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William Blair Case Competition (Miami University) - 2016

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Presentation from 2016 William Blair Case Competition finals

Published in: Business

William Blair Case Competition (Miami University) - 2016

  1. 1. Kona Adventures “Your One StopTravel Partners” Clare Adams | Sean Hynes | Cameron Mogk | Ethan Retcher 2016William Blair InvestmentBanking CaseCompetition
  2. 2. Executive Summary IndustryTrends PositioningAnalysis ValuationAnalysis 3 5 8 11 Strategic Options 19 FinalThoughts 24 Appendix 26 2
  3. 3. Executive Summary Executive Summary 3Industry Trends Valuation Analysis Strategic Options Final Thoughts Appendix Potential BuyersValuation Ranges ValuationPositioning Sell-Side Advisory 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 betweenthe range of $640mm - $680mm Ø 2016E Revenue:$206.2mm § 8.7% growth from 2015 Ø 2016E EBITDA: $52.6mm Ø Analysis leads to a recommendationof a sale to astrategic buyerwith: § large international presence § corporate focus Ø Mid-marketbusiness share,unique growthsegmentsand customer retention rate can provide synergies Positioning Analysis 550 590 630 670 710 Comparables EV/EBITDA Precedent Transactions LBO Analysis DCF Exit Multiple DCF Perpetuity Growth
  4. 4. IndustryTrends 4 Appendix
  5. 5. General Outlook Industry Trends Company Overview Valuation Analysis Strategic Options Final Thoughts Appendix Executive Summary 5 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 LeisureTravelVolume Recent Sector Growth Costing Strategies (Inmillions) 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 BusinessTravelVolume 1.0% 1.5% 2.0% 2.5% 3.0% 3.5%(Inmillions) (CAGR) (CAGR) Travel Expenditures as % of GDP
  6. 6. Consolidation andTech Industry Trends Company Overview Valuation Analysis Strategic Options Final Thoughts Appendix Executive Summary 6 Millennials 0 20 40 60 80 100 2014 2015 2016E 2017E 2018E 2019E (Inmillions) Trips Booked viaTravel Apps Millenials Recently implemented ERP systemplaces Kona as an industryleader moving forward Consolidation Ø Hotel and airline industries have seen consolidation Ø Travelagencies 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 UsageWhen Booking Non-Millenials Data via Boston Consulting Group
  7. 7. PositioningAnalysis 7 Appendix
  8. 8. Company Overview Industry Trends Valuation Analysis Strategic Options Final Thoughts Appendix Executive Summary 8 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 Accommodation 2013-2016E Sales CAGR: 6% Hotel Booking 2013-2016E Sales CAGR: 10% Transportation Services 2013-2016E Sales CAGR: 4% Entertainment Planning 2013-2016E Sales CAGR: 27% Partnersships 55% of 2015 Revenue 25% of 2015 Revenue 10% of 2015 Revenue 10% of 2015 Revenue Ø Provensuccess 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 Positioning Analysis GrowthTrends EBITDA(inmillions) EBITDAMargin 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
  9. 9. 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 SWOTAnalysis Industry Trends Valuation Analysis Strategic Options Final Thoughts Appendix Executive Summary 9 Ø Full travelexperience covering all ends of travel Ø Strong partnerships keep overall product quality high Ø Business travelis not as cyclical as leisure travel S W TO Positioning Analysis
  10. 10. Valuation Analysis 10 Appendix
  11. 11. Valuation Overview Industry Trends Valuation Analysis Strategic Options Final Thoughts Appendix Executive Summary 11 2015 EBITDA 2016E EBITDA 11.8x 10.5x 12.7x 11.2x 13.5x 12.0x 14.4x 12.7x Positioning Analysis 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 PrecedentTransactions LBOAnalysis DCF Exit Multiple DCF Perpetuity Growth
  12. 12. Company Name Ticker & Exchange Price Enterprise Value Equity Value LTM 2016E EBITDA LTM EBITDA Margin Enterprise Value Revenue EBITDA LTM Revenue LTM EBITDA 2016E EBITDA TravelZoo 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 Industry Trends Valuation Analysis Strategic Options Final Thoughts Appendix Executive Summary 12 ImpliedValuation RangeAnalysis Notes Ø Used multiple foreign companies due to the large size of most U.S. travelconglomerates § 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 Positioning Analysis Kona Adventures 2016E EBITDA $52.6 Comparable Multiple Range 12.7x 13.3x Enterprise Value Range $665.4 $697.0
  13. 13. PrecedentTransactionsAnalysis Industry Trends Valuation Analysis Strategic Options Final Thoughts Appendix Executive Summary 13 ImpliedValuation RangeAnalysis Notes Ø 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) Positioning Analysis Kona Adventures 2016E EBITDA $52.6 Precedents 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 Acquirer Transaction Type Announcement Date Transaction Value Premium Transaction Value Revenue 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
  14. 14. Discounted Cash Flow Industry Trends Valuation Analysis Strategic Options Final Thoughts Appendix Executive Summary 14 ImpliedValuation RangesAnalysis Notes Perpetuity Growth EBITDA Exit Multiple Growth Assumptions: Ø High growth is both organic and inorganic Ø Peaks in 2018E, management’s end projection year WACC Assumptions: Ø All assumptions based on comparable companies Positioning Analysis *Based on comparables WACC Calculation Book 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
  15. 15. Leveraged Buyout Analysis Industry Trends Valuation Analysis Strategic Options Final Thoughts Appendix Executive Summary 15Positioning Analysis Capital Structure ImpliedValuation Range and Return MetricsAnalysis Notes (InMillions) Ø Low CapEx creates strong free cash available for debt repayment Ø Strong qualitative drivers combat cyclicality and can spark future growth Transaction Assumptions: Ø Debt/EBITDA Purchase Multiple: 5.5x Ø 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 assumptionslisted left $0 $200 $400 $600 $800 $1,000 2017E 2018E 2019E 2020E 2021E Equity Debt
  16. 16. Bear Case Scenario Industry Trends Valuation Analysis Strategic Options Final Thoughts Appendix Executive Summary 16Positioning Analysis Rationale Ø Management has bullish forward projections for growth Ø Decreased discretionary spending would hinder our projections Ø Terrorist attack Ø 2008 Ø 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 ImpliedValuation Ranges 570 590 610 630 650 670 690 Bear Case Standard 7.6%
  17. 17. Ø Actions should be taken to brace for this scenario Ø Three ways to protect our growth segment PreventativeActions Industry Trends Valuation Analysis Strategic Options Final Thoughts Appendix Executive Summary 17Positioning 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 havecontinued discretionaryspending in downturn—likely to continue extending trips
  18. 18. Strategic Options 18 Appendix
  19. 19. Potential Acquisition Industry Trends Valuation Analysis Strategic Options Final Thoughts Appendix Executive Summary 19 Implied MetricsPotentialTarget Why Now? Positioning Analysis 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 geographically Ø Our IT expertise will benefit them greatly Ø Establish connections with upper-class citizens As Is With Acquisition Ø Revenues have been damaged the past fewyears 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
  20. 20. Strategic Buyer Universe Industry Trends Valuation Analysis Strategic Options Final Thoughts Appendix Executive Summary 20 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 totemporarily rent out their house. JetBlue Airways Corporation provides low-cost airline flights. It is headquartered out of John F. Kennedy International Airport in NewYorkCity. Carlson Wagonlit Travel provides travel management services, including: travel bookings, program management and security services, for mostly large corporations. Direct Travel is anonline travel services agency that focuses primarily on scheduling business travels and meetings. They alsoprovide vacation travels. LTM Revenue: $2,274.3 M Market Cap: $21,239.5 M Privately Held (EstimatedIPO value of ~$30B) LTM Revenue: $6,585.0 M Market Cap: $5,594.1 M Privately Held Privately Held Ø Strong M&A activity inthe 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 Positioning Analysis Ø Strong international focus and M&A activity Ø In need of a stronger digital presence Ø Two-way synergies
  21. 21. Financial Buyer Universe Industry Trends Valuation Analysis Strategic Options Final Thoughts Appendix Executive Summary 21 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 severalindustries 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 approach Ø Severalstrong synergy opportunities through currently held portfolio comps Ø Heavy focus on software companies Ø Pick-and-place management opportunities Ø Strong qualitative growth opportunities available to create value for Kona Ø Severalsecured commitments across Europe and Asia Ø Able to help Kona with global expansion goals that management has set in place Ø Traveloriented investment criteria Ø Numerous synergy opportunities with current portfolio companies Ø Bear case scenario alternative for Kona Positioning Analysis 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 historically Ø Operationally focused helping organic and inorganic growth Ø Strong synergy opportunity with MNX
  22. 22. Best Fit Buyers Industry Trends Valuation Analysis Strategic Options Final Thoughts Appendix Executive Summary 22Positioning 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 DirectTravelhas a strong international presence,expanding our geographic boundaries Ø Key synergies: § Greater exposure to international markets § DirectTravelgets access to our eventplanning segment and industry relationships Ø DirectTravelhas been acquisitive lately
  23. 23. FinalThoughts 23 Appendix
  24. 24. FinalThoughts Industry Trends Valuation Analysis Strategic Options Final Thoughts Appendix Executive Summary 24Positioning Analysis Valuation Ranges Why DirectTravel?Recommendation After analysis of potential synergies and recent market activity, recommend a strategic sale to DirectTravel SuggestedTime Frame With consumer discretionary spending high, the recent multiples being paid for travelservice/travelservice acquisitions and a plausible bear case, recommend a sale early2017 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
  25. 25. Appendix 25
  26. 26. 26 Contents Industry Trends Valuation Analysis Strategic Options Final Thoughts Executive Summary Positioning Analysis Appendix Ø Executive Summary Ø IndustryTrends Ø Positioning Analysis Ø Valuation Analysis Ø Strategic Options Ø FinalThoughts
  27. 27. Pro Forma Income Statements Industry Trends Valuation Analysis Strategic Options Final Thoughts Appendix Executive Summary 27Positioning Analysis No Acquisition With acquisition of Rhino Africa Safaris Projected 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 Projected Fiscal 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

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