Risk and Private Label
Case Study – Project Proposal
Case Study for Hansson Private Label, Inc.: Evaluating an Investment and Expansion
Company profile
Hansson Private Label (HPL) started in 1992, is the manufacturer of personal care products under the brand label of its retailers. HPL was acquired though a single investment made by Hansson for $42 million ($17million debt and $25 million equity).
Revenue in 2007: $681 million
HPL estimated share is 28% out of wholesale sales ($2.4 billion) from all manufactures.
Business situation
The company was approached by one of the significant retail partner with the proposal to increase HPL’s share in their private label manufacturing. The proposal requires an investment of $57,817 out of which $45 million is for the expansion of production capacity and $12,817 is increase in working capital. Customer is ready to commit for 3 year contract only and expect from HPL go/no go commitment within 30 days.
The decision to accept or reject the investment proposal requires considering an appropriate return on the potential investment and the associated expansion risks. These would, in turn, be contrasted with other opportunities that HPL might wish to consider, such as finding other partners for a more diversified growth.
Therefore, this project would attempt to evaluate the investment that has been proposed by HPL’s manufacturing team. The crucial question that needs to be answered is on whether the investment required increasing HPL’s manufacturing capacity is worth taking or not?
Technical situation
HPL is taking the conservative approach in expansion of its production capabilities. The new facility is opened only when the capacity utilization is over 60%. The present operational level is reached 90% capacity in four existing plants.
1. Industry trends (Personal care products markets) * Market is stable * Sales of hand and body care, oral hygiene, personal hygiene and skincare products reached $21.6 billion in
Case Study for Hansson Private Label, Inc.: Evaluating an Investment and Expansion
Company profile
Hansson Private Label (HPL) started in 1992, is the manufacturer of personal care products under the brand label of its retailers. HPL was acquired though a single investment made by Hansson for $42 million ($17million debt and $25 million equity).
Revenue in 2007: $681 million
HPL estimated share is 28% out of wholesale sales ($2.4 billion) from all manufactures.
Business situation
The company was approached by one of the significant retail partner with the proposal to increase HPL’s share in their private label manufacturing. The proposal requires an investment of $57,817 out of which $45 million is for the expansion of production capacity and $12,817 is increase in working capital. Customer is ready to commit for 3 year contract only and expect from HPL go/no go commitment within 30 days.
The decision to accept or reject the investment proposal requires considering an appropriate return on the potential investment and the associated expansion risks. These would, in turn, be contrasted with other opportunities that HPL might wish to consider, such as finding other partners for a more diversified growth.
Therefore, this project would attempt to evaluate the investment that has been proposed by HPL’s manufacturing team. The crucial question that needs to be answered is on whether the investment required increasing HPL’s manufacturing capacity is worth taking or not?
Technical situation
HPL is taking the conservative approach in expansion of its production capabilities. The new facility is opened only when the capacity utilization is over 60%. The present operational level is reached 90% capacity in four existing plants.
1. Industry trends (Personal care products markets) * Market is stable * Sales of hand and body care, oral hygiene, personal hygiene and skincare products reached $21.6 billion in