This case tests quantitative reasoning through a hold-vs-sell M&A analysis, requiring candidates to project revenues under different scenarios, apply valuation multiples, and calculate payback periods. The case emphasizes identifying and adjusting for outliers in comparable transaction data—a critical skill in valuation work. The strong emphasis on framework development (market analysis, projected revenues, risks) combined with heavy quantitative work makes this a well-rounded M&A case.
Deloitte has been asked to help the client, Coffee, evaluate a hold or sell decision. Coffee is a large multinational women’s clothing retailer with worldwide revenues of over $3B in 2016. They sell sports, formal and casual apparel. The company as a whole has been performing strongly and has emerged out of the financial crisis with strong sales growth and many investment opportunities. Despite the company’s strong performance overall, its American operation has an underperforming brand that they have put up for review. The firm has also closed some of the brand’s associated stores.
The American operation has two major brands: a formal wear brand bearing the same name as the company, “Coffee,” and a casual wear brand named “Tea.” The brands are sold through the following channels: • Coffee branded retail stores: $200M in annual revenues • Tea branded retail stores: $20M in annual revenues • Coffee branded outlet stores: $150M in annual revenues • Wholesale sales to major retail chains (e.g., Macy’s): $600M in annual revenues
The Tea brand has historically been neglected because management has focused its resources on the core business – the Coffee brand. Nonetheless, the Tea brand has consistently put up a profit with minimal management attention and capital reinvestment. Essentially, Coffee wishes to understand whether they are better served by divesting the Tea brand and refocusing their attention on their core Coffee brand business or holding the Tea business and simply “milking the cash cow.”