Barkley Enterprises
M&A Analysis
Anuj Patel
George Mason University
Finance 302-001
Executive Summary
 Barkley Enterprises
 Family-owned private consumer good company consisting of
two separate business l...
Company Overview
 Barkley is a private consumer goods company

that is family-owned and operated since 1935
 Headquarter...
Economy and Outlook
 Personal care products are less sensitive to economic

conditions
 Recovering U.S. economy has incr...
Economy and Outlook (cont.)
•Disposable income determines the amount of money consumers can
spend on goods
•Historical dat...
Industry and Outlook
 Projected 2013 industry revenue: $49B
 Annual Growth: -2.4%
 Although negative annual growth, eco...
Industry and Outlook
 Private labels are an important factor in this

industry
 Increased demand in private labels from ...
Market Comparables Valuation
•Market Comparables contains publicly traded companies in the
Personal Hygiene industry
• Com...
Financial Projections
 2014-2017 Assumptions
 Net Working Capital remains constant at 8% of

revenue
 Branded products’...
Consolidated Forecast
WACC Calculation

*Assumptions made from Damodaran:
http://people.stern.nyu.edu/adamodar/
Discounted Cash Flow
•Using calculated WACC of 9.28
•Assuming Terminal Growth of 5% calculated from 2-stage growth model
•...
Synergies Assumptions
 Barkley can expect a higher valuation than the

intrinsic valuation due to the following revenue
a...
DCF with Potential Synergies
•Use calculated WACC of 9.28% and Terminal Growth rate of 5%
•Valuation of DCF with synergies...
Potential Buyer – Unilever
 Unilever is an Anglo-Dutch multinational consumer

goods company based in London, UK
 Market...
Potential Buyer – Procter &
Gamble
 P&G is multinational consumer goods company

based in Cincinnati, Ohio
 Market Cap: ...
Recommendation
 Ideal Buyer – Unilever
 A company with popular personal hygiene products

like axe, dove, and TRESemme
...
Recommendation (cont.)
 Division Valuation Range
 Market Comparables: $432MM to $547MM
 Discounted Cash Flows: $468MM t...
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Barkley enterprises m&a analysis

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Barkley Enterprises Mergers and Acquisitions Case Study

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Barkley enterprises m&a analysis

  1. 1. Barkley Enterprises M&A Analysis Anuj Patel George Mason University Finance 302-001
  2. 2. Executive Summary  Barkley Enterprises  Family-owned private consumer good company consisting of two separate business lines:  Snacks and Personal Hygiene  Management team has decided to sell each division separately to maximize proceeds due to higher synergies obtainable  This analysis will mostly focus on selling Personal Hygiene  Personal Hygiene Division  Market Comparables Valuation indicates enterprise value range of $431,982-$547,246 thousands, but valuations through discounted cash flows model and synergies consideration show an increase in value  Recommend the sale of this division to a large industry such as Procter & Gamble  Possible realizable transaction between $544,365MM to $761,025MM
  3. 3. Company Overview  Barkley is a private consumer goods company that is family-owned and operated since 1935  Headquartered in Atlanta, GA with a work force of 3,500 employees  Manufactures its own products and sells them in North and South America  Contains two separate business lines:  Snacks (2013 Revenue: $759MM, 2013 EBITDA: $140MM)  Personal Hygiene (2013 Revenue: $243MM, 2013 EBITDA: $360MM)
  4. 4. Economy and Outlook  Personal care products are less sensitive to economic conditions  Recovering U.S. economy has increased competitiveness due to lack of consumer spending  Positive growth in employment and real wages have given consumers extra spending power  S&P Economics forecast that real personal consumption would grow by 2.5% in 2013 Reference: http://www.netadvantage.standardandpoors.com.mutex.gmu.edu/NASApp/NetAdvantage/showIn dustrySurvey.do?code=hnd
  5. 5. Economy and Outlook (cont.) •Disposable income determines the amount of money consumers can spend on goods •Historical data shows that quantity of household products consumed remains steady even through different levels of disposable income Reference: http://www.netadvantage.standardandpoors.com.mutex.gmu.edu/NASApp/NetAdvantage/showIndustrySurvey.do?code =hnd
  6. 6. Industry and Outlook  Projected 2013 industry revenue: $49B  Annual Growth: -2.4%  Although negative annual growth, economic recovery will push industry to further growth  Increase in disposable income will increase consumption of essentials and non-essentials  Higher growth potential in emerging markets  U.S. and Western Europe have reached a mature point and a slower growth phase Reference: Cosmetic & Beauty Products Manufacturing Market Research Report | NAICS 32562 | Nov 2013 http://www.netadvantage.standardandpoors.com.mutex.gmu.edu/NASApp/NetAdvantage/showIndustry Survey.do?code=hnd
  7. 7. Industry and Outlook  Private labels are an important factor in this industry  Increased demand in private labels from retail companies in order to develop loyal customers  Private label products becoming popular because of similar quality but lower cost  On average priced 29% lower than branded products Reference: http://www.netadvantage.standardandpoors.com.mutex.gmu.edu/NASApp/NetAdvantage/showIndustrySurvey.do?code =hnd
  8. 8. Market Comparables Valuation •Market Comparables contains publicly traded companies in the Personal Hygiene industry • Comparables may be larger companies compared to Barkley enterprises, but generally produce similar products •EV/EBITDA multiples implies a valuation range of $432MM to $547MM
  9. 9. Financial Projections  2014-2017 Assumptions  Net Working Capital remains constant at 8% of revenue  Branded products’ growth in revenue remains constant at 2%  Private label products’ growth in revenue increases annually by 10 bps starting 2016; due to increase in demand of private label products  Expenses change by the average change in historical data  COGS increases by average of 20 bps  S&M decreases by average of 40 bps  G&A decreases by average 20 bps  Depreciation decreases by average 6 bps  CAPEX decreases by average 1 bps
  10. 10. Consolidated Forecast
  11. 11. WACC Calculation *Assumptions made from Damodaran: http://people.stern.nyu.edu/adamodar/
  12. 12. Discounted Cash Flow •Using calculated WACC of 9.28 •Assuming Terminal Growth of 5% calculated from 2-stage growth model •-From DCF model, a valuation range of $468MM to $654MM is obtained
  13. 13. Synergies Assumptions  Barkley can expect a higher valuation than the intrinsic valuation due to the following revenue and cost synergy opportunities:  Revenues of Branded Product and Private Label Revenue will increase by 1%  Annual reductions to G&A by 2% (as percentage of revenue)  Procurement Savings increase Gross Margin by 1.5%
  14. 14. DCF with Potential Synergies •Use calculated WACC of 9.28% and Terminal Growth rate of 5% •Valuation of DCF with synergies range between $544MM to $761MM
  15. 15. Potential Buyer – Unilever  Unilever is an Anglo-Dutch multinational consumer goods company based in London, UK  Market Cap: $119.48B  Unilever’s categories of operations include:  Personal care, foods, home care, and refreshments  Unilever’s popular products include:  Dove, Axe, TRESemme, Sunsilk Reference: Unilever Annual Reports and Accounts 2013
  16. 16. Potential Buyer – Procter & Gamble  P&G is multinational consumer goods company based in Cincinnati, Ohio  Market Cap: $228.93B  P&G’s operating segments include:  Beauty, Grooming, Health Care, Home Care, and Family Care  P&G’s popular products include:  Gillette, Pantene, Head & Shoulders Reference: Procter & Gamble 2013 Annual Report 10K
  17. 17. Recommendation  Ideal Buyer – Unilever  A company with popular personal hygiene products like axe, dove, and TRESemme  42% of Unilever’s operating profit comes from personal care, so will gain more benefits from synergy opportunities  Great opportunity for Unilever to develop more private label products in the U.S.  Demand for private label products is on the rise according to industry reports
  18. 18. Recommendation (cont.)  Division Valuation Range  Market Comparables: $432MM to $547MM  Discounted Cash Flows: $468MM to $654MM  DCF + Synergies: $544MM to $761MM  Recommendation  Consider Market Comparables value of $432MM as minimum  Discounted Cash Flows with synergies consists of ideal value range of $544MM to $761MM

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