•Personal Care Co.Client, Private Equity Co. (PEC), is looking to acquire Personal Care Co.Personal Care Co. offers a diversified product line of health & beauty products intoseveral market segments.PEC would like to sell the acquisition in 2-3 years for a profit.The new management team PEC would put in place is unsure where to focus PersonalCare Co.'s growth efforts and, therefore, which segments to target with new productlaunches.PEC is asking Bain to provide guidance to help them decide to purchase this firm or not.They also expect Bain to tell them where to focus their efforts.Question 1 of 7How would you go about breaking this problem down?Think of a high-level structure you could use to guide your thought process.Be sure to cover all the main areas that need to be considered in order to be able to fully answer the 2 key questions.What would be the key elements of the analysis framework?Competitive environment Personal Care growth projection Market attractivenessCompany attractiveness Legal and regulation environment Potential synergy with other companies owned by PEC•Question 1 of 7Your answer1. Competitive environmentBain's answerIn this situation we might look to use a standard private equity due diligence framework covering market attractiveness, company attractiveness, and competitive environment. Given the fund's objectives, we should also keep in mind the feasibility of a profitable exit in 2-3 years' time.Note: Private equity cases are typically much shorter than standard corporate cases. Teams need to be able to quickly assess the situation at a high level and then focus on the issues that have the greatest effect on the overall answer.•Question 2 of 7Let's start by considering how attractive the overall market is.The local information services department (Bain IS) has provided you with the high level market structure.Which segments look to be the most attractive?Please choose one or more options below.Foot Oral Hair Face SkinBain's answerFace and Skin are attractive as they are the biggest segments in the market.Hair is also an attractive option as it presents the highest growth rate.Focusing quickly on the most important items helps prioritize tasks and use your time in the most efficient way possible.•Question 3a of 7With the help of Information Services, you have been researching recent deal activity in the market and have compiled a slide showing profit multiples paid for acquisitions of various businesses which operate in each of the market segments.Which segment generates the highest profit multiples?Foot Oral Hair Face SkinPlease reflect on why this matters to our private equity client in considering an acquisition. Bain's answerThe hair segment has been generating the highest profit multiples, even when controlling for market dominance (signified by a high relative market share).Understanding the profit multiples of recent transactions is important for two main reasons:•First, it allows the PE firm to make an assessment of a fair market price•Second, it shows the impact on exit value that improvements in profitability might have.In this case, improvements the PE firm can make to an acquisition's profits from the hair segment might command the greatest premium at exit.Question 3b of 7Coming back to the chart you compiled, do you see any other information or insight that you can derive from it?Please propose other relevant insights based on the chart.Bain's answerComparing multiples and relative market shares, we can conclude that a higher relative market share is correlated to a higher profit multiple.It means that the market values leadership positions and is ready to pay for it (in terms of multiples).A secondary insight could be that oral segment activity is limited. Possible reasons for this could be a) the market is already consolidated, or b) no economies of scale exist in the segment that would inspire consolidation.Question 3c of 7The partner on your case wants you to give the client a quick update on your analysis and findings to date. Your partner asks you to draft a short email for the client (3 bullet points) with the summary of our findings so far.Bain's answer•The personal care market is dominated by the Skin, Face, and Hair segments•There is a strong correlation between market dominance and profit multiples paid•The Hair segment generates higher multiples than the other segments, even when controlling for market dominance•Which are the most critical elements we need to understand to assess how attractive the company is?Please select two.Overall profitability Profitability by segment Segment market share and RMSTop executive biographies Total G&A costs Customer size and profitability Bain's answerThe most critical assessment of Personal Care Co's performance is:•Profitability by segment•Segment Market Share and RMSUnderstanding these key facts by market segment is critical to:•Determine the core segments for the business and concentrate the investment decision on the attractiveness and competitive position of these segments•Understand whether there are underperforming segments which might be sold or focused on for improvement"Personal Care Co. is profitable in every segment."- Head of Sales, Personal Care Co.•We still need to better understand the competitive environment.The partner would like to know what key data or analysis we need to assess the competitive environment. She thinks you should not spend more than two days to collect required data.Remember, deadlines can be short on private equity cases so we need to focus on gathering the crucial data necessary to get us the majority of the way to a robust answer.Which data is the most critical?Profitability per competitor (1d) Competitive threats (1d) Capital cost of marketentry (5h) Personal Care's cost base (1.5d) Competitor sales by country (1.5d)Competitor sales by segment (2.0d) R&D budget of each competitor (1d)Bain's answerEssential data is sales for each major competitor in our key segments (Skin, Face, and Hair).•This enables us to map market share by segment and shows if the market in each segment is concentrated or fragmentedOther areas we may want to look into if we had more time:•Barriers to entry or exit in the market (includes capital cost of entry)•Competitive threats (including profile of key competitors and potential entrants) Question 5b of 7What are your key takeaways from this competitive information?Bain's answerPersonal Care Co. has a reasonable competitive position in Skin but is a very small player in Face and Hair.Hair is a highly fragmented category with no clear market leader.•Suggests lower barriers to entry and regional/private label competitionOur two largest competitors have top share position across the three categories.•Suggests some degree of cost and customer sharing across the three lines of business (we don't appear to have taken full advantage of this)Given the number of industry competitors across the lines of business, it is likely that strategic buyers would be available if PEC wanted to sell PCC in 2-3 years time.Question 6 of 7Given all the data and information you have seen, can you make a recommendation to Private Equity Co.?Should PEC pursue Personal Care Co opportunity?Where should Personal Care Co. focus its efforts?•Remember to think about all of the insights on the market, the company and the competitive environment•Think about how these impact our 2 key questions•How would you support your answer with the key facts you have learned?Strategy is about choices. Please check only one recommendation to Private Equity Co.Do not pursue PCC opportunity—the markets it plays in are not sufficiently attractiveDo not pursue PCC opportunity—it does not have sufficient upside potential Pursueopportunity at a fair price and leave as it is Pursue opportunity at a fair price and focus onthe Skin segment Pursue opportunity at a fair price and focus on the Hair segmentBain's answerPREFERRED SOLUTIONAcquire and Focus on Hair: High-risk, high-reward solution. Growth rates and multiples are significant. Current market position is low and therefore upside potential exists. Share gain in this fragmented segment seems achievable with increased focus as it does not have to come at the expense of large competitors. Cost/customer sharing is likely with our other product lines so we should have a structural advantage here vs. smaller, focused players. Given the multiples realized in this segment, growth here has the highest potential reward at exit for PEC.ALTERNATIVE SOLUTIONAcquire and Focus on Skin: Can be considered as a more conservative solution. While growth opportunities probably exist, focus here would also need to be on operating efficiencies and maximizing free cash flow from a more mature line of business.Question 7 of 7Given your findings so far, Private Equity Co. has decided to make a bid for Personal Care Co. with the intention of growing the Hair Care business.Before evaluating opportunities and expected profit in the Hair Care business in particular, your team has already evaluated the value of other business units.Your workstream is to evaluate the profit potential of the Hair Care business independent of the other lines of business.Private Equity Co. is planning to pay an 8.0x profit multiple for the business today. Assuming they can grow in the Hair segment to an RMS of 0.6 in 3 years time, what returns could they expect to make on sale at this point (Hair Care only)?Bain's answerWork through the data you have been given to calculate the implied price today and on sale in year 3. PEC could expect to make ~5 times returns on the hair care business.Common sense assumptions need to be made to enable you to arrive at a final sales price:•Conservative estimate taken for likely exit multiple, range is 15-20x•Hair care segment continues to grow at historical CAGR of 7%•Leader retains market share in year 3•Hair care profit margins remain constant。