G.Q. Capital Advisors DATE Antoine Landriault Arbour Javier Hernandez-Cotton Paul-Henri Grange XXX...
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Transcript of G.Q. Capital Advisors DATE Antoine Landriault Arbour Javier Hernandez-Cotton Paul-Henri Grange XXX...
G.Q. Capital Advisors
G.Q. Capital AdvisorsDATEAntoine Landriault ArbourJavier Hernandez-CottonPaul-Henri Grange
XXX
XXX
Presented to Mr. XXX and the B.O.D. on behalf of XXX
1. Introduction & Key Considerations
2. Analysis & Strategic Rationale
3. Valuation & Financial Assessment
4. Implementation Strategy
Introduction & Key Considerations
G.Q. Capital Advisors
Introduction M&A
Acquirer
Target
Key Considerations:
Existing Bid
Introduction Analysis Valuation Implementation
1. Introduction & Key Considerations
2. Analysis & Strategic Rationale
3. Valuation & Financial Assessment
4. Implementation Strategy
Analysis & Strategic Rationale
G.Q. Capital Advisors
Strategic Ideation
Business Considerations Key Insight
Introduction Analysis ValuationImplementati
on
G.Q. Capital Advisors
Strategic Fit
Aim of Acquisition
Strategy
Acquisition Thesis
Our Concluding Rationale for The Acquisition:
Introduction Analysis Valuation Implementation
1. Introduction & Key Considerations
2. Analysis & Strategic Rationale
3. Valuation & Financial Assessment
4. Implementation Strategy
Valuation & Financial Assessment
G.Q. Capital Advisors
Valuation Overview
Introduction Analysis Valuation Implementation
Key Decision Metrics
Accretion / Dilution Financial Leverage
ValuationDCF Comparables Precedents
Financial Statement ProjectionsX X
G.Q. Capital Advisors
Assumptions Overview
Introduction Analysis Valuation Implementation
X Projections
• Revenue growth of x% per annum, decreasing to X%
• Cost of sales of x%, decreasing to X%
• Operating expenses of x%, decreasing to X% (operational leverage)
X Projections
• Revenue growth of X% per annum, decreasing to X%
• Cost of sales of x%, decreasing to X%
• Operating expenses of x%, decreasing to X% (operational leverage)
X Valuation
• WACC of x%, terminal growth of x%
• Working Capital days remain constant
• Capex equals D&A to reflect maturity and lower growth (maintenance capex)
Revenue growth and margins based on average historical performanceAssumes slight operational leverage moving forward
G.Q. Capital Advisors
Assumptions Schedule
Introduction Analysis Valuation Implementation
Revenue growth and margins based on average historical performanceAssumes slight operational leverage moving forward
A&P – Operating AssumptionsProjected Fiscal Years Ending September 31
(CAD millions) 2006 2007 2008 2009 2010
Revenue Growth 5.5% 5.5% 5.5% 5.5% 5.5%
Expenses as % of revenue
Cost of Sales 60.5% 60.5% 60.5% 60.5% 60.5%SG&A 35.5% 35.5% 35.5% 35.5% 35.5%Finance Costs 2.3% 2.2% 2.1% 2.0% 1.9%
Tax Rate 25.0% 25.0% 25.0% 25.0% 25.0%
G.Q. Capital Advisors
X Income Statement
Introduction Analysis Valuation Implementation
Assumes slight operational leverage & financial leverage
Revenues growing at a 5.5% CAGR; earnings at 11.8%
A&P – Income Statement CAGRProjected Fiscal Years Ending September 31
(CAD millions) 2006 2007 2008 2009 2010
Retail Sales 4,301 4,538 4,787 5,051 5,328 5.5%Cost of Sales (2,600) (2,743) (2,894) (3,053) (3,221)Gross Profit 1,701 1,795 1,893 1,997 2,107 5.5%
SG&A (1,528) (1,612) (1,700) (1,794) (1,892)Operating Income 173 183 193 204 215 5.5%
Finance Costs (100) (100) (100) (100) (100)Income Before Taxes 73 83 93 104 115
Income Taxes (18) (21) (23) (26) (29)Net Income 55 62 70 78 86 11.8%
G.Q. Capital Advisors
X2 Income Statement
Introduction Analysis Valuation Implementation
Assumes slight operational leverage & financial leverage
Revenues growing at a 5.5% CAGR; earnings at 11.8%
A&P – Income Statement CAGRProjected Fiscal Years Ending September 31
(CAD millions) 2006 2007 2008 2009 2010
Retail Sales 4,301 4,538 4,787 5,051 5,328 5.5%Cost of Sales (2,600) (2,743) (2,894) (3,053) (3,221)Gross Profit 1,701 1,795 1,893 1,997 2,107 5.5%
SG&A (1,528) (1,612) (1,700) (1,794) (1,892)Operating Income 173 183 193 204 215 5.5%
Finance Costs (100) (100) (100) (100) (100)Income Before Taxes 73 83 93 104 115
Income Taxes (18) (21) (23) (26) (29)Net Income 55 62 70 78 86 11.8%
G.Q. Capital Advisors
Valuation – Working Capital Schedule
Introduction Analysis Valuation Implementation
Working capital requirements based on average historical performanceOperational leverage requires less working capital as % of sales / COGS
A&P – Working Capital ScheduleProjected Fiscal Years Ending September 31
(CAD millions) 2006 2007 2008 2009 2010
Accounts receivable 108 114 121 127 134Inventories 1,543 1,627 1,717 1,811 1,911Accounts payable 555 585 618 652 687
Accounts receivable (% of revenues) 2.5% 2.5% 2.5% 2.5% 2.5%Inventories (% of cost of sales) 59.3% 59.3% 59.3% 59.3% 59.3%Accounts payable (% of cost of sales) 21.3% 21.3% 21.3% 21.3% 21.3%
Net Working Capital 1,096 1,156 1,220 1,287 1,358Change in NWC 428 60 64 67 71
G.Q. Capital Advisors
Valuation – PP&E Schedule
Introduction Analysis Valuation Implementation
Depreciation expected to equal capex as company matures
A&P – PP&E ScheduleProjected Fiscal Years Ending September 31
(CAD millions) 2006 2007 2008 2009 2010
D&A as % of revenues 2.5% 2.5% 2.5% 2.5% 2.5%Capex as % of revenues 3.8% 3.8% 3.8% 3.8% 3.8%
D&A 106 111 117 124 131Capex 162 171 181 190 201
G.Q. Capital Advisors
Free Cash Flow Build-Up
Introduction Analysis Valuation Implementation
Cash flow growth reflects operational leverage and margin expansion
Cash Flow Build-Up – StandaloneProjected Fiscal Years Ending September 31
(CAD millions) 2006 2007 2008 2009 2010
Revenue 4,624 4,809 5,011 5,226 5,451EBITDA 173 192 209 226 243
Margin % 3.7% 4.0% 4.2% 4.3% 4.5%
EBIT 88 98 107 117 128( – ) Taxes (31) (34) (37) (41) (45)EBIAT 57 64 70 76 83
( + ) Depreciation & Amortization 84 94 102 110 116( – ) Capex (165) (165) (165) (160) (160)( – ) Change in NWC 1 1 1 1 1Unlevered Free Cash Flows (23) (6) 8 27 40
G.Q. Capital Advisors
Valuation – Beta
Introduction Analysis Valuation Implementation
Public comparables provide a good estimate for an unlevered (asset) beta
Target D/E ratio below peers to reflect the
company’ preference for low debt
Levered Market Debt / Unlevered
Beta Cap Debt Equity Tax Rate Beta
Beta Comps
MGM Mirage 0.99 27.7 14.1 51% 40% 0.76
Harrah's Entertainment 0.85 16.4 12.3 75% 40% 0.59
Las Vegas Sands 1.18 42.2 7.3 17% 40% 1.07
Eastern Start 1.33 4.7 0.4 9% 40% 1.26
Wynn Resorts 1.14 15.4 1.0 6% 40% 1.10
Median 1.14 16.4 7.3 17% 40% 1.07
Average 1.10 21.3 7.0 32% 40% 0.95
A&P
Debt/Equity 50%
Tax Rate 40%
Comps Median Unlevered Beta 1.07
Levered Beta 1.39
G.Q. Capital Advisors
Valuation – Cost of Capital
Introduction Analysis Valuation Implementation
We believe a WACC of x% represents an adequate discount rate (and expected return) given its risk profile
WACC
Risk-free Rate 2.5%
Market Risk Premium 5.5%
Beta 1.00CAPM Cost of Equity 8.0%
Cost of Debt 4.0%Tax Rate 35.0%After-tax Cost of Debt 2.6%
WACC 7.2%
Terminal GR 1.5%
Target Capital StrucutreDebt 15.0%
Equity 85.0%
Additional premium to reflect the riskier nature of
private companies (information asymmetry) and their lack of liquidity
Inline with long-term GDP growth rate
Slightly below industry average
G.Q. Capital Advisors
Discounted Cash Flow Analysis – Standalone
Introduction Analysis Valuation Implementation
Implies a 5x EBITDA exit multiple vs current multiple of 5xValue created mostly through cash flow growth, not multiple expansion
Discounted Cash Flow Analysis – StandaloneProjected Fiscal Years Ending September 31
(CAD millions) 2006 2007 2008 2009 2010
Unlevered Free Cash Flow s (23) (6) 8 27 40Terminal Value 717Total (23) (6) 8 27 757
Discount Factor 0.50 1.50 2.50 3.50 4.50
PV of FCFs (22) (6) 6 21 554
Enterprise Value 554
WACC vs Terminal Growth Rate$553.94 6.0% 6.5% 7.0% 7.5% 8.0%
1.0% 658 588 530 481 4391.5% 731 647 578 521 4722.0% 822 718 636 568 5122.5% 940 808 706 625 5593.0% 1,097 924 795 695 615
G.Q. Capital Advisors
Discounted Cash Flow Analysis – W/ Synergies
Introduction Analysis Valuation Implementation
Discounted Cash Flow Analysis – StandaloneProjected Fiscal Years Ending September 31
(CAD millions) 2006 2007 2008 2009 2010
Unlevered Free Cash Flow s (23) (6) 8 27 40Terminal Value 717Total (23) (6) 8 27 757
Discount Factor 0.50 1.50 2.50 3.50 4.50
PV of FCFs (22) (6) 6 21 554
Enterprise Value 554
WACC vs Terminal Growth Rate$553.94 6.0% 6.5% 7.0% 7.5% 8.0%
1.0% 658 588 530 481 4391.5% 731 647 578 521 4722.0% 822 718 636 568 5122.5% 940 808 706 625 5593.0% 1,097 924 795 695 615
Implies a 5x EBITDA exit multiple vs current multiple of 5xValue created mostly through synergies, not multiple expansion
Enterprise value is highly sensitive to expected
synergies
G.Q. Capital Advisors
Trading Comparables Analysis
Introduction Analysis Valuation Implementation
Enterprise Value of $1310 using peer group’s median EV / EBITDA multiple
Comps Valuation
Peer Group Median Multiple 0.4x 8.4x 14.2xA&P Metrics 4,486 156 47
Enterprise Value 1,929 1,310 683
Comparables Analysis
EV / EV /
Canadian Food Retailers Revenue EBITDA P / E
Loblaw 0.9x 10.4x 18.6xMETRO 0.4x 8.4x 14.0xSobeys 0.2x 5.6x 14.2x
Median 0.4x 8.4x 14.2xAverage 0.5x 8.1x 15.6x
Screened for comps with similar growth prospects, margins, size, and overall risk profile
Trading multiples yields a higher
value because of the comps’ larger scale and greater liquidity (better access to capital
markets)
G.Q. Capital Advisors
Precedent Transactions Analysis
Introduction Analysis Valuation Implementation
Enterprise Value of $1513 using peer group’s median EV / EBITDA multiple
Comparables Analysis
EV / EV / EV /
Company Revenue EBITDA EBIT
Shaw 's Supermarkets 0.5x 6.9x 11.2xHannaford Bros. 1.1x 12.4x 19.0xRandall's 0.7x 10.5x 16.7xRichfood 0.7x 7.8x 10.9xOshaw a 0.2x 8.2x 13.3xProvigo 0.3x 8.9x 13.5xDominick's 0.8x 10.8x 17.7xGiant Food 0.7x 12.3x N/A
Median 0.7x 9.7x 13.5xAverage 0.6x 9.7x 14.6x
Comps Valuation
Peer Group Median Multiple 0.7x 9.7x 13.5xA&P Metrics 4,486 156 81
Enterprise Value 3,140 1,513 1,094
Screened for transactions closed in a similar market environment, with
similar growth, margins and size
A&P falls around the median margin, we
therefore selected the median
multiple
G.Q. Capital Advisors
Market Environment
Introduction Analysis Valuation Implementation
Bull markets justify higher transaction multiples
G.Q. Capital Advisors
Market Environment
Introduction Analysis Valuation Implementation
Bull markets justify higher transaction multiples
G.Q. Capital Advisors
Valuation Summary
Introduction Analysis Valuation Implementation
Final price target of $XWeighted the X and X valuations more
$0.00 $2.00 $4.00 $6.00 $8.00 $10.00 $12.00 $14.00 $16.00 $18.00 $20.00
EV / Revenue
EV / EBITDA
EV / EBIT
P / E
EV / Revenue
EV / EBITDA
EV / EBIT
P / E
DCF – Standalone
DCF – W/ Synergies
Precendent Transactions:
Trading Comps:
G.Q. Capital Advisors
Accretion / Dilution Analysis
Introduction Analysis Valuation Implementation
Deal is accretive as of the first year at a valuation of $XAssuming 20% stock and 80% debt financing
Accretion / Dilution Analysis
Metro Standalone Pretax Income 241A&P Standalone Pretax Income 81Combined Pretax Income 322
( – ) Interest Expense from New Deal Debt (63)( – ) Forgone Interest Income on Cash -( – ) Deal Fees (Advisory, Legal, Etc.) (7)( – ) Financing Fees Amortization (2)
( – ) Incremental D&A Expense -( + ) Synergies 35Pro Forma Pretax Income 284
Pro Forma Net Income 199Pro Forma Shares Outstanding 109
Pro Forma EPS $1.83Metro Standalone EPS $1.91
Accretion (Dilution) per Share -$0.07Accretion (Dilution) % (3.8%)
G.Q. Capital Advisors
Accretion / Dilution Sensitivity Analysis
Introduction Analysis Valuation Implementation
Depreciation expected to equal capex as company matures
Premium Paid vs % Stock Consideration
-4% -% 10.0% 20.0% 30.0% 40.0%-% 5.8% 3.0% 0.2% (2.6%) (5.4%)
10.0% 3.8% 0.9% (1.9%) (4.7%) (7.5%)20.0% 1.9% (1.0%) (3.8%) (6.6%) (9.4%)30.0% 0.2% (2.7%) (5.6%) (8.4%) (11.1%)40.0% (1.4%) (4.3%) (7.2%) (10.0%) (12.6%)
Synergies vs % Stock Consideration
-4% 5 20 35 50 65-% (11.0%) (5.4%) 0.2% 5.8% 11.4%
10.0% (12.6%) (7.2%) (1.9%) 3.4% 8.7%20.0% (14.0%) (8.9%) (3.8%) 1.2% 6.3%30.0% (15.3%) (10.4%) (5.6%) (0.8%) 4.1%40.0% (16.5%) (11.8%) (7.2%) (2.6%) 2.1%
G.Q. Capital Advisors
Solvency Analysis
Introduction Analysis Valuation Implementation
NewCo is able to deleverage rapidly trough strong cash flow generationand maintain reasonable interest coverage ratios
G.Q. Capital Advisors
Solvency Stress Test
Introduction Analysis Valuation Implementation
NewCo is still solvent after a substantial decrease in EBIT (~20%)
1. Introduction & Key Considerations
2. Analysis & Strategic Rationale
3. Valuation & Financial Assessment
4. Implementation Strategy
Implementation Strategy
G.Q. Capital Advisors
Risk Assessment
Risks Mitigations Contingencies
Introduction Analysis ValuationImplementat
ion
1. Introduction & Key Considerations
2. Analysis & Strategic Rationale
3. Valuation & Financial Assessment
4. Implementation Strategy
Conclusion