william blair & co. 2014 case competition
TRANSCRIPT
Kevin Moore | Wes Sorrell | Robbie Buckley | Leon Seserman
William Blair & Co. 2014 Case Competition
Skipper’s Sporting Goods
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Agenda
Moore | Sorrell | Buckley | Seserman
Executive Summary
Company & Industry Overview
Strategic Options
Valuation
Recommendation
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5
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17
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3Moore | Sorrell | Buckley | Seserman
Executive Summary
4Moore | Sorrell | Buckley | Seserman
Executive Summary
Company Overview
Industry Overview
Valuation
Potential Buyers
As a leading investment banker in the sector, we have been selected by Skipper’s Sporting Goods management team to share valuation prospects and potential investors in order for the Company to continue and sustain growth.
Number one brand in the football space, with top three rankings in baseball, soccer, and lacrosse.
The goal is to maximize shareholder value and the Board of directors believes that an acquirer will drive the best potential
Innovation and proven brand management positions Skippers Sporting Goods to be able to have the potential to be a super growth company
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Company & Industry Overview
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Company Overview Skipper’s Sporting Goods operates in the sporting goods manufacturing industry, specializing
in performance goods and defensive gear
Skippers has a strong brand with a proven track as the #1 brand for athletes by National Sporting Goods association for design, durability, and build
Benefits from a wide customer base with leading and loyal retailers
Has a knowledgeable management team with over 50 years experience in the industry
Manufactures in both the U.S as well as China
U.S. China
Performance Goods Products Manufactured Defensive Gear
40% % of Current Production
60%
100% Plants Owned 0% (Leases all plants)
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Recognized as market leader in design, durability, and build of performance and defensive sporting goods
Long standing growing relationship with deep customer base highlighted by significant penetration with major retailers
Top tier management team demonstrated through a strong ability to innovate and retain talented staff, specifically in Sales and R&D groups
Poor growth prospects in core segments seen through negative growth in Football segment and declining growth in Baseball segment
High supplier and customer concentration Liquidity issues demonstrated through
inability to accept projects that would significantly increase firm value
Promising growth in established soccer and lacrosse markets
Potential for expansion into untapped Hockey and Water Sports markets
Rise of e-commerce’s potential to increase margins through partial elimination of retailers
Declining athlete participation in Core markets
High industry concentration Increasing Competitor capitalization of
untapped segments
SWOT Analysis
Strengths Weaknesses
Opportunities Threats
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Skipper’s Operating Segments
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Football
• Helmets• Cleats• Shoulder Pads• Receiver/
Defensive Gloves• Compression
Gear
Baseball
• Batting Helmets• Batting Helmets• Cleats• Batting Gloves• Bats• Cleats• Batting Gloves• Bats
Soccer
• Protective Headgear
• Shin Guards• Goalkeeper
Gloves
Lacrosse
• Helmets• Sticks & Heads• Elbow Pads
35.3%
28.4%
21.8%
14.6%
Football
Baseball
Soccer
Lacrosse
CustomersIndividual Athletes and Teams (High School, Universities, Athletic Clubs & National Teams)
2014E Total Revenue as a Percentage
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Industry Overview High Concentration within Industry with major companies taking majority of market revenues
Nike 28.8 Billion Adidas- 19.5 Billion Puma- 3.9 Billion Amer Sports- 2.9 Billion
Industry growth has high correlation with changes in disposable income. With per capita disposable income growing over the past 5 years, the industry has seen congruent growth
Industry revenue is strongly interwoven with retail market, with 42% of revenue coming from retailers. Manufacturers use retail level trends to predict consumer preferences
Retailers42%
Wholesalers29%
Exports17%
Schools8%
Sporting Associations4%
Globalization in this industry is high with the trend increasing
Companies want to take advantage of low labor costs and favorable environmental regulations
Moore | Sorrell | Buckley | Seserman
Market Segmentation
Source(s): IBIS World, SFIA
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Industry Overview The Sporting Goods Industry is strongly correlated with individuals sport participation in
sporting events According to the latest Sports, Fitness and Leisure Activities Topline Participation Report:
Lacrosse is showing the largest increase in participation, while baseball and softball are showing the largest decrease in sports participation
Generation Z (individuals born after 2000) show the highest participation rates in team, individual, and outdoor sports
Demand for sporting goods is expected to decline in the coming decade, due to the aging of the baby boomer generation
2008 2009 2010 2011 2012 2013
-15.00%
-10.00%
-5.00%
0.00%
5.00%
10.00%
15.00%
20.00%
25.00%
30.00%
FootballBaseballLacrosseSoccerHockeySoftball
Moore | Sorrell | Buckley | Seserman Source(s): IBIS World, SFIA
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Valuation
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Comparable Companies Analysis
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Precedent Trans-actions
Comparable Com-panies
DCF
LBO
500 600 700 800 900 1000 1100 1200 1300 1400 1500
$1,187.54
$1,262.78
$588.17
$1,220.00
$1,319.21
$1,385.67
$1,201.10
$1,265.00
Skipper's Sporting Goods Valuation Range
Analysis of comparable companies, precedent transactions, Leveraged Buyouts, and Discounted Cash Flows presented a valuation of $1,187.54-$1,385.67
9.47-11.05x 2014E EBITDA
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Comparable Companies Analysis
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Unit: Millions Company Name Ticker Current Share Price % of 52 Week High Enterprise Value Market Cap EBIT EBITDA Revenue LTM EBITDA LTM Revenue LTM EBIT LTM Revenue Growth
Nike NKE 89.86 98.18% 74,183.20$ 77,415.20$ 3,853.00$ 4,396.00$ 28,810.00$ 16.88x 2.57x 19.25 11.6%Adidas ADS 72.91 61.12% 15,841.00$ 15,253.50$ 1,398.90$ 1,985.10$ 19,479.00$ 7.98x 0.81x 11.32 2.60%Under Armour UA 66.05 89.96% 13,983.20$ 14,087.00$ 306.10$ 342.12$ 2,657.20$ 40.87x 5.26x 45.68 32.40%
Asics corp 7936 JP 22.63 97.51% 4,744.30$ 4,526.10$ 377.30$ 462.90$ 4,103.30$ 10.25x 1.16x 12.57 31.70%Amer Sports AMEAS 19.22 91.56% 2,898.20$ 2,278.40$ 210.70$ 262.30$ 2,909.00$ 11.05x 1.00x 13.76 7.60%Jarden Corp JAH 61.8 96.55% 12,314.90$ 7,925.00$ 625.90$ 816.80$ 8,064.70$ 15.08x 1.53x 19.68 15.90%Puma PUM 215.44 70.15% 2,890.60$ 3,249.30$ 207.10$ 275.60$ 3,920.40$ 10.49x 0.74x 13.96 -4.40%
Performance Sports Group Ltd PSG 16.73 92.79% 1,147.90$ 735.70$ 23.10$ 36.40$ 489.33$ 31.54x 2.35x 49.69 20.70%Callaway Golf Co. ELY 7.07 68.31% 630.10$ 550.90$ 10.10$ 33.40$ 889.20$ 18.87x 0.71x 62.39 10.40%Mizuno Corp MIZUF 5.18 87.42% 851.70$ 688.80$ 51.40$ 82.30$ 1,822.20$ 10.35x 0.47x 16.57 -4.80%Quicksilver ZQK 1.92 20.67% 1,087.40$ 321.70$ (61.70)$ (8.60)$ 1,672.40$ -126.44x 0.65x (17.62) -11.30%
Under Armour UA 66.05 89.96% 13,983.20$ 14,087.00$ 306.10$ 342.12$ 2,657.20$ 40.87x 5.26x 45.68 32.40%Amer Sports AMEAS 19.22 91.56% 2,898.20$ 2,278.40$ 210.70$ 262.30$ 2,909.00$ 11.05x 1.00x 13.76 7.60%Mizuno Corp MIZUF 5.18 87.42% 851.70$ 688.80$ 51.40$ 82.30$ 1,822.20$ 10.35x 0.47x 16.57 -4.80%
30.15 89.65% 5,911.03$ 5,684.73$ 189.40$ 228.91$ 2,462.80$ 20.76 2.24 25.34 11.73%19.22 89.96% 2,898.20$ 2,278.40$ 210.70$ 262.30$ 2,657.20$ 11.05 1.00 16.57 7.60%66.05 91.56% 13,983.20$ 14,087.00$ 306.10$ 342.12$ 2,909.00$ 40.87 5.26 45.68 32.40%
5.18 87.42% 851.70$ 688.80$ 51.40$ 82.30$ 1,822.20$ 10.35 0.47 13.76 -4.80%
MeanMedianHighLow
LTM EV/
Large Cap > 10 Billion
Mid Cap <10 Billion, > 1 Billion
Small Cap < 1 Billion
Most Fitting Comps
Valuation Overview Our three most fitting comparables were
chosen for their: Business Model EBITDA Capital Structure
We noticed market premiums with Nike, Under Armour, and Adidas likely due to brand prestige
Led to an implied Enterprise Value range of: 10.07-11.05x EBITDA $1,262.78-1,385.67 Enterprise Value
Source(s): Bloomberg
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Precedent Transaction Analysis
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Valuation Overview Our transaction comparables were
chosen primarily because of: The target’s business strategy The target’s financial well being Opportunities for growth within
international and emerging markets
Unit: Mil l ions Enterprise Value / Date Transaction Purchase Equity Transaction LTM LTM LTM LTMAnnounced Acquirer Target Type Consideration Value Value LTM EBITDA LTM Sales LTM EBIT Sales EBITDA EBIT Net Income
11/13/2006 Dicks Sporting Goods Golf Galaxy Strategic Cash 216.06 206.21 19.15 251.48 12.48 0.82x 10.77x 16.52x 26.78x8/3/2005 Adidas Reebok Strategic Cash 3,603.21 3,671.71 349.02 3,948.08 305.21 0.93x 10.52x 12.03x 17.49x
4/25/2007 Jarden Corp K2 Inc Strategic Cash/Stock 778.99 1,155.70 122.04 1,426.79 85.48 0.81x 9.47x 13.52x 29.79x3/22/2005 Quicksilver Skis Rossignol Strategic Cash 312.10 468.29 61.29 632.82 32.05 0.74x 7.64x 14.61x 55.09x
10/23/2007 Nike Umbro Strategic Cash 571.94 618.97 59.63 306.42 56.12 2.02x 10.38x 11.03x 17.00x6/2/2005 Stride Rite Corp Saucony Inc Strategic Cash 159.83 131.28 19.74 162.07 18.11 0.81x 6.65x 7.25x 13.97x
6/28/2007 Sports Direct International PLC Everlast Strategic Cash 138.42 169.11 10.20 54.38 8.85 3.11x 16.58x 19.11x 56.37x12/16/2002 K2 Inc Rawlings Sporting Goods Strategic Cash 80.32 114.37 9.51 170.70 7.69 0.67x 12.02x 14.87x 32.68x
3/19/2012 Adidas Adams Golf Strategic Cash 90.14 71.92 7.33 95.89 6.72 0.75x 9.81x 10.70x 4.96x3/31/2004 Adidas Taylor Made Strategic Cash 37.21 37.21 4.84 54.72 4.49 0.68x 7.69x 8.29x 3.65x
Mean 598.82 664.48 66.28 710.34 53.72 1.13x 10.15x 12.79x 25.78xMedian 187.95 187.66 19.44 211.09 15.30 0.81x 10.10x 12.78x 22.14xHigh 3,603.21 3,671.71 349.02 3,948.08 305.21 3.11x 16.58x 19.11x 56.37xLow 37.21 37.21 4.84 54.38 4.49 0.67x 6.65x 7.25x 3.65x
Enterprise Value /
M&A activity within this industry has been trending toward PE buyers over the past decade
This analysis led to an implied enterprise value range of:
9.47-10.52x EBITDA $1,187.54-1,319.21 Enterprise Value
Source(s): Bloomberg
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Discounted Cash Flow Analysis
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Estimated2014 2015 2016 2017 2018 2019 2020 2021
EBIT 103.70$ 116.30$ 133.30$ 134.22$ 141.46$ 146.58$ 148.84$ 152.90$ Taxes 38.96$ 43.69$ 50.08$ 50.43$ 53.15$ 55.07$ 55.92$ 57.44$
NOPAT 64.74$ 72.61$ 83.22$ 83.79$ 88.31$ 91.51$ 92.92$ 95.45$ Add: D&A 21.70$ 24.00$ 26.80$ 19.20$ 20.24$ 20.97$ 21.29$ 21.87$ Less: CapEx (18.80)$ (18.00)$ (18.00)$ (19.20)$ (20.24)$ (20.97)$ (21.29)$ (21.87)$ Less: Change in NWC -$ 0.40$ (10.56)$ (4.97)$ (7.67)$ (7.00)$ (3.62)$ (10.78)$
FCF 67.64$ 79.01$ 81.46$ 78.83$ 80.64$ 84.51$ 89.30$ 84.68$ Time Adjusted FCF 67.64$ 71.19$ 66.14$ 57.68$ 53.17$ 50.21$ 47.81$ 40.85$
Analyst ProjectedManagement Projected
2017 2018 2019 2020 2021 PerpetualFootball 2.5% 2.5% 2.8% 2.8% 2.8% 2.8%Baseball -1.0% 3.0% 2.5% 2.5% 2.5% 2.5%Soccer 0.5% 10.0% 6.0% -2.0% 2.5% 2.5%Lacrosse 8.0% 7.0% 3.5% 3.5% 3.5% 3.5%
Projected Growth Rates
Valuation Overview Due to difficulties with cash flow projections, this valuation is the most volatile Projected growth rates were based off the 2014 Sports, Fitness and Leisure Activities Topline
Participation Report conducted by Sports Marketing Surveys Other events causing abnormal participation rates, such as the world cup, were also taken into
account Our projections led to an implied enterprise value of:
4.65-9.58x EBITDA $588.17-1,201.15 Enterprise Value
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Leveraged Buyout Evaluation
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Purchase Price IRR1,220.00$ 30%1,230.00$ 29%1,240.00$ 28%1,250.00$ 27%1,260.00$ 25%
AssumptionsBase Year 2014Sponsor Target IRR 25%Exit Multiple 10.56 Tax Rate 37.57%Cost of Subordinate Debt 0.10Cost of Senior Debt 0.08
x 2014E EBITDA Value Percent of Total FinancingSubordinated Debt 3.50 438.90 34%Senior Debt 5.50 689.70 53%Sponsor Equity 1.35 169.46 13%Purchase Price 1,253.37$
Leverage 6.23
Terminal EBITDA 174.77Exit Multiple 10.50Enterprise Value 1,835.09Less: Net Debt 918.53Equity Value at Exit 916.56Sponsor Ownership at Exit 95%Sponsor Equity Value at Exit 870.73Sponsor Equity Value at Closing 169.46IRR % 26%
Returns Analysis
Implied Valuation $1,220-$1,265 Based on 6.3 leverage ratio and
25-30% IRR Good PE fits must understand
Skippers strength derives from ability to innovate
Cannot Curtail R&D expenditure by over-leverage
Valuation Overview
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Strategic Options
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Potential Strategic Buyers
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• Broad industry player with competency in the sporting goods industry• Relevant Acquisitions: None which makes Skippers a great opportunity to join
Under Armour
• Leading manufacturer of ice hockey equipment, as well as other defensive gear similar to Skippers
• Relevant Acquisitions: Maverick Lacrosse
Performance Sports Ltd.
• Finish sporting goods conglomerate that would allow Skippers to gain larger global market share
• Relevant Acquisitions: Wilson, Salomon, Arc’teryx, SuuntoAmer Sports
• American consumer goods company with a portfolio of companies including Rawlings and Marmot
• Relevant Acquisitions; Rawlings, Marmot
Jarden Corporation
• Japanese based sports equipment and sportswear company. Comparable to Skippers financial structure as well as product offerings
• Relevant Acquisitions: NoneMizuno
• Largest company in industry with global reach and previous acquisition history• Relevant Acquisitions: Converse, Umbro
Nike
• 2nd Largest company in industry with recent successful M&A activity• Relevant Acquisitions: Reebok, Adams Golf, Taylor Made Golf Adidas
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Private Equity Industry Analysis
Moore | Sorrell | Buckley | Seserman
PE is now emerging from the post-crisis period and is in good shape After the difficult period of 2007/2008, exits are coming through more steadily The sporting goods industry has seen more an more PE activity over the past
several years, with financial firms outweighing strategic firms in regards to the amount of deals
Sources:Bain & Company Global Private Equity Report 2014, PGEC.com
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Potential Financial Buyers
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• Private equity firm specializing in consumer retail• Relevant Portfolio Companies: Shock Doctor Inc, OmniForce, Surf City
MarathonBregal Partners
• Leading private equity firm focused exclusively on investments in consumer driven product, service and retail business that benefit from health and wellness.
• Relevant Portfolio Companies: Octane Fitness, Curves International. Performance Bicycle
North Castle Partners
• Private equity firm which focuses on consumer product companies with leading market positions
• Relevant Portfolio Companies: Answer Products, Bravo Sports, Skateboard World Industries, Switch Manufacturing
Swander Pace Capital
• American private equity firm with over $2 Billion in total assets. Has made several acquisitions of sporting goods manufacturers in recent years.
• Relevant Portfolio Companies: Riddell Sports, Bell Sports, Easton Sports Inc.
Fenway Partners
• Private equity firm focusing on leveraged buyout investments of established companies in the U.S. and Europe
• Relevant Portfolio Companies: Schutt Sports, Palace Sports & Entertainment
Platinum Equity
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Recommendation
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Recommendation
Moore | Sorrell | Buckley | Seserman
1. Management1. Aging management team highlighted by co-founders Richard C Dresdale, 57, and
Peter D Lamm, 622. Benefits for Skippers
1. Hannah Steinkeller granted opportunity for larger role2. Mac N. Joes allowed to grow into top CFO in Familiar PE setting3. Small size grants tremendous opportunities for exposure to Cameron
Steinkeller2. Synergy Opportunities
1. Riddell and East have similar product lines to Skippers3. Penetration Promising Industries
1. Fenway Partners is strong in hockey and sports recovery businesses, both of which are markets Skippers has expressed desire to enter in to
Source(s): fenwaypartners.com
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Appendix
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Weighted Average Cost of Capital
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D/E 0.331Cost of Debt 4.00%Beta Unlevered 0.83 Beta Levered 1.172 Weight Debt 0.248780488Weight Equity 0.751219512Tax Rate 37.57%Cost of Equity 11%Risk Free 0.025Market Risk Premium 0.075WAAC 10.98%
Skippers Sporting GoodsCost of Debt
Derived from comparable companies in terms of size and leverage
Cost of Equity Calculated by unlevering and
relevering betas of the three closest comparables