Dollar Tree Stores: Choosing a Financial Partner

Abstract

This case involves the decision making process of single-price discount store Dollar Tree in considering taking on Saunders Karp, a private equity firm, as an investor and partner. The case requires students to perform a cursory valuation analysis, negotiate with counterparts from the Saunders Karp team, and make recommendation.

Excerpt

UVA-ENT-0035

Rev. Mar. 18, 2013

DOLLAR TREE STORES: CHOOSING A FINANCIAL PARTNER

Three Weeks or Out

Sitting in the waiting area at the Detroit Metropolitan Wayne County Airport, Macon Brock turned to John Megrue and threw down the gauntlet: “Either we finish these discussions in the next three weeks, or the deal is off.”

Brock, the CEO of Dollar Tree Stores (“Dollar Tree”), and Megrue, an associate in the private equity firm of Saunders Karp (“SK”), were in the final stages of a courting process, and each was trying to determine whether to form a partnership by completing a transaction that would infuse cash into Dollar Tree in exchange for a large equity stake. As part of the investment process, SK requested a due diligence tour of a sample of Dollar Tree retail stores, and Brock chose to escort Megrue around the stores located in the Detroit area. The sales data Dollar Tree's management had shared revealed undeniably strong store traffic, but Megrue wanted to witness the shoppers' excitement firsthand. From Brock's perspective, the day had been successful; it was visibly apparent that Megrue liked what he saw. Not only did the stores have a constant stream of shoppers, but all appeared to be barely restraining themselves from buying more than one item during their visits.

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Keywords: Private equity retailing, discount retailing, negotiation, family business, investing