William Blair Case Competition (Miami University) - 2016
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Transcript of William Blair Case Competition (Miami University) - 2016
Kona Adventures“Your One Stop Travel Partners”
Clare Adams | Sean Hynes | Cameron Mogk | Ethan Retcher
2016 William Blair Investment Banking Case Competition
Executive Summary
Industry Trends
Positioning Analysis
Valuation Analysis
3
5
8
11
Strategic Options 19
Final Thoughts 24
Appendix 26
2
ExecutiveSummary
Executive Summary
3IndustryTrends
ValuationAnalysis
StrategicOptions
FinalThoughts Appendix
Potential BuyersValuation Ranges
ValuationPositioning Sell-SideAdvisory
Ø Industry-wide push for consolidation and technological booking
Ø Kona is positioned to be an industry leader with strong management and convenience factor
Ø Valuation analysis places the enterprise value for Kona between the range of
$640mm - $680mm
Ø 2016E Revenue: $206.2mm§ 8.7% growth from 2015
Ø 2016E EBITDA: $52.6mm
Ø Analysis leads to a recommendation of a sale to a strategic buyer with: § large international presence § corporate focus
Ø Mid-market business share, unique growth segments and customer retention rate can provide synergies
PositioningAnalysis
550 590 630 670 710
Comparables EV/EBITDA
Precedent Transactions
LBO Analysis
DCF Exit Multiple
DCF Perpetuity Growth
Industry Trends
4Appendix
General Outlook
IndustryTrends
CompanyOverview
ValuationAnalysis
StrategicOptions
FinalThoughts AppendixExecutive
Summary5
Ø Companies originally focused on costing trips by segment
Ø Have since switched to costing trips as a whole
Ø Kona’s platform is ideal for these costing strategies
Leisure Travel Volume
Recent Sector Growth Costing Strategies
(In
mill
ions
)
Data via Statistia
Ø Stagnant business spending following 2008
Ø Business travels have grown steadily
Ø Consumer discretionary spending has grown more rapidly
-6%
-4%
-2%
0%
2%
4%
0
500
1000
1500
2000
-6%
-4%
-2%
0%
2%
4%
0
100
200
300
400
500
Business Travel Volume
1.0%
1.5%
2.0%
2.5%
3.0%
3.5%(I
n m
illio
ns)
(CAG
R)
(CAG
R)
Travel Expenditures as % of GDP
Consolidation and Tech
IndustryTrends
CompanyOverview
ValuationAnalysis
StrategicOptions
FinalThoughts AppendixExecutive
Summary6
Millennials
0
20
40
60
80
100
2014 2015 2016E 2017E 2018E 2019E
(In
mill
ions
)
Trips Booked via Travel Apps
Millenials
Recently implemented ERP system places Kona as an industry leader moving forward
Consolidation
Ø Hotel and airline industries have seen consolidation
Ø Travel agencies streamline booking process for consumers
Ø Kona will benefit from these new conglomerates
Ø Beneficial to Kona’s business platform
Ø More perceptive to loyalty incentives
Ø Find booking burdensome
Ø More likely to alternate between airlines
75%
47%
Travel App Usage When Booking
Non-Millenials
Data via Boston Consulting Group
Positioning Analysis
7Appendix
Company Overview
IndustryTrends
ValuationAnalysis
StrategicOptions
FinalThoughts AppendixExecutive
Summary8
2016E Sales by End MarketIndustry Leader with Expanding Opportunities
Product Portfolio
45%
25%
20%
10% Small to Medium Business
Large Corporations
Personal (Luxury)
Local Business
Airfare Accommodation2013-2016E Sales
CAGR: 6%
Hotel Booking2013-2016E Sales
CAGR: 10%
Transportation Services2013-2016E Sales
CAGR: 4%
Entertainment Planning2013-2016E Sales
CAGR: 27%
Part
ners
ship
s
55% of 2015 Revenue 25% of 2015 Revenue 10% of 2015 Revenue 10% of 2015 Revenue
Ø Proven success in corporate and personal luxury travel§ Initiated expansion of vacation services
Ø Recent expansion into Asian markets
Ø Use of proprietary and licensed digital products§ Ideal placement as the industry becomes more price sensitive
Personal (Luxury) was just 5% in 2011
PositioningAnalysis
Growth Trends
EBIT
DA
(in
mill
ions
)
EBIT
DA
Mar
gin
20%
21%
22%
23%
24%
25%
26%
27%
28%
29%
0
10
20
30
40
50
60
70
80
90
2013 2014 2015 2016E 2017E 2018E 2019E 2020E 2021E
Ø High debt requires a greater increase in revenue
Ø Lack of exposure to high-growth international markets
Ø Reliance on partnerships to maintain low prices
Ø Increasing digitization will create more price sensitive market§ Lowers the ceiling for
revenue growth from price increases
Ø Leisure travel cyclicality
Ø Leveraging current relationships to achieve the best prices
Ø First-time sales may pull in new business and increase brand recognition
Ø Digitization to simplify process and retain customers
SWOT Analysis
IndustryTrends
ValuationAnalysis
StrategicOptions
FinalThoughts AppendixExecutive
Summary9
Ø Full travel experience covering all ends of travel
Ø Strong partnerships keep overall product quality high
Ø Business travel is not as cyclical as leisure travel
S W
TO
PositioningAnalysis
Valuation Analysis
10Appendix
Valuation Overview
IndustryTrends
ValuationAnalysis
StrategicOptions
FinalThoughts AppendixExecutive
Summary11
2015 EBITDA
2016E EBITDA
11.8x
10.5x
12.7x
11.2x
13.5x
12.0x
14.4x
12.7x
PositioningAnalysis
15.3x
13.5x
550 570 590 610 630 650 670 690 710
Comparables EV/EBITDA
Precedent Transactions
LBO Analysis
DCF Exit Multiple (10.5x - 11.5x)
DCF Perpetuity Growth
550 590 630 670 710
Comparables EV/EBITDA
Precedent Transactions
LBO Analysis
DCF Exit Multiple
DCF Perpetuity Growth
Company NameTicker & Exchange
Price Enterprise Value Equity ValueLTM
2016E EBITDALTM EBITDA
MarginEnterprise Value
Revenue EBITDA LTM Revenue LTM EBITDA 2016E EBITDATravelZoo TZOO US $12.00 $138.6 $166.1 $134.6 $11.3 $12.8 8.4% 1.0x 12.3x 13.0x
WebJet LTD WEB AU 9.02 836.1 1,158.5 110.7 27.0 63.0 24.4% 7.5x 31.0x 18.4x
Hanjin Kal Corp 180640 KS 14.43 1,254.6 852.7 723.7 94.4 75.5 13.0% 1.7x 13.3x 11.3x
MoneySuperMarket.com MONY LN 339.89 1,846.7 1,862.0 438.4 168.8 151.1 38.5% 4.2x 10.9x 12.3x
Kakaku.com Inc 2371 JP 17.34 3,545.2 3,778.4 364.4 182.1 243.5 50.0% 9.7x 19.5x 15.5x
Kona Adventures 189.7 46.5 52.6 24.5%
High 3,545.2 3,778.4 723.7 182.1 243.5 50.0% 9.7x 31.0x 18.4x
3rd Quartile 2,695.9 2,820.2 581.0 175.5 197.3 44.2% 8.6x 25.2x 17.0x
Median 1,254.6 1,158.5 364.4 94.4 75.5 24.4% 4.2x 13.3x 13.0x
Mean 1,524.2 1,563.5 354.4 96.7 109.2 26.9% 4.9x 17.4x 14.1x
1st Quartile 487.3 509.4 122.7 19.1 37.9 10.7% 1.4x 11.6x 11.8x
Low 138.6 166.1 110.7 11.3 12.8 8.4% 1.0x 10.9x 11.3x
Comparable Companies Analysis
IndustryTrends
ValuationAnalysis
StrategicOptions
FinalThoughts AppendixExecutive
Summary12
Implied Valuation RangeAnalysis NotesØ Used multiple foreign companies due to the large size of most
U.S. travel conglomerates§ The multiples from these smaller companies are more
accurate as to where Kona should be valued
Ø Other notable U.S. comps: TripAdvisor, Expedia, Priceline
PositioningAnalysis
Kona Adventures 2016E EBITDA $52.6Comparable Multiple Range 12.7x 13.3xEnterprise Value Range $665.4 $697.0
Precedent Transactions Analysis
IndustryTrends
ValuationAnalysis
StrategicOptions
FinalThoughts AppendixExecutive
Summary13
Implied Valuation RangeAnalysis NotesØ Majority of deals in the LTM were performed by strategic buyers
Ø Significantly higher multiples have surfaced when one travel conglomerate buys a smaller, growth-driven travel company§ i.e., (Priceline-KAYAK, Expedia-HomeAway)
PositioningAnalysis
Kona Adventures 2016E EBITDA $52.6Precedents Multiple Range 12.5x 13.5x Enterprise Value Range $657.5 $710.1
Hotels.com
Hotwire.com
trivago
HomeAway
Orbitz
Travelocity
Venere.com
3 Others
Priceline.com
Booking.com
OpenTable
KAYAK
Rentalcars.com
Agoda.com
Target Company AcquirerTransaction
TypeAnnouncement
DateTransaction Value Premium
Transaction ValueRevenue EBIT EBITDA
Homeinns Hotel Group BTG Hotels Group Co Ltd Strategic 12/8/15 $1,137.4 16.5% 1.8x 22.6x 9.0x
Club Mediterranee SA Multiple acquirers Sponsor 9/12/14 1,258.9 15.2% 0.7x 69.3x 12.0x
Kuoni Reisen Holding AG EQT Partners AB Sponsor 2/2/16 1,351.3 25.0% 0.4x 16.6x 10.0x
KAYAK Software Corp Priceline Group Strategic 5/22/13 1,659.6 24.9% 5.9x 35.6x 30.2x
HomeAway Inc Expedia Inc Strategic 12/16/15 3,014.1 23.2% 6.2x 88.0x 44.5x
Orbitz Worldwide Inc Expedia Inc Strategic 2/12/15 1,595.5 26.5% 1.7x 19.5x 11.4x
High 6.2 88.0 44.5 3rd Quartile 6.0 74.0 33.7
Median 1.8 29.1 11.7 Mean 2.8 41.9 19.5
1st Quartile 0.6 18.7 9.7 Low 0.4 16.6 9.0
Discounted Cash Flow
IndustryTrends
ValuationAnalysis
StrategicOptions
FinalThoughts AppendixExecutive
Summary14
Implied Valuation RangesAnalysis Notes
Perpetuity Growth
EBITDA Exit Multiple
Growth Assumptions:Ø High growth is both organic and inorganicØ Peaks in 2018E, management’s end projection year
WACC Assumptions:Ø All assumptions based on comparable companies
PositioningAnalysis
*Based on comparables
WACC CalculationBook Value of Debt $126 Market Value of Equity* 674
Total Capital $800
Beta* 1.1 Market Risk Premium 8.6%Risk Free Rate 1.8%
Cost of Equity 11.2%
Pre-Tax Cost of Debt* 7.5%Tax Rate 40.0%
Cost of Debt 4.5%
WACC 10.2%
Estimated Projected
2016E 2017E 2018E 2019E 2020E 2021E
EBITDA $52.6 $60.6 $66.6 $75.2 $77.8 $79.8
Less: D&A (0.5) (0.5) (0.6) (0.6) (0.7) (0.7)
EBIT 52.1 61.1 67.2 75.8 78.5 80.5
Taxes 20.8 24.1 26.4 29.8 30.9 31.6
NOPAT 31.3 37.1 40.8 46.0 47.6 48.8
Plus: D&A 0.5 0.5 0.6 0.6 0.7 0.7
Less: CapEx (0.7) (0.6) (0.7) (0.6) (0.7) (0.7)
Less: Change in NWC - - (5.0) (1.4) (2.4) (0.1) (0.1)
Unlevered Free Cash Flow $31.1 $32.0 $39.3 $43.6 $47.5 $48.7
Present Value of Projection Period $26.4 $29.4 $29.6 $29.3 $27.2
2021E Unlevered Free Cash Flow $48.7 Perpetuity Growth Rate 2.5% 3.0%Enterprise Value Range $575.1 $611.4
2021E EBITDA $79.8 EBITDA Exit Multiple 10.5x 11.5x Enterprise Value Range $632.7 $680.0
Leveraged Buyout Analysis
IndustryTrends
ValuationAnalysis
StrategicOptions
FinalThoughts AppendixExecutive
Summary15Positioning
Analysis
Capital Structure
Implied Valuation Range and Return MetricsAnalysis Notes
(In M
illio
ns)
Ø Low CapEx creates strong free cash available for debt repaymentØ Strong qualitative drivers combat cyclicality and can spark future
growth
Transaction Assumptions:Ø Debt/EBITDA Purchase Multiple: 5.5xØ Purchase/Exit Multiple: 11.0x
2016E EBITDA $52.6 EBITDA Multiple 10.5x 11.5x Enterprise Value Range $552.4 $605.2
Investor Return Metrics*IRR 28.4%Cash-on-Cash Return 2.4x
*Based on transaction assumptions listed left
$0
$200
$400
$600
$800
$1,000
2017E 2018E 2019E 2020E 2021E
Equity Debt
Bear Case Scenario
IndustryTrends
ValuationAnalysis
StrategicOptions
FinalThoughts AppendixExecutive
Summary16Positioning
Analysis
Rationale
Ø Management has bullish forward projections for growth
Ø Decreased discretionary spending would hinder our projectionsØ Terrorist attackØ 2008Ø Political uncertainty
Comparative Metrics
Ø Modeled reduced management projections to long run
Ø Our implied valuation of $598.4mm - $620.3mm decreases our enterprise value by 7.6%
Commentary
2021E$0
$50
$100
$150
$200
$250
$300
$350
Revenue EBITDA
Standard
Bear
Implied Valuation Ranges
570 590 610 630 650 670 690
Bear Case
Standard
7.6%
Ø Actions should be taken to brace for this scenario
Ø Three ways to protect our growth segment
Preventative Actions
IndustryTrends
ValuationAnalysis
StrategicOptions
FinalThoughts AppendixExecutive
Summary17Positioning
Analysis
Suggested courses of action
Discounts to extend business trips into leisure
trips
Discounted rates to book multiple
trips at once
Create a point-based system for our luxury travel
segment
Help attract millennials and retain them in our luxury
segment
Discounts and simplicity would entice customers while
securing future sales
Business clients are more likely to have continued discretionary spending in
downturn—likely to continue extending trips
Strategic Options
18Appendix
Potential Acquisition
IndustryTrends
ValuationAnalysis
StrategicOptions
FinalThoughts AppendixExecutive
Summary19
Implied MetricsPotential Target
Why Now?
PositioningAnalysis
Description
Metrics
Rationale
Privately Held
Rhino Africa Safaris is an agency that books individual and group safari trips in Africa.
Ø Great opportunity if we believe discretionary spending will continue to increase
Ø Grow entertainment planning segment
Ø Expand geographicallyØ Our IT expertise will benefit them greatlyØ Establish connections with upper-class citizens
As IsWith Acquisition
Ø Revenues have been damaged the past few years by Ebola paranoia—need to capitalize before metrics recover
Ø Increasing demand for African safari trips
2017E Revenue
2021E Revenue
2017E EBITDA Margin
2021 EBITDA Margin
$224.7 $306.8 27% 26%$233.8 $325.4 30% 27%
2021E EBITDA $91.3 Enterprise Value Range $676.6 $709.6
Strategic Buyer Universe
IndustryTrends
ValuationAnalysis
StrategicOptions
FinalThoughts AppendixExecutive
Summary20
Description Metrics Rationale
Ctrip.com International provides online travel agency services for consumers as well as services for corporate travel management headquartered in Shanghai.
Airbnb operates an online marketplace for travelers and residents looking to temporarily rent out their house.
JetBlue Airways Corporation provides low-cost airline flights. It is headquartered out of John F. Kennedy International Airport in New York City.
Carlson Wagonlit Travel provides travel management services, including: travel bookings, program management and security services, for mostly large corporations.
Direct Travel is an online travel services agency that focuses primarily on scheduling business travels and meetings. They also provide vacation travels.
LTM Revenue: $2,274.3 M Market Cap: $21,239.5 M
Privately Held(Estimated IPO value of ~$30B)
LTM Revenue: $6,585.0 MMarket Cap: $5,594.1 M
Privately Held
Privately Held
Ø Strong M&A activity in the global marketplace Ø International placement complimenting Kona’s
expansion goals set in place by management
Ø Opportunity for Kona to add lodging services to their repertoire
Ø Expansion route into the lodging market
Ø Opportunity for Kona to add cruise line services to their repertoire
Ø Able to get a leg up on competition
Ø Impressive opportunity for synergies that allow Kona to penetrate the large corporation customer base
PositioningAnalysis
Ø Strong international focus and M&A activityØ In need of a stronger digital presence Ø Two-way synergies
Financial Buyer Universe
IndustryTrends
ValuationAnalysis
StrategicOptions
FinalThoughts AppendixExecutive
Summary21
Reasoning Reasoning
Ø $250mm - $2,500mm EV investments Ø Geographic expansion opportunities Ø Willingness to work with Kona’s current
management team
Ø Expertise across several industries Ø Strong team with organic and inorganic
growth strategies Ø Impressive track record through current
and past investments
Ø Focused on building high growth companies and shows proven success
Ø Buy-and-build investment approachØ Several strong synergy opportunities
through currently held portfolio comps
Ø Heavy focus on software companies Ø Pick-and-place management opportunitiesØ Strong qualitative growth opportunities
available to create value for Kona
Ø Several secured commitments across Europe and Asia
Ø Able to help Kona with global expansion goals that management has set in place
Ø Travel oriented investment criteria Ø Numerous synergy opportunities with
current portfolio companies Ø Bear case scenario alternative for Kona
PositioningAnalysis
Ø Numerous investments in the leisure industry, a growing industry for Kona
Ø Extremely strong team with an impressive track record throughout investments
Ø Business service focus historicallyØ Operationally focused helping organic
and inorganic growth Ø Strong synergy opportunity with MNX
Best Fit Buyers
IndustryTrends
ValuationAnalysis
StrategicOptions
FinalThoughts AppendixExecutive
Summary22Positioning
Analysis
Ø Thomas H. Lee Partners is focused on creating organic growth and inorganic growth through acquisitions
Ø Work with management teams to provide forward guidance rather than replacing them
Ø Business services is one of the their three primary sectors
Ø Kona meets criteria for strong cash flow and secular growth
Ø Direct Travel has a strong international presence, expanding our geographic boundaries
Ø Key synergies:§ Greater exposure to international markets§ Direct Travel gets access to our event planning segment
and industry relationships
Ø Direct Travel has been acquisitive lately
Final Thoughts
23Appendix
Final Thoughts
IndustryTrends
ValuationAnalysis
StrategicOptions
FinalThoughts AppendixExecutive
Summary24Positioning
Analysis
Valuation Ranges
Why Direct Travel?Recommendation
After analysis of potential synergies and recent market activity, recommend a strategic sale to Direct Travel
Suggested TimeFrame
With consumer discretionary spending high, the recent multiples being paid for travel service/travel service acquisitions and a
plausible bear case, recommend a sale early 2017
Ø Heavy international presence would help Kona’s expansion
Ø They would expand by integrating our entertainment planning segment
Ø Our established industry relationships will lead them to retain management
550 570 590 610 630 650 670 690 710
Comparables EV/EBITDA
Precedent Transactions
LBO Analysis
DCF Exit Multiple
DCF Perpetuity Growth
Appendix
25
26
Contents
IndustryTrends
ValuationAnalysis
StrategicOptions
FinalThoughts
ExecutiveSummary
PositioningAnalysis Appendix
Ø Executive Summary
Ø Industry Trends
Ø Positioning Analysis
Ø Valuation Analysis
Ø Strategic Options
Ø Final Thoughts
Pro Forma Income Statements
IndustryTrends
ValuationAnalysis
StrategicOptions
FinalThoughts AppendixExecutive
Summary27Positioning
Analysis
No Acquisition With acquisition of Rhino Africa SafarisProjected
Fiscal Year ended December 31, 2017E 2018E 2019E 2020E 2021E
Service $62.1 $62.1 $62.6 $62.6 $63.8 Digital 57.3 62.1 65.2 67.8 69.1
Airfare Accomodation 119.3 124.1 127.8 130.4 133.0 Service 17.7 20.8 23.4 25.7 28.1 Digital 39.3 44.2 49.7 54.7 59.6
Hotel Booking 57.0 65.0 73.1 80.4 87.7 Service 8.6 9.0 8.9 8.7 9.0 Digital 12.9 13.5 14.5 15.5 16.0
Transportation Services 21.5 22.5 23.4 24.2 24.9 Service 18.8 24.9 30.2 35.1 40.4 Digital 8.1 10.7 14.2 18.1 20.8
Entertainment Planning 26.9 35.5 44.3 53.2 61.2 Total Revenue $224.7 $247.1 $268.7 $288.2 $306.8
Service Costs (non-Payroll) 94.4 106.3 112.8 125.4 135.0 Payroll Costs 27.0 29.7 32.2 34.6 36.8 Digital/Apps/Online Costs 42.7 44.5 48.4 51.9 55.2
Total Expenses 164.1 180.5 193.4 211.8 227.0 EBITDA $60.6 $66.6 $75.2 $76.4 $79.8
ProjectedFiscal Year ended December 31, 2017E 2018E 2019E 2020E 2021E
Service $62.1 $62.1 $63.5 $64.0 $66.0 Digital 57.3 62.1 66.1 69.4 71.5
Airfare Accomodation 120.1 125.2 129.5 133.4 137.4 Service 17.7 20.8 24.7 27.2 29.8 Digital 39.3 44.2 52.4 57.8 63.3
Hotel Booking 59.7 68.2 77.0 85.1 93.1 Service 8.6 9.0 9.0 8.9 9.2 Digital 12.9 13.5 14.7 15.8 16.4
Transportation Services 21.6 22.7 23.8 24.7 25.6 Service 18.8 24.9 35.6 43.2 54.0 Digital 8.1 10.7 16.8 22.3 27.8
Entertainment Planning 32.3 41.9 52.4 65.5 81.9 Total Revenue $233.6 $258.1 $282.8 $308.7 $338.0
Service Costs (non-Payroll) 98.1 106.3 118.8 134.3 148.7 Payroll Costs 28.0 31.0 33.9 37.0 40.6 Digital/Apps/Online Costs 42.0 45.2 48.1 52.5 57.5
Total Expenses 168.2 182.4 200.8 223.8 246.7 EBITDA $65.4 $75.6 $82.0 $84.9 $91.3