group Tencent to develop a so-called “social retail” concept in China, with the first store set to open in Shenzhen this
year. It has also acquired Italian leather goods business CF&P in an effort to bolster demand in its leather handbags, which is very important to improve its bottom line.
Commentators say Burberry’s stage in its turnaround leaves it vulnerable to a takeover offer after it batted off a $20bn (£15bn) approach by US accessories firm Coach in 2016, when it called in the top boutique advisory Robey Warshaw to build its defences. Luxury groups including LVMH, Kering and Richemont have been on a buying spree, snapping up renowned brands to bulk out and broaden their portfolios. In November, LVMH acquired US jewellery firm Tiffany for $16bn and reports have suggested that family-owned Prada could be up for sale.
The challenge with a hostile bid is that Burberry is not a cheap stock and a potential acquirer would have to take on a significant risk. The company’s management has a strong preference for the company to remain independent but at the same time the board of directors have been encouraged by the company’s major shareholders to consider a possible sale of the company among other organic growth alternatives.
As part of your role you are required to discuss with the management of Burberry the potential for its sale and other strategic alternatives in response to a request for proposal (RFP). This advisory process should be
supported by the production of a “pitch-book” outlining and critically discussing the options for Burberry and provides specific recommendations.
One of the trusted non-executive directors of Burberrys is a professor of finance and is always very critical of analysis not backed-up by relevant empirical and anecdotal evidence. Therefore, although your report should
resemble a pitch-book it should also include detailed critical analysis of each section as well as sound justification of any assumptions made to arrive at estimates and recommendations, as well as explicit recognition of any weaknesses of the analysis.
Requirements
You are required to produce a detailed pitch-book style report in response to an RFP raised by Burberry for presentation at the next client meeting.The aim of your report should be to position Burberry and lay out the
investment case, address any potential investor risks/concerns, conduct preliminary valuation analysis, analyse the profiles of potential buyers and synergy creation potential, assess any financing considerations and provide
a clear-cut recommendation to Burberry’s board.
Your report should be structured into the following sections:
1. Table of Contents and your team
2. Positioning – this section should include an analysis of Burberry’ business, product and financial profile, geographical presence, share price, an overview of its industry segment coupled with recent developments and how Burberry fits within the segment, as well as key areas/opportunities in support of the investment case (investment story), risks/investor concerns going forward and corresponding
mitigants. The section should include extensive analysis based on independent research and supported by graphical illustrations and critical evaluation of the evidence presented. Evidence of critical
evaluation/thinking as well as the depth of the analysis itself are very important in this section. [25 marks]
3. Valuation analysis – you should first produce detailed operational and
valuation benchmarking and then propose an initial valuation range
based on the use of alternative valuation methods such as
comparables valuation, DCF and LBO analysis. You should clearly
state and justify any assumptions made at each stage and the selection
of comparable companies. Your analysis should include a comparison
of standalone valuation and potential synergy valuation based on
precedent transactions. Your DCF analysis should also incorporate
appropriate sensitivity analysis. The section should include a valuation
summary in the form of a “football field analysis” as well as an analysis
of valuation multiples at a range of prices/premia that may be offered.
All information and comparisons should be presented in a coherent and
compact way based on graphical illustrations and tables. Some of the
underlying analysis may be presented as part of an appendix. The
empirical analysis and illustrations should be supplemented by
extensive critical discussion of the results to guide the reader through.
[40 marks]
4. Potential buyers – this section should include an analysis of
prospective strategic buyers for Burberry and an overview of the
transaction rationale and a discussion of potential synergistic gains to
be realised in each case. You should attempt a critical discussion and
quantification of the transaction’s financing implications and limitations
in each case. Based on the analysis the team should take a clear
stance on the preferred choice of tier 1 buyer/s. [20 marks]
5. Additional considerations and alternatives. This section should provide
a critical discussion of any additional considerations regarding the
transaction (e.g. current and historical M&A market update) and provide
some basic analysis of other strategic alternatives the company’s board
may consider other than outright sale. [10 marks]
6. Time-line and summary of recommendations for the considerations of
the board. [5 marks]
0
mark
s]
1. What is Required of Me in this Assessment?
Guidelines/Details of How
to Prepare Your
Submission
This should be a pitchbook style report with sufficient critical evaluation to
guide the reader through at each stage.
Arguments must be backed and critically evaluated on the basis of
appropriate evidence. All sources must be fully referenced and a reference
list must be provided at the end of the assignment. The use of footnotes
where the source of specific information is noted/justified is also
recommended. Evidence of wider research is important for your final mark.
The Assessment Criteria to
be Used for Marking This
Piece of Work
Refer to the marking criteria rubric at the end of this document.
Self-Regulation: Make sure
That You…
This is a group assignment and all group members MUST contribute.
All group members would be required to fill in an anonymous and
confidential online peer evaluation form to evaluate the contributions of
each team member. Peer evaluation scores will be normalised across all
groups and each member’s peer-assessment score will count for 20% of
their final individual mark for the project (10 out 60 marks will be based on
peer-evaluation). Any non-contributing members brought to the attention of
the module convenor by other members may be awarded a mark of zero for
the project. However, note that it is entirely your responsibility to
collaborate sensibly and allocate responsibilities among group
members and this is exactly why you have been allowed to select your
own groups. It is entirely up to you how responsibilities are split between
group members as this will depend on the dynamics within the group. It is
important to consider that while in IB teams there are clear responsibilities
and accountabilities, compiling a pitch-book is the result of rigorous
collective work (and many meetings!) throughout the process. Allocating
one part of the work to each member and then joining the various
parts together a few days before the submission of the final draft has
not worked well in the past with other groups.
Three Key Pieces of Advice
Based on the Feedback
Given to the Previous
Cohort who Completed
This Assignment
1. The word count is up to 4,000 words which means other than
tables, figures, estimations you need to provide sufficient critical
evaluation to guide the reader through what the numbers/trends tell
us as well as demonstrate evidence of wider reader and back your
arguments/recommendations.
2. Chose your group wisely and schedule all group meetings in
advance and early in the process.
3. Go through the project requirements and marking criteria very
carefully as the devil is in the details!
For Group Work Only: Elements of Group Working:
☐ Classroom Briefing by Module Convenor
☐ Regular Meetings of All Team Members
☐ Record and Keep Evidence of Meetings (agenda/minutes)
☐ Record Attendance and Member Contributions
☐ Team Reflection Document
☒ Submit Peer Assessment Required
Formatting Guidelines There is no need to provide an abstract or executive summary. Please
follow the format as outlined in the project task above. The project should
be split in 6 secions. Any detailed valuation estimations can be included as
part of the appendix.
Word Limit/Guidance and
Penalty Applied
Report – maximum 4000 words (+-10%)
Any late submissions will be dealt with according to University regulations.
Referencing Style Harvard
Guidance on Academic
Misconduct (including
using Turnitin practice
area)
The work you produce must be your own or that of members of your group
if it is a group assessment.
You should ensure that the work you produce adheres to the University’s
statement on academic integrity and to the regulations regarding academic
misconduct (such as plagiarism and cheating).
You can find information about this at:
http://www.reading.ac.uk/internal/exams/Policies/exa-misconduct.aspx
All assignments will be run through plagiarism software Turnitin.
You are encouraged to put a draft of your work through the Turnitin practice
area to satisfy yourself that the work is your own original work. You can find
this in your module area on Blackboard. You can seek advice from the
Module Convenor or your Programme Administrator.
4. What Resources Might I Use to Prepare My Work?
You are expected to utilise information from Burberry’s website, news sources, analyst reports and other
financial information (e.g. from Bloomberg, Thomson Reuters, Thomson One, the financial press etc), to
obtain company information, analyst forecasts, comparable transactions and any other relevant
data/evidence.
In addition, material will be made available to you as part of the valuation/pitchbook lecture and seminars as
well as the Financial Modelling abd valuation sessions delivered by financial edge that will be extremely
relevant for your project.
