Product Overview

Kevin Robbins, a partner in District Capital Partners (DCP), is exploring an opportunity to invest in Blue Steel, Inc. (Blue Steel), one of the largest operators of Planet Fitness gyms in the country. Blue Steel represents the opportunity to acquire a premier franchisee of a highly successful concept with significant potential for both organic and acquisitive growth. Robbins's team is preparing to present to the investment committee the results of the extensive due diligence, investment thesis, risks, and potential returns. DCP was not the only firm interested in the franchisee. Blue Steel's investment bankers were selling the company in a proverbial auction, trying to maximize the proceeds to the franchisee they represented. If DCP decided to move forward with the opportunity, it needed to agree on a price and structure that was competitive against other bidders while at the same time providing the appropriate risk-adjusted returns to the fund. The case was build to introduce the notion of a platform company and the value of add-on acquisitions. It can also be used to explore the quantitative and qualitative implications of the roll-up investment strategy. The case calls on student to quantitatively compare the financial returns of investing in a platform and then buying additional locations, vs acquiring new locations in the absence of a platform company. There are two student spreadsheets included with this case. UVA-F-2020X1 is suitable for more experienced finance students, and UVA-F-2020X2, which contains templates for the solution, is more suitable for students who have less experience in the subject matter.