Nook Co.

Authors: Ben Wang (Stern ‘21), Zoe Ye (Stern ‘21) Firm Style & Round: Bain Round 1 Quant: 8
[Interviewee-Led] Structure: 7

Case Prompt:
Your client Fun Ventures, an established PE firm, is looking to acquire Nook Co., a hospitality group that
specializes in developing and transforming uninhabited islands into premium and private vacation destinations.

Nook Co. proposed an initial offer of $1.5 Billion. Fun Ventures would like your advice on whether they should
proceed with the acquisition. What would you like to consider?

Case Overview: Overview Information for Interviewer:

Industry: PE / Hospitality Interviewee should quickly identify that this is a PE case that will require in depth valuation
for the target company.
Case Type: Private Equity
Key case steps:
Concepts Tested: • Identify the PE client might have a specific ROI target
• Market Sizing • Understand market size and its relationship with Revenue
• Profitability & ROI • Evaluate target company against client’s ideal ROI
• Business Risks • Creative assessment of risks
• Confidence in recommendation

*Quant indicates how much math is involved and Structure represents the
158 level of difficulty around developing frameworks. 1 = Easiest, 10 = Hardest
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 Nook Co.: Case Guide

Clarifying Information: Interviewer Guide:

Nook Co. Business Model: • A Great Framework will include the following:
• Nook Co. acquire ownerships of islands,
construction resorts, and operate all on • Island Development Market
island activities and the transportation to
• Market size & growth
and from the islands
§ Other competitors (market share etc.)
§ Trends (increasing customer, AI usage etc.)
Geography: o Nook Co.
• Nook Co. operates 10 islands across East § Services (development / travel agency / hospitality)
Asia, with 5 additional islands in the § Customers (B2B / B2C / demographics)
construction pipeline. But they serve § Capabilities / Assets (operations, distribution, human resources)
customers internationally o Financial
§ Valuation & valuation methods
Timeline: § ROI
• Fun Venture is looking to make the o Other considerations
decision as soon as possible § Synergy within portfolio (travel agencies, constructions etc.)
• And is targeting a 15% ROI § Risks (lawsuits, regulations, conflict of interests)

Competitive Landscape:
• Four other global competitors, details to be • A great candidate will focus on market as first step. Otherwise,
given later guide the candidate towards market size calculation.

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 Nook Co.: Market Size

Question 1:
• What is the potential market size for premium island vacations?

Notes to Interviewer:
Criteria Assumption
World Population 8 Billion
Market Data to provide to help interviewee （when asked for）:
• World population is 8 Billion Potential Customers 0.01%
• Top 0.05% of world population has annual income of 100K+
% likelihood to visit 10%
• Assume target customers visit once every 2 years
• 2 Guests/Room Visit Frequency Once every 2 years
• Room rate is estimated to be $10,000 per night, all inclusive
(food, service, outdoor activities, etc.) People/ room 2 People/room

Average Stay 5 nights

Room rate/night $10,000

Revenue/year $1B

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 Nook Co.: Profit Calculation

Question 2:
• What is the profit of Nook Co. in 2019?

Notes to Interviewer:
Provide Exhibit 2, 3 when interviewee asks for market/pricing/competitors information.
Provide Exhibit 4 when interviewee asks for cost information.

Interviewee should provide insights of the graphs. Identify that Campfire Company is constantly the leading player in the market, with
highest market share and profit margin. But Nook Co. is growing very fast in terms of its market share.
Interviewee should calculate the 2019 revenue instantly based on market value and market share %, then push for more information on
Nook Co’s pricing and costs.

Excellent interviewee should

1. Think about the reasons behind its rapid growth, maybe Nook co is superior to the others, or it offers higher value at lower price, etc.
2. Identify that Nook Co. has high administrative cost. This cost may be managed if the company is taken over..
3. Keep in mind about competitor’s margin %. After calculating Nook Co.’s profitability, compare it to the competitors, then conclude
that Nook Co. has low profit margin %, because it scarified its profit to penetrate the market.

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 Nook Co.: Profit Calculation

• Calculate Profitability of Nook Co.

• Refer to Exhibit A for competitive landscape.
• Refer to Exhibit B for Revenue and Cost for Nook Co. and close competitor.

Math Solution: Additional Information:

• Nook Co. Revenue = 28% * 1B = 280M/year Provide when asked for, if candidate do not
• Annual # of Stays = 280M / ($10,000 * 5 nights) = 5,600 stays/year ask, guide candidates to the information
• Nook Co. Cost = 196M
• Variable Costs:
- Nook Co.’s price per stay: $10,000/night,
• Labor:
avg stay is 5 nights
• Service Staffs: 2K/month * 12 month * 1K = 24M/year
-Across all islands, Nook Co. hires 1,000
• Kitchen Staffs: 3K/month * 12 month * 500= 18M/year
service staffs, and 500 kitchen staffs
• Food and Supplies: 5K/stay *5,600 stays= 28M/year
• Transport and Activities: 10K/stay * 5,600 stays = 56Myr
• Fixed Costs
• Maintenance and Utilities: 25M/year
• Insurance: 15M/year
• Marketing and Ads: 30M/year

• Profit = 280M – 196M = 84M/year

• Profit Margin = 30 %

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 Nook Co.: ROI

Question 3:
• Guide the candidate to calculation the ROI on this acquisition. A great candidate will proceed to calculate ROI following Question 2.

Math Solution: Additional Information:

• NPV of Investment = 84M/0.05 = 1.68B Discount rate = 5%
• ROI = (1.68B – 1.5B)/1.68B = 12%
Assume Fun Ventures will hold Nook Co.
• A good candidate will identify that this is slightly lower than the 15% ROI target. forever, ideally.

• An excellent candidate may calculate that if the PE firm can cut the administrative
cost by 5M, the ROI will be greater than 15%.

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 Nook Co.: Brainstorm

Question #4:
• What other potential risks would you like to consider in the acquisition of Nook Co.?

Notes to Interviewer:
Candidate can provide any reasonable answers that establishes logical analysis of the business model and situation. This is a chance to
showcase creativity and business acumen on the topic.

Some potential reasons include:

• Internal to Nook Co.
- Unsustainable high growth rate
- Customer churn after raising price level to normal
- Generic service model has no competitive advantage
- Manipulated financial statements from Nook Co. management
• External to Nook Co.
- Global warming and rising sea levels submerges owned islands
- Conflict of interest with portfolio companies (travel agencies etc.)
- Shift in consumer selection of vacation destinations
- Safety and legal regulations from government organization

Once candidate is done analyzing risks, push for a recommendation.

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 Nook Co.: Recommendation

Recommendation: Risks: Next Steps:

• The recommendation can be either Yes or
• Candidate should include some risks • Any logical next steps shall be
No, candidate need a direct
that they brainstormed in Question 4 credited
recommendation with supporting evidence
and confidence.
• Sample Next Steps:
• Yes Acquisition
- Form a taskforce to conduct further
- ROI close to 15% target, further
due diligence of Nook Co.’s balance
improvement through PE management
sheet
- High growth rate, limited # of competitors
- Market research current customer
base to forecast market growth/pitfall
• No Acquisition
- Does not meet the 15% ROI target
- Growth through promotion is
unsustainable in the long run
- Slightly low margins vs. competitors

Bonus: Guide to an excellent case

• A great candidate will take the additional step to sell more work:
- Help client save on costs and improve ROI
- Help redesign pricing strategy to retain client while expand market share

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 Exhibit 1: Nook Co. Resort Example (SE Asia Island)

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 Exhibit 2: Island Resort Market Share

(In USD) Market Share 2015 - 2019

1,200,000,000

1,000,000,000 3%
11%
4%
800,000,000 6%
4% 28%
18%
600,000,000 23%

19%
27%
400,000,000 11% 25%
12% 24%

32%
200,000,000 5%
38% 32% 31%
35%
45%
53%
-
2015 2016 2017 2018 2019

Campfire Company K.K. Vacation Nook Co DAL C.J. Limited

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 Exhibit 3: Competitors’ Price and Gross Profit %

(In USD)

Price and Gross Profit % by Competitor

$16,000 40%

$14,000
35%
$12,000
30%
$10,000

$8,000 25%

$6,000
20%
$4,000
15%
$2,000

$0 10%
Campfire Company K.K. Vacation DAL C.J. Limited

Room Rate/Night Profit Margin

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 Exhibit 4: Nook Co. Cost Structure

COGS & Salary (Variable Cost)

Service Staff $2,000/month
Kitchen Staff $3,000/month
Food & Supplies $5,000/stay
Transport $10,000/stay

SG&A (Fixed Cost)

Maintenance, Insurance & Utilities $25 M/year
Marketing and Sales $15M/year
Administrative $30M/year

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