HanesBrands Strategic Alternatives & Valuation

Financial Services Club · Indiana University · 2023

Strategy · Valuation · Financial Modeling · M&A

This project was completed through Indiana University’s Financial Services Club as part of a team-based financial analysis project. Our team was assigned HanesBrands and tasked with looking at the company’s current position, evaluating the strategic alternatives available to it, and developing a recommendation based on our analysis.

At the time, HanesBrands was working through a period of restructuring while dealing with significant debt, pressure on its financial performance, and changing conditions across the apparel industry. We looked at the company’s financial position, its competitive and industry environment, and several possible paths forward, including pursuing another acquisition, exploring a potential sale of the business, or continuing along its existing path.

To support our recommendation, we also developed an operating model and valued the company using several approaches, including discounted cash flow, comparable company, and precedent transaction analyses. These were brought together with our broader strategic analysis to form our final recommendation.

Overview

Our analysis began by looking at HanesBrands as a whole, including its business segments, financial performance, competitive positioning, and the broader dynamics affecting the innerwear and activewear markets. From there, we considered where the company still had opportunities to improve its existing operations and where some of its largest risks were coming from.

We also looked at whether an acquisition could provide HanesBrands with a stronger path forward. Potential targets included Duluth Trading, Destination XL, and Jockey, each of which offered different opportunities but also introduced additional financial, strategic, or competitive risks. This was particularly important given the debt HanesBrands had already accumulated from previous acquisitions and the additional pressure that another transaction could place on the company.

Alongside the strategic analysis, we built financial projections covering the income statement, balance sheet, and cash flow statement. We then used discounted cash flow, comparable company, precedent transaction, and football field analyses to look at the company’s valuation from several different perspectives rather than relying on a single method.

Analysis

Recommendation

Continue with the existing restructuring strategy.

After weighing the company’s financial position, the alternatives available to it, and the results of our valuation work, our team recommended that HanesBrands continue along its existing path rather than pursue another acquisition.

The company was already carrying a significant amount of debt and facing pressure from interest expense and high inventory levels. We believed that adding another acquisition at that point would introduce additional financial and execution risk before HanesBrands had strengthened its existing position. Our recommendation instead focused on improving the company from within, reducing some of those pressures, and building on the areas of the business where it already held a strong position.