A Hairy Ordeal

This Bain acquisition case asks whether hair stylist Megan Black should buy Salon Deluxe or stay focused on her own business, Megan Black Balayage (MBB). To answer it, the candidate must value both businesses on an NPV basis, then judge whether the acquisition target can be improved enough to justify the switch. It tests structured profitability math (revenue drivers, margins, capacity, discount rates), the ability to read an exhibit and floor plan for hidden operational upside, creative brainstorming of value levers, and the business judgment to convert those numbers into a defensible go/no-go recommendation with a price ceiling.

Key Insights:

1. The candidate must build and compare two NPVs before deciding anything: MBB’s standalone value (~$1.53M) is the benchmark that any acquisition must beat, not just a number to compute in isolation.
2. Bought as-is, Salon Deluxe (~$1.3M NPV) is worth less than MBB, so a naive “yes, buy it” answer destroys value; the deal only makes sense if the business can be improved.
3. The real unlock is operational, not financial: the salon turns away demand (6,000 requested appointments vs. 3,200 of capacity), and unused storage space can be converted into a drying/styling station to raise each stylist’s throughput by 37.5%.
4. After the $100k renovation, Salon Deluxe’s NPV rises to ~$1.73M, roughly $210k above MBB, which defines the maximum premium Megan should pay and turns the analysis into a concrete negotiation ceiling.
5. Numbers alone don’t settle it: because Megan must give up her existing MBB clientele to run the salon, the move is largely irreversible, so her risk tolerance, managerial fit, and confidence in filling the new capacity all weigh on the final recommendation.