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Expansion and Risk at Hansson Private Label, Inc.: Evaluating Investment in the Goliath Facility

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Case Study: Expansion and Risk at Hansson Private Label, Inc.: Evaluating Investment in the Goliath Facility
Company Background
Hansson Private Label, Inc (HPL) is a private company in the business of manufacturing personal care products for retail partners. The company started its business in 1992 via the acquisition of manufacturing assets from Simon Health and Beauty Products by US$ 42 million. The US$ 25 million equity portion in the acquisition deal was a demonstration of the level of entrepreneurism of Mr. Hansson, the business owner.
According to Mr. Hansson´s evaluation, the acquisition was risky because of the concentration of his wealth in one single investment. But he also believed that the assets were purchased by less than its replacement value.
During its first 15 years the Company focused on efficiency, cost control and customer relation, being able to expand its business nationwide and grow its revenues to $ 681 million in 2007 (28% market share from national consumption of $ 21.6 billion). But during the period 2004-2007 the market share by volume was stable, averaging a yearly growth rate of 1% while the market share by dollar sales averaged 1.7% yearly growth. The 0.7% gap would represent the average yearly inflation for the industry.
The Company currently has four plants operating above 90% capacity. Expansion has always been approached conservatively and all new operations always commenced with a minimum 60% capacity utilization.
Industry Overview
The personal care business is an industry with high level of brand loyalty worth US$ 21.6 billion in 2007. Nonetheless, for the past four it has grown by 1% yearly average.
Distribution and consumption occurs mainly through a small number of big retailers with large national presence. Competition for shelf space is fierce due to the high number of new products launched every year.
The

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