eParel Business Case Analysis

eParel Business Case Analysis

Company Background

eParel is a web-based technology platform designed to modernize the uniform industry in a way that is beneficial to both the employee and employer. Headed by experienced co-founders, Kevin Smith and Matthew Jones, eParel makes the process of uniform ordering, purchasing and distribution more efficient and enjoyable than ever before, all while reducing costs for firms.

The $12b uniform apparel industry in the U.S. is dominated by a handful of large, industrial launderers. Their models are vastly outdated, with these companies providing uncomfortable, ill-fitting uniforms that are washed in giant tunnel washers and steel belt-driven pressers, built for uniformly shaped rags and towels. The antiquated model also poses serious environmental concerns: from the use of chemically treated reclaimed water at the plants to the frequent back-and-forth of trucks to client businesses.

Leveraging technology, eParel corrects all of these problems. Through its state-of-the-art web platform, employees are able to customize their look, within their employer’s parameters—one that is appropriate for the business where they work but also unique to them. Employers are able to assign their employees uniforms from a collection of high quality and stylish pieces, all of which are made locally by manufactures in the Garment District of New York City. As a start-up firm, eParel has extremely high potential and room for exponential growth. eParel Business Case Analysis

The Case

eParel is currently in the process of raising capital to expand its operations. In order to reach out to potential investors the company needs to prepare:

1 –  An investor pitch deck describing the opportunity in the market, the target segments and eParel’s strategy to be successful entering this segment

2 – The company’s valuation to access how much their business is worth today. They have hired LIU-iQ to create this valuation. The valuation will be generated using a 5-year discounted cash flow analysis, founded upon a number of company growth projections. The firm’s fixed costs, variable costs, and taxes must also be considered.

First, eParel has shared their client growth projections. They believe that they will have the following client growth:

  • Economy hotels: 10 clients on year 1, 50 in on year 2, 100 on year 3, 170 on year 4, and 300 by on year 5. These clients on average have 100 employees.
  • Luxury hotels: 5 clients in on year 1, 25 on year 2, 50 in on year 3, 85 in on year 4, and 150 on year 5. These clients on average have 50 employees.

When a client chooses to work with eParel, they purchase a year’s supply of uniforms for each employ they have. They make this purchase one uniform per employee, once a year, for every year they remain a client. To manufacture a yearly set of uniforms for a single employee, it costs eParel $135. eParel then marks up their product before selling it to the client.  This mark up multiplier is 2.5; meaning eParel charges the client 2.5 times what it costs them to produce the uniforms.

To support this client growth, eParel plans to hire a number of employees over the coming years. In Year 1, they plan to hire a CFO, a designer, and a sales representative. In Year 2, they plan to hire a COO, a sales manager, an operations manager, and a customer service manager. In Year 3 they plan to hire a second sales manager, a product manager, and 5 sales representatives. In Year 4 they plan to hire a third sales manager, a second operations manager, and 5 more sales representatives. In Year 5, they plan to hire a third operations manager, a second product manager, and 5 more sales representatives. The planned yearly salaries of these employees are as follows: CFO $200K, designer $65K, product manager $90K, sales manager $100K, COO $200K, customer service manager $80K, operations manager $90K, sales representative $50K. Sales representatives make a 5% commission on each sale they make. All figures already include benefits. eParel Business Case Analysis

In addition to manufacturing and personnel, there are other costs to consider. There is a marketing expense, which is 2% of revenues each year. There is a yearly rent expense, which is $20,000 in Year 1. This expense will double each year. There is a utility and supplies expense, which is $3,000 in Year1, and will also double each year. eParel is also taxed 37% tax rate.

When discounting cash flows, please calculate the appropriate WACC. When evaluating the perpetuity value, a 1% growth rate is used.

Exercise:

  1. Prepare a presentation in PPT with 8 to 10 slides for eParel’s pitch deck
  2. Prepare a valuation in Excel using the discounted cash flow methodology

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