2nd Annual Georgetown Case Competition
Confidential
Georgetown Case Competition
October 2012
PRELIMINARY | SUBJECT TO FURTHER REVIEW AND EVALUATION
These materials may not be used or relied upon for any purpose other than as specifically contemplated by a written agreement with Credit Suisse AG or its Affiliates (hereafter Credit Suisse).
Executive summary
In this section you should answer a few basic questions to summarize your entire presentation:
2nd Annual Georgetown Case Competition
Who / Why are you presenting to your particular client?
What are your general views on the market and the environment in which to conduct a transaction?
What valuation do you give to the client? (Highlight general findings from various valuation methodology)
State your conclusion. What path should the client take? What is in the best interest of the client? Considering both the market and the state of the company, what alternatives should the company pursue?
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2nd Annual Georgetown Case Competition
Company positioning
Confidential 2
Profile example
Company overview
Business description Company D is a leading global provider of radio frequency and microwave integrated circuits, components and systems used in the design, development and maintenance of high-performance wireless communication systems. The Companys solutions included highlyspecialized microelectronic components and test and measurement equipment used by companies in the space, avionics and defense, commercial wireless communications, medical and other markets. Business segments
Note: dummy data
2nd Annual Georgetown Case Competition
Financial breakdown
2011E Revenue
ATS 33%
2011E Adj. EBITDA
ATS 40% AMS 67% AMS 60%
Segment A offers a broad range of high-performance, high reliability semiconductor or microelectronic products use in space, avionics, defense, commercial wireless communications, medical and other applications Segment B provides specialized test and measurement hardware and software solutions to customers in the space, avionics & defense; commercial wireless communications; and other end markets
$900 million
Source: Management projections.
$300 million
Current capitalization
($ in millions)
Cash and cash equivalents
(2) (1)
Current 6/30/10 $110 389 122 225 166 1 $902 $166
Cum. EBITDA multiple 2.3x 3.1x 4.4x 4.4x 5.4x 5.4x 5.4x
Maturity
Interest Rate
Trading Ratings Ba3/BBBa3/BBB3/B+ NR/BCaa2/NR
Competitors
Segment A: Analog Devices, Anaren, Avago Technologies, Hittite Microwave, Microsemi, Teledyne Technologies Segment B: Agilent Technologies, National Instruments, Maxim Integrated Products, Ixia, Spirent Communications
Revolver Senior secured B-1 term loan Senior secured B-2 term loan Senior unsecured notes Senior subordinated notes Senior subordinated unsecured term loan Other Total debt LTM EBITDA
6/15/14 6/15/14 2/15/15 2/15/15
L+ 3.25% L+ 3.25% 11.75% 11.75%
(1) (2)
Includes $9.8 million of non-current marketable securities. $50 million revolving credit facility, undrawn at close.
Source: Wall Street research.
Company D operates in end markets offering both stability and growth
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Recent share price performance
Share price performance since 2/22/2011
$15.00
2nd Annual Georgetown Case Competition
$14.00
Declares quarterly dividend of $.075 per share
$13.00
Announced Q2 EPS of $.05 per share, a (32%) surprise versus consensus
$12.00
$11.00
Declares quarterly dividend of $.075 per share
Announced Q1 EPS of ($.05) per share, a (74%) surprise versus consensus
$10.00
$9.00
$8.00
The pace of housing starts fell 10.6% to a 523,000 seasonally adjusted annual rate in April, a larger drop than expected
Standard and Poors downgrades the United States credit rating from AAA to AA+
$7.00 Feb-11
Mar-11
Apr-11
Jun-11 Unmask share price
Jul-11
Aug-11
Company D share price has declined 36.9% since February 22, 2011
Source: FactSet Research Systems; I/B/E/S consensus estimates.
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Summary financial projections
($ in millions)
2nd Annual Georgetown Case Competition
2014E $560 471 $1,031 2015E $604 499 $1,103 CAGR 11 15
2010A Revenue Segment A Segment B Consolidated Aeroflex EBITDA Segment A Segment B Consolidated Columbus Capital expenditures Segment A Segment B Consolidated Columbus Depreciation & amortization Segment A Segment B Consolidated Columbus (Increase) / decrease in working capital Segment A Segment B Consolidated Columbus
Source: Management projections extrapolated.
2011E $405 352 $757
Fiscal year ending June 30, 2012E 2013E $454 398 $852 $509 437 $946
$333 322 $655
16.1% 11.5% 13.9%
$71 94 $166
$80 104 $185
$93 118 $212
$107 133 $240
$120 146 $267
$132 158 $291
16.7% 13.7% 15.0%
$11 10 $21
$12 12 $24
$14 13 $27
$16 14 $30
$17 16 $33
$19 17 $35
15.3% 12.4% 13.9%
$42 41 $83
$44 41 $85
$45 42 $88
$47 43 $90
$49 43 $92
$50 44 $94
4.4% 1.8% 3.2%
$1 1 $2
$3 3 $6
$3 3 $6
$3 3 $6
$3 3 $6
$3 2 $5
33.7% 28.5% 31.2%
1 Management project slightly higher growth for the Segment A over the projection period 2 Segment A has significantly higher SG&A and R&D costs relative to Segment B resulting in higher operating expenditures (A: ~$115 million vs B: ~$74 million in 2010)
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Analyst perspectives
Broker Bank A Bank B Bank C Bank D Bank E Bank F Bank G Bank H Bank I Bank J Bank K Bank L Mean Median
We believe the stock could achieve peer group average multiple... driven by an improving residential replacement environment, the companys position in the top three in market share, as well as being a consolidator in the industry, combined with a streamlined operating cost structure and solid balance sheet
2nd Annual Georgetown Case Competition
Forecast date 07/28/11 07/14/11 07/11/11 07/06/11 06/28/11 06/20/11 06/15/11 06/03/11 05/19/11 05/10/11 05/09/11 05/09/11 Recommendation Hold Hold Buy Hold Buy Buy Hold Hold Hold Buy Hold Hold Target price NA NA $25.00 22.00 26.00 NA 22.00 NA 22.00 27.00 21.00 NA $23.57 22.00 2011E $1.07 1.10 1.09 NA 1.03 1.10 1.08 1.03 1.05 1.05 NA 1.04 $1.06 1.06 EPS 2012E $1.28 1.30 1.36 NA 1.32 1.30 1.35 1.30 1.35 1.59 NA 1.26 $1.34 1.31 2013E $1.50 1.40 NA NA NA 1.55 NA 1.60 NA NA NA NA $1.51 1.53
Analyst Adam Ben Chris David Eric Frank George James Kyle Jack Kevin Lauren
...volume trends are expected to improve and price increases seem increasingly likely to stick aided by pent-up demand from adverse weather, recent storm activity and higher raw material costs. We believe Company's valuation looks attractive even without additional catalysts
SunTrust Robinson, June 14, 2011
Robert W. Baird, May 10, 2011
We believe Company is a well-run company with strong operational and financial controls. In our view, the macro uncertainty including weak residential reroofing market demand, limited new construction activity, and potentially aggressive competitor behavior in a fragmented market, limits upside for Beacon Jefferies, May 09, 2011
We think the premium Company has to peers reflects its higher growth potential tied to acquisitions, 10-15% supported by its ample liquidity and incremental share gains in served markets, vs. most other product names that must rely on a cyclical turn in new housing or discretionary consumer spending KeyBanc Capital Markets, May 31, 2011
Source: Factset and Wall Street research.
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2nd Annual Georgetown Case Competition
Valuation
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Football Field Example
Note: values removed
2nd Annual Georgetown Case Competition
Current share price
Selected companies multiples analysis
Selected acquisitions multiples analysis
Discounted cash flow analysis
Leveraged buyout analysis
52 week high low
Research targets
What do your various valuation methodologies, when viewed as a group, say about your company?
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Overview of comparable companies
2nd Annual Georgetown Case Competition
Describe some of the companies you felt are the most comparable to your client
What characteristics did you focus on when thinking about comparable companies?
Why did you include or exclude one company over another?
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Comparable companies illustrative output
(in millions, except per share amounts) Stock Price Company Red Orange Yellow Green Blue Indigo Violet 8/31/10 $27.88 13.57 20.15 42.55 15.87 14.01 36.18 Equity Value $8,346 200 4,916 1,306 4,905 1,164 1,335 Mean Median High Low Enterprise Value $6,233 187 5,253 1,064 4,378 979 1,537 Long-Term EPS Growth 15.5% NM 15.0% 10.0% 21.7% 12.5% 2.8% 12.9% 13.8% 21.7% 2.8% EBITDA Margin 38.9% 17.3% 32.0% 52.6% 33.7% 18.7% 12.9% 29.4% 32.0% 52.6% 12.9% Equity Value / Book Value 2.0x 1.2x 4.1x 4.1x 2.1x 1.6x 1.9x 2.4x 2.0x 4.1x 1.2x EV / Sales 2010E 2.2x NM 2.3x 4.4x 3.3x 1.8x 0.8x 2.5x 2.2x 4.4x 0.8x 2011E 2.1x NM 2.0x 3.9x 1.6x 1.5x 0.8x 2.0x 1.8x 3.9x 0.8x EV / EBITDA 2010E 6.2x NM 6.9x 8.7x 9.8x 6.5x 6.2x 7.4x 6.7x 9.8x 6.2x 2011E 5.7x NM 6.4x 8.5x 4.9x 5.1x 5.8x 6.1x 5.8x 8.5x 4.9x
2nd Annual Georgetown Case Competition
P/E 2010E 11.3x 11.2x 9.7x 16.6x 11.8x 10.7x 11.1x 11.8x 11.2x 16.6x 9.7x 2011E 9.5x 10.1x 7.8x 15.7x 9.0x 7.2x 10.9x 10.0x 9.5x 15.7x 7.2x
Note: Calendarized P/E Multiples and Long-Term EPS Growth Rates are based on I/B/E/S estimates; Projections from Wall Street Equity Research.
($ in millions, except per share amounts)
Multiple Range Data EBITDA CY 2012E CY 2013E Implied selected enterprise value range Net Debt (June 30, 2010E) Implied equity value Implied equity value per share $734 $570 Low 6.5x 6.3x High 7.5x 7.3x
Implied Enterprise Value Low $4,768 $3,590 $4,179 $4,235 $8,414 $27.80 High $5,501 $4,160 $4,830 $4,235 $9,066 $29.93
% premium / (discount) to current
2.3%
10.2%
Include relevant figures as seen appropriate
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Comparable company benchmarking
Note: dummy data
Revenue growth EBITDA growth
2nd Annual Georgetown Case Competition
25%
25%
25%
25%
25%
25%
25%
25%
25%
25%
Company 1
Company 2
Company 3
Company 4
Company 5
Company 1
Company 2
Company 3
Company 4
Company 5
EBITDA margin
Other options
Could consider adding: Number of stores
25%
25%
25%
25%
25%
Same-store sales growth International % of total sales
Company 1
Company 2
Company 3
Company 4
Company 5
Sales per square footage
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Overview of comparable transactions
2nd Annual Georgetown Case Competition
Similar to comparable companies analysis, you must decide which transactions would be useful in valuing your client
What characteristics did you focus on when thinking about comparable transactions?
Why did you include or exclude one transaction over another?
Things to consider:
Size of the transaction
Timing of the transaction
Similar product offerings
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Comparable transactions illustrative outputs
($ in millions)
2nd Annual Georgetown Case Competition
Equity Value / LTM EBIT 25.1x 22.5x 27.5x 14.0x 22.3x 23.8x 27.5x 14.0x Net Income 32.9x NM NA 22.0x 27.4x 27.4x 32.9x 22.0x
Date Announced 10/15/20xx 4/6/20xx 10/10/20xx 9/22/20xx Alpha Kappa Gamma Sigma Acquiror / / / / Beta Omega Delta Rho Target
Transaction Type Public / Public Public / Public Public / Private Public / Public
Purchase Consideration Cash Cash Cash Cash / Stock
Equity Value $2,970 250 1,840
Enterprise Value $2,834 221 390 1,916 Mean Median Max Min
Purchase TEV / LTM Revenue 2.5x 2.3x 1.0x 1.9x 1.9x 2.1x 2.5x 1.0x EBITDA 16.9x 16.3x 10.3x 12.5x 14.0x 14.4x 16.9x 10.3x
Source: Note: (1)
($ in millions)
Multiple Range Data EBITDA LTM 6/30/10E $1,398 CY 2010E $1,410 Implied selected enterprise value range Net Debt (June 30, 2010E) Implied equity value Implied equity value per share Low 6.0x 5.0x High 8.0x 7.0x Implied Enterprise Value Low $8,390 $7,048 $7,719 $4,235 $11,954 $39.35 High $11,186 $9,867 $10,526 $4,235 $14,762 $48.16
% premium / (discount) to current
44.8%
77.2%
Source: Note: (1)
Include relevant figures as seen appropriate
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Discounted cash flow illustrative output
EBITDA multiples IPO valuation
Financial summary
($ in millions)
Note: dummy data
2H $500 2011E $1,000 2012E $1,100 2013E $1,200 2014E $1,300 Calendar year ending December 31, 2015E 2016E 2017E $1,400 $1,500 $1,600 2018E $1,700 2019E $1,800 2020E $1,900 2021E $2,000
2nd Annual Georgetown Case Competition
5.6%
$570
2011E 1H Revenue $500
% Growth
EBITDA $150 $150 $300
10.0%
$330
9.1%
$360
8.3%
$390
7.7%
$420
7.1%
$450
6.7%
$480
6.3%
$510
5.9%
$540
5.3%
$600
% Margin
() Depreciation & amortization EBIT Tax provision
30.0%
(50) $100 (35)
30.0%
(50) $100 (35)
30.0%
(100) $200 (70)
30.0%
(100) $230 (81)
30.0%
(100) $260 (91)
30.0%
(100) $290 (102)
30.0%
(100) $320 (112)
30.0%
(100) $350 (123)
30.0%
(100) $380 (133)
30.0%
(100) $410 (144)
30.0%
(100) $440 (154)
30.0%
(100) $470 (165)
30.0%
(100) $500 (175)
Tax rate
Unlevered net income (+) Depreciation & amortization () Capital expenditures () Increase in net working capital (+/) Other changes in cash flow Unlevered free cash flow Implied DCF value Terminal multiple
($ in millions, except per share amounts)
35.0%
$65 50 (50) (25) $40
35.0%
$65 50 (50) (25) $40
35.0%
$130 100 (100) (50) $80
35.0%
$150 100 (100) (50) $100
35.0%
$169 100 (100) (50) $119
35.0%
$189 100 (100) (50) $139
35.0%
$208 100 (100) (50) $158
35.0%
$228 100 (100) (50) $178
35.0%
$247 100 (100) (50) $197
35.0%
$267 100 (100) (50) $217
35.0%
$286 100 (100) (50) $236
35.0%
$306 100 (100) (50) $256
35.0%
$325 100 (100) (50) $275
Implied DCF value Perpetuity growth rate
($ in millions, except per share amounts)
WACC 10.0%
Terminal multiple of 2016E EBITDA 6.0x 6.5x 7.0x $458 1,676 $2,135 (800) $1,335 $13.34 $458 1,816 $2,275 (800) $1,475 $14.73 $458 1,956 $2,414 (800) $1,614 $16.11
7.5x $458 2,096 $2,554 (800) $1,754 $17.48 PV of cash flows PV of terminal value Implied enterprise value () Corporate adjustments Implied equity value Implied share price
WACC 10.0%
1.0% $458 1,155 $1,613 (800) $813 $8.13
Perpetuity growth rate 2.0% 3.0% $458 1,312 $1,770 (800) $970 $9.70 $458 1,514 $1,972 (800) $1,172 $11.72
4.0% $458 1,783 $2,242 (800) $1,442 $14.40 6.1x 7.5 14.4 $448 1,468 $1,915 (800) $1,115 $11.15 5.2x 6.4 11.2 $437 1,233 $1,671 (800) $871 $8.71 4.6x 5.6 8.7 PV of cash flows PV of terminal value Implied enterprise value () Corporate adjustments Implied equity value Implied share price Implied terminal EBITDA multiple (2016E) EV / 2011E EBITDA P / 2011E EPS PV of cash flows PV of terminal value Implied enterprise value () Corporate adjustments Implied equity value Implied share price Implied terminal EBITDA multiple (2016E) EV / 2011E EBITDA P / 2011E EPS PV of cash flows PV of terminal value Implied enterprise value () Corporate adjustments Implied equity value Implied share price Implied terminal EBITDA multiple (2016E) EV / 2011E EBITDA P / 2011E EPS
33.4% 3.9%
7.1x 13.3 11.0% $448 1,602 $2,050 (800) $1,250 $12.50
47.3% 4.4%
7.6x 14.7 $448 1,736 $2,183 (800) $1,383 $13.83
61.1% 4.7%
8.0x 16.1 $448 1,869 $2,317 (800) $1,517 $15.15
74.8% % premium / (discount) to current 5.1% Implied perpetuity growth rate
8.5x 17.5 $448 2,003 $2,450 (800) $1,650 $16.46 EV / 2011E EBITDA P / 2011E EPS PV of cash flows PV of terminal value Implied enterprise value () Corporate adjustments Implied equity value Implied share price 11.0%
(18.7%)
3.9x 5.4 8.1 $448 998 $1,445 (800) $645 $6.45
(3.0%)
4.5x 5.9 9.7 $448 1,120 $1,567 (800) $767 $7.67
17.2%
5.2x 6.6 11.7 $448 1,272 $1,719 (800) $919 $9.19
44.0% % premium / (discount) to current
25.0% 4.9%
6.8x 12.5 12.0% $437 1,532 $1,969 (800) $1,169 $11.69
38.3% 5.3%
7.3x 13.8 $437 1,660 $2,097 (800) $1,297 $12.96
51.5% 5.7%
7.7x 15.1 $437 1,787 $2,225 (800) $1,425 $14.23
64.6% % premium / (discount) to current 6.0% Implied perpetuity growth rate
8.2x 16.5 $437 1,915 $2,352 (800) $1,552 $15.50 EV / 2011E EBITDA P / 2011E EPS PV of cash flows PV of terminal value Implied enterprise value () Corporate adjustments Implied equity value Implied share price 12.0%
(35.5%)
3.5x 4.8 6.5 $437 871 $1,308 (800) $508 $5.08
(23.3%)
4.0x 5.2 7.7 $437 968 $1,405 (800) $605 $6.05
(8.1%)
4.5x 5.7 9.2 $437 1,086 $1,523 (800) $723 $7.23
11.5% % premium / (discount) to current
16.9% 5.8%
6.6x 11.7
29.6% 6.3%
7.0x 13.0
42.3% 6.7%
7.4x 14.2
55.0% % premium / (discount) to current 7.0% Implied perpetuity growth rate
7.8x 15.5 EV / 2011E EBITDA P / 2011E EPS
(49.2%)
3.2x 4.4 5.1
(39.5%)
3.6x 4.7 6.0
(27.7%)
4.0x 5.1 7.2
(12.9%) % premium / (discount) to current
Source:
Management projections, company filings, and Wall Street research.
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