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Medium Market Entry M&A Operations

Diamonds are Forever

#Diamond Mining #Retail #Luxury Goods
ProHub Comment

This is a two-part market entry case requiring candidates to optimize mining operations (maximizing probability through equipment investments) and retail acquisition strategy (balancing Y1 liquidity and Y5 ROI). The case tests quantitative analysis, trade-off reasoning, and culminates in a creative branding challenge that bridges financial analysis with strategic positioning.

Estimated Time 15 minutes
Difficulty Medium
Source Queen's
50 / 100
Your client, Forever Diamond, has been in the diamond industry for over 50 years. To date, all of their mining initiatives have been in Central and Southern Africa, but Forever Diamond is now looking to enter the Canadian diamond market. You have been hired to determine how this can be accomplished.

Clarifying Information

Extra: They are looking to enter both the mining and retail sectors in the Canadian market.

Mining Sector:

  1. The goal in the mining sector is to maximize the absolute probability of finding diamonds
  2. They have a budget of $250 million for the mining investment and there is no benefit to spending below this budget
  3. There are 3 available diamond mines that the client could purchase: The Yellowknife mine costs $200 million and has a 50% chance of finding diamonds, the Whitehorse mine costs $210 million and has a 55% chance of finding diamonds, and the Watson Lake mine costs $220 million and has a 60% chance of finding diamonds
  4. Excavators cost $30 million and raise the probability of finding diamonds by 10% (10 percentage points), and seismic sensors cost $50 million and raise the probability of finding diamonds by 25% (25 percentage points)

Retail Sector:

  1. The client’s goals in the retail sector are: maximize cash on hand at end of year 1, and achieve the best return on investment in terms of year 5 revenues
  2. They have a budget of $300 million for the retail market and money not spent out of this budget will be counted as cash on hand at year-end
  3. Competition in the Canadian diamond retail market is very intense – market research shows that there isn’t room for a new retailer to enter the space: therefore three potential acquisition targets: People’s Diamonds, Ben Moss, and W.K. Chan
  4. People’s Diamonds will cost $250 million, has $225 million in Y1 revenues and total sales will grow by 20% by year 5
  5. Ben Moss will cost $275 million, has $275 million in Y1 revenues and total sales will grow by 20% by year 5
  6. W.K Chan will cost $300 million, has $290 million in Y1 revenues and total sales will grow by 10% by year 5