Barbasol Acquisition Final PresentationFor: Diversified Products Corp.Prepared by: Rook Consulting Cohort C – Team 2December 15, 2010

Team Members:Hythem AbdelwahabTejas AtawaneEszter HamoriKevin HarderMolly PlimptonCarl Uttaro

•Why Shaving Cream?

•Why Barbasol and who is Perio Inc.?

• Estimated Current Value = $52.7M

• Under DPC Management = $78.1M

Introduction

• Company Profile

• Industry Overview

• Current Valuation

• Recommendation #1

• Recommendation #2

• Acquisition Summary

Agenda

Company Profile

Company Profile - History

1910 1920 1930 1940 1950 1960 1970 1980 1990 2000 2010 2020

1919:Barbasol Invented

2001: Bought by:

1962: Bought by:

1949:Created Aerosol Shaving Cans

1923:Babe Ruth endorses Barbosal

2007: Launch Barbasol Ultra

2010: Barbasol Ultra Pulled

$26.7M, 89%

Other Products $3.2M, 11%

Perio Inc. Revenue by Brand:

Company Profile - Products

Men’s Shaving Product Portfolio:

Barbasol Soothing Aloe:#1 Retail SKU of any men’s

shaving cream

Company Profile: Strengths and Weaknesses

Systems• Lean manufacturing• Hiring software

Staff• Many new employees

Strategy• Maintaining position in

foam economy segment• Not thinking big

Shared Values• Conservative, family

oriented culture

Strengths Weaknesses

Summary of Company Performance

WeakPerformance,

Bad Team

HighPerformance,Strong Team

HighPerformance,

Bad Team

WeakPerformance,Strong Team

Industry Overview

Men’s Shaving Cream Industry Overview

Source: Mintel DataSource: Nielsen Data adjusted for Wal-Mart

Shaving Cream MarketHistorical & Projected Market Growth

Shaving Cream MarketLTM Retail Sales by Product Category

Total Retail Sales = $ 338M

2005 2007 2009 2011 2013 2015$100M

$200M

$300M

$400M

$500M

Actual ProjectedYears

Reta

il Sa

les

Foam = 54% of unitsGel = 41% of units

Breakdown of Foam & Gel Market Segments

37%

51%

Other 12%

Source: Nielsen Data Adjusted for Wlmart

FoamTotal retail sales $99M

GelTotal Retail Sales $221M

32%

43%

Other25%

Price Analysis of the Foam and Gel Segments

Average Retail Price

Premium $8.23

Mid-price $2.63

Economy $0.97

Average Retail Price

Super Premium $4.65

Premium $3.75

Mid-price $2.87

Economy $2.03

Economy

Mid-price

Premium

0% 10% 20% 30% 40% 50% 60% 70%

51.45%

48.52%

0.03%

Mkt. Share (Equiv. Unit )

Pric

e Se

gmen

t

Foam Unit Market Share by Price Point Gel Unit Market Share by Price Point

Economy

Mid-price

Premium

Super Premium

0% 10% 20% 30% 40% 50% 60% 70%

1.9%

75.9%

13.8%

8.4%

Mkt. Share (Equiv. Unit )

Price

Segm

ent

Brand Perceptions

Source: Rook Consulting Shaving Cream Survey 2010

Barbasol:• Second highest Net Promoter Score• Good value for price • Brand stand for values

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%$0.00

$0.10

$0.20

$0.30

$0.40

$0.50

$0.60

Perceived Value (NPS)

Reta

il Pr

ice

per U

nit

Gel

Foamy

Current Valuation

Income Statement Projections

Perio Company Projected Revenues($ millions)

Valuation of Perio Company

Projected Unlevered Free Cash Flows($ millions)

NPV of Future Cash Flows = $52.7 million

18.9% CAGRAssumptions:

• Beta: 0.79

• Post-tax WACC = 5.7%

• DPC willing to pay a premium

• Leverage DPC’s resources

• Future access to capital

• Channel synergies

• Negotiating Power

• Favorable market timing for Perio

Why Perio Would be Interested in Sale

Recommendation #1 – Adjust Pricing

Re-pricing Barbasol Foam

96.7%

All Others3.3%

• Barbasol dominates economy foam

• No major substitute product in economy segment

• 86% Net Promoter Score

• $0.76 (51%) gap in retail price per can between Barbasol and next major competitor

FoamUnits Sold – Economy Price Point

Price Elasticity

Channel-Weighted Average MSP: $0.9247.8% Contribution Margin Ratio

• The price elasticity suggests a price increase of 15 cents on retail price

• Expected 1% lower sales volume

Barbasol Foam – Before Price Adjustment

Channel-Weighted Average MSP: $0.9750.2% Contribution Margin Ratio

Barbasol Foam – After Price Adjustment

5%INCREASE IN CONTRIBUTION MARGIN

150,000 250,000 350,000 450,000 550,000$0.00

$0.05

$0.10

$0.15

$0.20

$0.25f(x) = − 0.091559222756658 ln(x) + 1.34273510120911

Gillette Foamy Logarithmic (Gillette Foamy)

Equivalent Unit Sold

Pric

e pe

r Uni

t

Scenario Analysis of Foam Price Raise

Monte Carlo Variables:• Range of Sales unit growth rate: -0.13% to 13.35%• Range of WACC: 3.74% to 7.45%

Median NPV = $1.9MAvg. NPV = $2.3M

Std. Dev = $3.5MMargin of Error = $ 0.07M

Results:• Average NPV of Price Increase = $2.3 million• 24.51% probability of loss

Recommendation #2 – Launch Gel

Why is Gel an attractive product option?

Gel vs. Foam Usage by Age

18-24 25-340%

10%

20%

30%

40%

50%

60%

13%

23%

50%

31%

always use foam always use gelAge Groups

% o

f Res

pons

es p

er A

ge G

roup

s

Note: Data for responses other than gel or foam preferences (such as cream, oil or water) are not shown on chart.

Source: Rook Consulting Shaving Cream Survey 2010

• Gel products:• 66% retail sales dollars• 41% units sold

• Gel preferred among 18-34 year olds

• Low competition at the economy price point

• Opportunity for Barbasol to target new consumers

n = 69

Mis-alignment with core strategy and values

“Barbasol is a value brand”– New Barbasol VP of Product Management

Gel Pricing & Channel Distribution

$1.43MSP

39%Store

Margin

$2.35Retail Price

$1.39MSP

25% Wal-Mart

Margin

$1.85Retail Price

$1.74MSP

20%WS Margin

39% Retail Margin

$3.56Retail Price

Supermarket & Chain Drug

Wal-Mart DistributorsChannel-Weighted Average Retail Prices:

Gillette Series: $2.73Edge: $2.62Barbasol Gel: $2.09

Average Mass-Retail Margins:

Gillette Series: 47%Edge: 33%Barbasol Gel: 39%

INDUSTRY BARBASOL GEL

Introducing Barbasol Gel

Images Copyright José Luis García Eguiguren

• 7-oz packaging

• Two SKUs – “Original” and “Soothing Aloe”

Alternative Colors:

Advertising Strategy

• Most effective method of advertising for Barbasol is ESPN.com because of its strong 18-34 year old male demographics• Online advertising is more cost-effective than TV commercials• ESPN.com is the #1 site for male sports fans

Market Share Projections

Latent Market ProjectionsTargets who will buy (less market sizing & ESPN) 5.08 millionProjected Unit Sales 1.49 millionProjected Contribution Margin $1.58 million

Market Projections from ESPN.com AdvertisingTargets who will buy (less market sizing) 112.8 thousandProjected Unit Sales 248.2 thousandProjected Contribution Margin $225.9 thousand

Production of Barbasol Gel

• Inventory of gel “bladder” and 7-ounce cans• Additional step of injecting gas to the formula

during line production• Variable COGS per unit increase 15%

Necessary Costs & Logistics

Overall Benefits

• Very few differences with ingredients• Both products are easily and commonly made

in the same factories• New factory is still only at 50% capacity

Valve

Dip Tube

Shaving Cream Ingredients

Gas

Pressure

Product Contributions

Original Barbasol50.2% Contribution

Margin Ratio

Channel-Weighted Average MSP: $0.97

$0.48 Variable Costs/Unit

$0.49 Barbasol Contribution

Barbasol Gel62.3% Contribution

Margin Ratio

Channel-Weighted Average MSP: $1.46

$0.55 Variable Costs/Unit

$0.91 Barbasol Contribution

• As we enter the gel segment, we anticipate potential competitor responses:– Heavy counter-advertising to Barbasol Gel’s target age group,

building on brand name– Increase spending on promotions:

• Couponing• Bundling: razor package deals

– Lower prices

Competitor Responses

Valuation of Gel Option

NPV of Future Cash Flows from Gel option = $21.5 million

Gel Product Free Cash Flows($ millions)

Assumptions:• Beta: 0.79• Post-tax WACC = 5.7%• PV of Perpetuity: $18.2 M

Scenario Analysis of Gel Launch

Results:• Expected company revenues of $2.5M in year 1• Year 1 sales variation ranged from 0 to $4.8M• Sales growth rate varied based on average for gel industry: 7.15%• Post-tax WACC of 5.7% was varied from 3.84% to 7.58%

Median NPV = $21.1MAvg. NPV = $21.5M

Std. Dev = $7.6MMargin of Error = $ 0.15M

Acquisition Summary

Valuation of Company With Gel and Price

Current Valuation$52.7M

Price Increase

New Gel Product$21.5M

$78.1M valuation

• Recent industry acquisitions value shaving companies at an average of 2.2x forward revenues

• Rook Consulting suggests that DPC offer between $45M and $68.8M• ROI estimates based off of future selling price of full $78.1M Rook

Consulting valuation

Range of Offers

ROI: 73.5%

Initial Offer$45M

Current Valuation$52.7M

Maximum Offer$68.8M

ROI: 13.5%

Future Valuation$78.1M

Effect of Acquisition and New Product Launch

Consumers• Leverage “Classic American brand”• Targeted ad campaigns• Economy segment consumers

Employees

• “Separation method” of merging corporate cultures• Current leadership team remains• Maintain compensation and benefits• Hire Senior marketing VP

Collaborators

• Existing channel partnerships leveraged in gel distribution• Higher margins for partners• Subsidize channel advertisements

Conclusion

• Strong brand and company• Potential for high ROI• High valuation for Perio

Win-Win Situation

• Capture more value in foam segment• Launch gel products• New strategy of diversification

Vision

1. Perio Inc. Linked Company Profile. Accessed 12th December 2010: http://www.linkedin.com/companies/perio-inc.-barbasol-brands 2. Indianapolis Motor Speedway, Indianapolis 500 official website historical box scores. Accessed 12th December 2010. 1938:

http://www.indy500.com/stats/view/boxscore/year/1938, - 1939: http://www.indy500.com/stats/view/boxscore/year/1939 3. Perio Inc. Company homepage; Accessed 12th December 2010, http://www.perio-inc.com/ourstory/history4. Barbasol breaks ground; Christ, Ginger, Ashland Times-Gazette, August 13th, 2009. http://www.times-gazette.com/news/article/4646958 5. Barbasol has grand opening for Ashland facility; Christ, Ginger, Ashland Times-Gazette, May 20th 2010. http://

www.timesgazette.com/news/article/4830421 6. Barbasol gives Syracuse the brush-off, picks Ohio for new plant, By Marie Morelli Syracuse.com - The Post-Standard, Published: Friday, August 07, 2009.

http://www.syracuse.com/news/index.ssf/2009/08/barbasol_gives_syracuse_the_br.html 7. Barbasol coming to Ohio, News Home Executive Team, Vindy.com, A service of The Vindicator Published: Tue, May 26, 2009. http://

www.vindy.com/news/2009/may/26/barbasol-coming-to-ohio 8. Mintel Reports USA “Shaving and Hair Removal products – US – May 2008”, Accessed 12th December 2010. http://

academic.mintel.com.ezproxy.bu.edu/sinatra/oxygen_academic/my_reports/display/id=482893&anchor=atom/display/id=548163 9. Mintel Reports USA “Men’s Grooming – US – September 2010”. Accessed 12th December 2010. http://

academic.mintel.com.ezproxy.bu.edu/sinatra/oxygen_academic/my_reports/display/id=296601&anchor=atom/display/id=34384510. AC Nielsen database, The Nielsen Company - United States, Accessed 12th December 2010. 11. Barbasol press release: May 25, 2010. http://perfectshave.blogspot.com/2010/05/new-barbasol-plant-opens-in-ashland 12. THE "GREAT RECESSION" AND SHIFTS IN CONSUMER BEHAVIOR, BERNSTEIN RESEARCH; 2009. 13. Mckinsey & Co., Compustat: Mckinsey Team Analysis.14. Today's Facility Manage, August 2009 issue, By Anne Vazquez http://www.todaysfacilitymanager.com/articles/manufacturing-case-study-room-to-grow.php

15. Industry profile; Personal Care Products Manufacturing, quarterly update; 8.9.2010 SIC CODES: 2844 - NAICS CODES: 325620, First Research, a D&B

company.16. Professor Aimin Yan, OB 713 Lecture notes, MBA Class 2012 - Boston University School of Management – Cohort (C).17. Tom Gallerani, Former VP of Shaving Technology Lab, Gillette Company, Personal Interview.18. Select International Announces Benchmarks, Successes with New Client Barbasol, May 17, 2010 . http://

www.free-press-release.com/news-select-international-announces-benchmarks-successes-with-new-client-barbasol-1274109461.html19. A Framework for Marketing Management 4th ed. (2009), by Philip Kotler and Kevin Keller

20. Westervin.com, A Fine Design: Old Stuff, Posted: February 19th, 2010 Author: Brian | Filed under: A Fine Design | Tags: 50's, 60's, advertisement, past, shaving, time travel, vintage | http://www.westervin.com/blog/tag/past

21. Town and Country Hobbies, Billboards; Barbasol Shaving Cream (2602-36). www.towncountryhobbies.com/Billboard_pictures/2602-36 22. Barbasol home page; Accessed 12th December 2010. www.barbasol.coms 23. Ashland Times-Gazette “Barbasol breaks ground”; Christ, Ginger, August 13th, 2009. http://www.times-gazette.com/news/article/4646958 24. Barbasol gel can designed by José Luis García Eguiguren | Jan 20, 2010 | Country: Spain©2010 | Published by Lovely Package®

http://lovelypackage.com/student-work-jose-luis-garcia-eguiguren/#more-10446

References

Documents:

Images: