Dogloo

666 Words Jan 31st, 2013 3 Pages
Overview
Lewis Byrd, a partner of Opportunity Capital Partners and the lead in the Dogloo investment, is currently facing the issues below: * Dogloo is in the lawsuit regarding Doskocil’s trademark infringement, which is consuming large amount of money and management time thus detrimental to Dogloo’s healthy growth. * Dogloo’s products are facing significant increasing market demand, which exposed its outsourced manufacturers’ inability to increase capacity and led into lost sales. * Aurelio Barreto, CEO of Dogloo, is not meeting expectations to work within the financial and organizational constraints of the company, despite his strong product development and marketing capabilities.
The proposed solutions are outlined below
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Analysis – Investment Structure
The total amount of the investment is worth $7 million and is invested by the below parties: * Synenergy Diversified Capital – committed capital of $6.25 million * Opportunity Capital Corporation – $150,000 * Opportunity Capital Partners – $600,000
The $7 million is in the form of subordinated debentures that matures in 7 years with an interest rate of 13%. This rate is very high because subordinated debentures investors bear significantly more risk, which is a major drawback of this form of investment since the debt might not be repaid.
The biggest benefit for Dogloo to issue subordinated debenture is that the subordination makes the debt being accounted in the company’s equity based on the balance sheet. This effectively improves the company’s leverage ratios and allows the company to obtain future loans more easily.
Analysis – Return on Investment
OCC and OCP together invested $750,000 into Dogloo in the form of subordinated debenture with 13% interest rate, which guarantees them stable interest cash inflows each year (Exhibit 4). The two investors’ combined ownership interest will be 0.5% of the Dogloo’s equity value because the company’s equity valuation is $213 million, exceeding $80 million; this will be the cash inflow at exit for the investors. Through calculation, the required equity value at exit is $238 million if the investors have an estimated IRR of 25% (Exhibit 4).
Conclusion
Based on the

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