Balance Sheet and Private Label Essay

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REV: MARCH 1, 2010


Hansson Private Label, Inc.:
Evaluating an Investment in Expansion
On a frigid Sunday night in late February 2008, Tucker Hansson pored over a proposal developed by his firm’s manufacturing team. It called for investing $50 million to expand production capacity at
Hansson Private Label (Hansson or HPL). For Hansson, a private company, this would be a significant investment. The company had not initiated a project of that magnitude for more than a decade, and the expansion wasn’t without significant risk. It would be likely to double HPL’s debt and to greatly increase customer concentration. This was a critical juncture for the firm Tucker …show more content…

Hansson was seeking to capitalize on what he saw as the nascent but powerful trend of private label products’ increasing their share of consumer-products sales. Although the concentration of his wealth into a single investment was risky, Hansson believed he was paying significantly less than replacement costs for the assets—and he was confident that private label growth would continue unabated.
Hansson’s assessment of private label growth prospects proved to be prescient, and his unrelenting focus on manufacturing efficiency, expense management, and customer service had turned HPL into a success. HPL now counted most of the major national and regional retailers as customers. Hansson had expanded conservatively, never adding significant capacity until he had clear enough visibility of the sales pipeline to ensure that any new facility would commence operations with at least 60% capacity utilization. He now had four plants, all operating at more than
90% of capacity. He had also maintained debt at a modest level to contain the risk of financial distress in the event that the company lost a big customer. HPL’s mission had remained the same: to be a leading provider of high-quality private label personal care products to America’s leading retailers.
(See Exhibit 1, which presents HPL’s historical financial

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