Kamalesh Saha: MBAF 698 - Entrepreneurial Finance

The Carlton Polish Company

1. What is the polish/cleaning supplies market like? (Size, market structure, segmentation,
demand among customers and distributors)
Response: The total market for industrial and institutional cleaning services and supplies is
about $4.5 billion. The segment that Carlton Polish competes in (chemical supplies) represents
around 20% of that market or $900 million. By the information given we could easily see that
the market is growing. Carlton keeps a good profit margin and they have a very good
distribution record. Carlton does have 4 major competitors in the market and all four are strong
in the market. The segment of the chemical supplies industry is highly fragmented. The largest
competitor, SC Johnson & Sons had an estimated sales volume of $75 million, while the share
held by Carlton was under 3%. The companys distributors in each region were perceived as
being very strong.

2. What is your assessment of the Carlton Polish and why? (Strategy, profitability, balance
sheet, pro forma financials).
Response: Carlton left the business to Miller few years ago to pursue other business, primarily
new ventures. He was only acting as a consultant and was not involved in the company
operations. Now he is back and wants to take over the company. He did strategic mistake by
leaving the run the company to Miller. Also, he plans to have John Nash run the company
although John is few years away from retirement. He will have to run the company again when
John retires. He will have to soon look for a replacement for John. Also, he also didnt focus
much on the west coast activities yet.

3. What is Carlton Polish worth? (Perform discounted cash flow valuation, use discount
rate 14.4%, to calculate enterprise value, and then equity value?). Why is this not a true
reflection of the value of the company to Charlie Carleton?
Response: Carlton Polish is worth $4,410,000 (from equity value). This may not be the true
reflection of the company since he is adding the executive salaries. With 5% growth rate, the
company is worth around $6.5M when the executive salary is taken out. With half of the
executive salary been taken out, the company is valued around $5.5M. With 8% growth rate,
the company is valued around $7M. With 10% growth rate, the company is valued at around
$12M. So the actual valuation of the company should be much higher than the one projected.

4. What should Charlie Carlton do? (Should he buy or sell?) What would you do?
Response: Both Carlton and Miller has considerable share in the company. The company has
good growth of 20% so far, so spending $2.5M for the acquisition will slow down the company.
Also, the company has been under the Carltons for more than 100 years and has good brand
and is recession proof. I would buy the company from Miller and then sell it to a big company. A
number of companies had been going after Carlton to sell the company. The big company will
help Carlton Polish grow faster. Carlton will have a debt of $2.5M which will be going out of the
business. This may impact the growth of the company. Thus, selling the company to another
company will help Carlton Polish grow at its usual high growth rate.



Kamalesh Saha: MBAF 698 - Entrepreneurial Finance

Takeaways:
- Discount Cash Flow Valuation
- If buying a company look at Executive Salaries and dividends
- Buying a company through debt is an option
- Can take company to next level at any age
- Fragmented market is favorable for entrepreneurial business.