It is early in October 2002, and your investment bank has been hired by the management team at Dick€™s Sporting Goods (DKS) to determine a valuation/ offering price for their stock€™s IPO.
About Dick€™s Sporting Goods: DKS, headquartered in Pittsburgh, Pennsylvania, was founded when Dick Stack opened his first store in 1948 with $ 300 from his grand-mother€™s cookie jar. This company is growing rapidly and plans to use the IPO proceeds for store openings and acquisitions. DKS operates more than 130 stores in twenty-five states, primarily in the eastern United States. The store format is a large big-box store containing smaller shops featuring sporting goods, apparel, and footwear for activities ranging from football and golf to hunting and camping. Besides brands such as Nike and Adidas, Dick€™s carries Ativa, Walter Hagen, and others exclusive to the company. At the time of the IPO, the DKS management team included the founder€™s son, Ed, who holds 37% ownership in the company, and the investment firm Vulcan Ventures(founded by

former Microsoft executive Paul Allen), which owns 12% of DKS as a result of a private equity investment.
Industry/ Market Overview: With the rise of big-box retailers, sporting goods retail-ers were consolidating. In 1997 and 2001, Gart Sports Company (GRTS) acquired Sport Mart Inc. and OSH Sporting Goods, respectively. Private equity and venture capital firms held equity investments within the industry. DKS was the first retailer to launch an IPO in three months; from the beginning of July 2002 until the time of offering, it had been the lowest combined IPO tally since the second quarter of 1978. In 2002, other retail IPOs had mixed success. Big 5 Sporting Goods€™ stock price had declined by 23% because its private equity investor, Leonard Green & Partners LP, raised $ 105 million in June 2002. Market conditions for equity capital raises were unfavorable, and during the DKS road show, many of the institutional investors expressed concerns that the suggested IPO range of $ 15 to $ 18 per share was too high. VALUATION ASIGNMENT
a. Based on the DKS financial data (Exhibit P8-14.3) and sporting goods retailer market comparables valuation (Exhibit P8-14.4), estimate an implied equity valuation for the firm for its initial public offering. Calculate an implied equity valuation range based on the comparable enterprise-valuation multiples (EV/ Revenue, EV/ EBIT, EV/ EBITDA). Determine an IPO price range for an estimated 9.47 million shares of equity outstanding.
b. In your opinion, are the selected publicly traded sporting goods companies shown in Exhibit P8-14.4 good choices for market comparables for DKS? Why or why not?

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250.0% ーGalyans (22.0%) 200.0%- _ TSA 20.1 % HIBB 12.9% 150.0%44-Big 5 (27.9%) SCH ( 17.7% ) 100.0%-+ 50.0% -- 0.0% -50.0% -1000% 140.0% 120.0% t」 100.0% -Comp Group 25.2% ーNASDAQ (28.9%) S&P 500 (23.9% ) Dow Jones ( 1 80.0%--. 600% 40.0% 20.0% t- 0.0% -40.0% Dick's Sporting Goods francial data (S millions) $1173.794 298.453 S 55.899 13499 S 69.398 Grom profit EBIT Depreciation and amortization EBITDA Balance sheet data 83/02 Checks drawn Current portion of long-term debt Revolving bank line of credit Long-term debt and capital leases Total debt Cash Stockholders equity 33.584 $ 0.211 S 90.299 $ 3.466 S 127.560 S 13874 $ 78.98 % Change from 12-Month Secular Growth Calendar E Calendar EPS Stock Price 92002 Sporting Gonds Retaßen cker Galan's Trading CoGLYN Gart Sports Co. Hibbett Sporting GoodsHIBB Sport Chalet The Sports Authority Big 5 Sporting Goods Average Medat LoHigh E $1.06 E $1.32 Rate 2CE 23E 55x 725 00% (68.8%) 23% 68x GRTS $1889 17.1% (3.7%) s135 sua 20% 140x 11.7x SPCH $612 00% (43.1%) $0.71 $0.87 14% 86x 70x $415 1.7% (71.9%) $0.66 $0.76 13% 63x 55x 63x 7.2 TSA BGFV $860 $1.00 $1.25 0,0% 66% .9% (39.8%) (51%) 621%) i5% 17% 73x Kex LTM Market Enterprse Enterprise Value/L.TM LTM Margs Sporting Geods Retalkts Ended ale Value evense ERITDA EBIT Total Cap Gr EBITDA EBIT Galyan's Tradiag Co02 12350 12350 02x Gart Sports Co Hibbett Sporting Goods 02S19191.20 a7x Sport Chaket The Sports Authority 702 S1½20 S331.90 02× 49x 124x 59% 2% 5% 2% Big 5 Sprtiag Goods 602 S1864) ร327A asx Average Median Annaod three-year EPS growth rate LTM- latest twelve months, gros (LTM) margin gos profeveses, EBITDA (LTM) margis-EBITDA/Tevenses EBIT (LTM) margin-EBIT 6%30% 8% 5% 7:02 S17850 $313.00 0.3x 62x 94x 44% 26% 5% 3% 70x 92x 6% 31% 10% 8% 40x 73x 14% 28% 5%3% 602 $40.40 $45.図 a2x 5.8x 7.0x 105% 35% 9% 7% 52x 83x 39% 35% 7% 5% 54x 83x 29% 8% 7% 4% Twebe-amonth valuation for the company as of 10902 EPS and rowth fosecast per Fint Call analyst comsen Financial data has been nomaized for unuual and nonrecurring tes