Group 7

B00807522
B00813929
B00795994
B00807211
Question 1:
The DPC division no longer aligns with DuPont's global strategy, which is centered on
three key pillars:
1. Megatrends: DuPont aims to align with global trends, such as reducing fossil fuel
dependence. Given the anticipated decline in personal vehicle sales and miles driven,
maintaining the vehicle coating division seems counterproductive and misaligned
with DuPont’s long-term goals.
2. Growth and Profitability: DuPont targets 7% sales growth and 12% earnings
margins, while DPC projects only 3-5% growth and 6% margins. This shortfall
suggests that the coating division no longer meets DuPont’s strategic performance
criteria.
3. Strategic Shift: DuPont's CEO is steering the company towards specialty chemicals
and science-driven products. The vehicle coating division, tied to the cyclical auto
industry, appears misaligned with DuPont’s new focus on stable, innovative sectors
Therein its prospects of going forward as a division of Dupont seems low, whereas a
strategic or a financials buyer would probably manage to create economies of scale or other
profits opportunities for DPC.

Question 2:
Attractiveness of DuPont Performance Coatings (DPC) as an Acquisition
1. Strategic Buyer's Perspective
Market Position and Synergies:
- Strong Market Presence: DPC holds a leading position in the global industrial
coatings market, particularly in automotive refinishing and OEM coatings. This
market position is valuable to a strategic buyer looking to expand or strengthen its
footprint in these segments, especially in North America and Europe.

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 - Synergy Opportunities: A strategic buyer could realize significant synergies through
cost reductions (e.g., combining procurement and supply chain operations), cross-
selling opportunities, and broader geographic reach. Companies already in the
coatings business, such as PPG Industries or Akzo Nobel, could integrate DPC into
their existing operations, improving margins and market share.
- Technology and Innovation: DPC's product development capabilities and established
customer relationships could complement a buyer's existing product portfolio,
leading to enhanced innovation and quicker time-to-market for new solutions. This is
particularly attractive in an industry where technology differentiation is key to
maintaining competitive advantage.
Growth Potential:
- Emerging Markets: DPC's established presence in mature markets provides a stable
revenue base, while a strategic buyer might seek to leverage this platform to
accelerate growth in emerging markets, where automotive and industrial production
is expected to rise significantly.
- Aftermarket Segment: The vehicle refinishing segment, which tends to have higher
margins and is less cyclical than OEM coatings, offers attractive growth
opportunities. A strategic buyer could focus on expanding this segment, especially in
regions where vehicle ownership rates are increasing.

2. Financial Buyer's Perspective

Stable Cash Flows:
- Consistent Revenue Streams: DPC generates stable cash flows from its established
customer base, particularly in the automotive industry. This makes it an attractive
target for a financial buyer, who may value the predictability of cash flows in
evaluating leverage and return on investment
- Cost Management and Margin Improvement: Financial buyers often focus on
improving operational efficiency. Given DPC's relatively low profit margins, a
financial buyer could implement cost-cutting measures, streamline operations, and
renegotiate supplier contracts to enhance profitability.
- Exit Strategy: The coatings industry’s ongoing consolidation offers a clear exit
strategy for financial buyers. After restructuring DPC and potentially improving its
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 performance metrics, a financial buyer could sell the company to a larger strategic
player or another financial investor at a higher valuation.

3. Potential Risks
Cyclicality of the Automotive Industry:
- Exposure to Economic Downturns: DPC's performance is heavily tied to the
automotive industry, which is cyclical and sensitive to economic downturns. A
recession or slowdown in automotive production could negatively impact DPC's
revenues and profitability, posing a risk to both strategic and financial buyers.
- Dependence on Key Customers: DPC's sales seems to come from a few large
automotive customers. Losing one of these key accounts, whether due to
competition or industry consolidation, could lead to a substantial decline in
revenues.
Raw Material Costs:
- Volatility in Input Prices: DPC’s margins are affected by fluctuations in raw material
costs, particularly those derived from crude oil. Any significant increase in these
costs that cannot be passed on to customers could erode margins, especially under
long-term contracts.
- Supply Chain Risks: DPC’s global supply chain could be vulnerable to disruptions,
whether due to geopolitical factors, natural disasters, or other unforeseen events.
Such disruptions could increase costs and delay production.
Integration Challenges (for Strategic Buyers):
- Cultural and Operational Differences: Integrating DPC into a larger organization
could be challenging, particularly if there are significant differences in corporate
culture, operational processes, or strategic priorities. This could lead to delays in
realizing synergies and achieving the expected financial performance.
- Regulatory Hurdles: Any acquisition of DPC by a major competitor might face
scrutiny from antitrust regulators, particularly in regions where the combined entity
could dominate the market. This could delay or even block the transaction,
depending on the regulatory environment.

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Question 3:
DPC has 1.3bn$ further upside potential from EBITDA growth, multiple arbitrage and
leverage.
Benefits of using debt to finance the acquisition:
- Driving higher returns: Since the buyer uses debt, which has a lower cost of capital
than equity, they can drive up returns. Debt also magnifies the upside in value for
the financial buyer, as only the equity return captures them.
- Tax benefits: The interest payments of the debt are tax-deductible and therefore can
provide a tax shield which can be used to repay debt faster or
reinvest in the business.
Risks of using debt to finance the acquisition:
- Increased financial risk: A higher level of debt would make DPC more vulnerable to
market conditions, changes in interest rates and changes in cash flows. If DPC fails to
generate enough free cash flow, it could face liquidity problems.

Question 4:
The deal can not be worth it without any debt for financial buyers. + SCREEN EXCEL +
MAJUSCULES + parler des transactions fees + dire cbm d’equity dans Q5
As IRR is 16.53% and 17.82% for case 3(a) and 3(b) respectively, a private equity buyer
wouldn’t be interested as they need a higher return on investment.

Question 5:
If the 6.0x leverage represents 80% of your purchase price, the deal becomes interesting.
As IRR is 20.89% for case 3(c) thanks to the debt, a private equity buyer would be interested
in.
((5350-2816)/x)^(⅕)-1 = 18%
So x = 1107.63. Thus, the offered price is 1107.63 + 6*654.4 = 5034. This represents 78% of
debt and 22% of equity.
((5350-2816)/x)^(⅕)-1 = 20%
So x = 1018.36. Thus, the offered price is 1018.36 + 6*654.4 = 4944.8. This represents 79%
of debt and 21% of equity.
The price range would be between $4944.8m and $5034m.
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Question 6:
To determine the minimum bid the board of DuPont should accept if it chooses to sell
DuPont Performance Coatings (DPC), we need to consider several factors:
1) Intrinsic Valuation: Discounted Cash Flow (DCF) Analysis
Following the exhibit 9, EV = $3,970 millions

2) Comparable Transactions
Industry Multiples: Transactions in the coatings and chemicals industry often involve
multiples of EBITDA. A typical EBITDA multiple in this industry might range from 8x to 12x,
depending on the company's growth prospects, market position, and strategic importance.
Assuming DPC's EBITDA is approximately $400 million, the valuation could range from $3.2
billion to $4.8 billion based on these multiples.

3) Strategic Value
A strategic buyer might be willing to pay a premium for DPC due to potential synergies, such
as cost savings, cross-selling opportunities, and market expansion. This premium could
range from 10% to 30% above the intrinsic value or the comparable transaction multiple,
depending on the perceived synergies and strategic fit.

Considering these factors, the minimum bid the board should accept could be estimated as
follows:
• Base Valuation: Using a midpoint EBITDA multiple of 10x, DPC's valuation could be around
$4 billion ($400 million EBITDA * 10x multiple).
• Strategic Premium: Adding a 20% strategic premium could increase the minimum
acceptable bid to around $4.8 billion.