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Staples Inc. Pitch Book

Staples is considering acquiring NetScout Systems to expand into the growing IT services market. The recommendation is for Staples to first repurchase $1 billion of its own shares to increase EPS and share price. Then, Staples would acquire NetScout for $44.01 per share, using 40% stock, 40% debt, and 20% cash. The acquisition would allow Staples to significantly bolster the technology portion of its Business Advantage services and diversify its revenues beyond office supplies.

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Discussion Materials | February 3rd , 2017 Recommendation to Staples Inc. | Board of Directors 1
The I.U. Morgan Team The Team 2 Tim Johnson Majors: Finance and Real Estate Hometown: Cape Cod, Massachusetts Christina Adams Majors: Accounting and Finance Hometown: Wheaton, Illinois Michael Smith Majors: Finance Hometown: Columbia, Maryland Majors: Finance and Accounting Hometown: Cincinnati, Ohio Jake Winans Austin Adamczyk Major: Finance Hometown: Fulton, Maryland Tom Strong Majors: Finance and Accounting Hometown: Bordeaux, France
Table of Contents Table of Contents 3 I. Executive Summary 4 II. Industry and Company Analysis 6 III. Strategic Recommendation 11 IV. Appendix 18
I. Executive Summary 4
Executive Summary Executive Summary 5 • I.U. Morgan proposes that Staples acquires NetScout Systems in order to further develop their markets within IT optimization, cyber securities, and strategically grow their United States customer base • This potential acquisition will allow Staples to expand upon its Business Advantage package and grant them a larger, more diverse number of resources as they continue to differentiate their company within the digital maintenance market Macroeconomic & Industry Outlook Strategic Positioning for M&A Proposal • Consumer spending is expected to increase over the span of the next three years • Consumer Confidence Index is at a 13- year high • Consolidation among the largest firms leaves few remaining major retailers within the industry • Increasing competition from online, substitute retailers • Decline of the office supplies industry is predicted to continue over the course of the next five years • Many of the core products within the industry are now viewed as outdated • With physical office supplies dwindling in terms of significance within the business world year after year, IT and network operations management and security are becoming imperative for all businesses across the globe • History of technology companies performing positively post-acquisition is a key factor for the M&A • Other specialty retailers across various industries have acquired smaller, developing companies in successful attempts to diversify and expand both their products and consumer base • A greater number of convenient online services allows companies to capitalize on the high Consumer Confidence Index • Considering the steady decline within the office supplies industry, expansion into more relevant and developing markets is of the utmost importance • A great number of businesses are expanding their presence within the digital market, and the demand for consistent digital maintenance and security is rapidly increasing as a result • Using cash, Staples will execute an open market share repurchase of SPLS; Nasdaq (65 million shares) at the purchase price of $9.05 using 60% of cash reserves • Post share repurchase, Staples Inc. Acquires NetScout Systems Inc. Offer Price: $44.01 per share (35% Control Premium)
II. Industry and Company Analysis 6
• U.S. GDP projected to grow 2.7% in 2017 and 3% in 2018 • Trump administration will likely cut corporate tax rates, deregulate, and increase infrastructure spending • Trump administration could also enact high tariffs, increasing costs of importing goods for many U.S. companies • U.S. PMI Composite continuing steady upward trend, reaching 55.4 in January 2017, from 50 in February of 2016 • Consumer Confidence Index has increased to 113.7 in December from 109.4 in November, reaching a 13-year high • Consumer spending expected to average 2.5% growth per year over the next three years • Federal Reserve expected to raise rates by 75 basis points this year, showing strong optimism in U.S. economy Macroeconomic & Industry Analysis Macroeconomic & Industry Analysis 7 • Office supplies industry expected to continue its decline in the next five years • Economy is digitalizing, with online growth and decline in floor space • Increasing competition from substitute retail industries, especially online retailers providing lower prices and at-home convenience • Consolidation among largest firms leaves few remaining major retailers • IVA forecasted to decline at an average annual rate of 6.2% • Some of industry decline is result of many core products becoming obsolete • Households account for 45% of industry sales, while small and medium sized businesses account for another 44.6% Macroeconomic Trends Industry Trends Office Supply Store Forecast $10,000 $12,000 $14,000 $16,000 $18,000 $20,000 U.S. GDP ($B) -7% -6% -5% -4% -3% -2% -1% 0% $10,000 $12,000 $14,000 $16,000 2015 2016 2017 2018 2019 2020 Revenue Growth %
• Headquartered in Framingham, Massachusetts • Founded in 1985 by two former rivals in the New England supermarket industry • IPO on April 27th, 1989 with $325 million shares sold at stock adjusted price of $0.74 • Ticker Symbol: SPLS (NASDAQ) • Market Capitalization: $6.0501 billion • Currently employs over 79,075 people • Recorded revenue of $21.1 billion in 2015, down 6.37% from $22.5 billion in 2014 • Holds over 36% of industry market share • Subsidiaries: Quill Corporation, Staples Business Advantage, Corporate Express, PNI Media Staples Company Overview Company Overview 8 • Staples has completed over nine acquisitions in past ten years • November 2016: Q3 earnings call unveils “Staples 20/20” strategic plan • November 2016: Agrees to sell U.K. retail division to Hilco as international sales continue to decline • September 2016: Appoints Shira Goodman as CEO, a veteran of 25 years • August 2016: Pays Office Depot $250 million breakup fee for blocked merger due to anti-trust concerns • March 2016: Staples introduces its Business Advantage package to small-medium sized companies • July 2014: Acquires PNI Digital Media, a Canadian printing software company for $67.3 million in cash Business Description Recent Developments Growth and Revenue -8% -6% -4% -2% 0% 2% $19,000 $19,500 $20,000 $20,500 $21,000 $21,500 2015 2016 2017 2018 2019 Revenue Growth % $0 $2 $4 $6 $8 $10 $12 $14 $16 $18 $20 Stock hits 13-year low after FTC files suit to block Office Depot merger Historical Stock Chart (5Y) Staples shares are currently up over 4.3% YTD, underperformi ng the NASDAQ and S&P500 by 17.4% and 13.1% respectively Staples announces purchase of Lonesource Stock advances over 30% based on speculation of merger with Office Depot
Small Businesses 27.80% Households for Education Purposes 22.50% Large Businesses 16.80% Households for General Purposes 15.30% Other 17.60% • Main products include office supplies and equipment, office machines, technology, office furniture, staples, and more • Main services include printing, marketing, shipping, tech, office, and finance • Products sold through brick-and-mortar locations as well as online • Focusing on mid-market customers with Staples Business Advantage • 85% of revenue comes from within North America, with only 15% international • Number one office supply superstore in United States and worldwide leader in the office category • Working towards goals of over 60% sales from beyond office supplies, over 80% sales delivered, and over 95% of sales from North America Staples Strategic Focus Strategic Focus 9 Major Market Segmentation North America 85% International 15% Geographic Segmentation Office Supplies and Equipment 44.60% Office Machines 28.50% Technology 13.00% Services 8.20% Office Furniture 5.70% Sales SegmentationProducts and Services
Staples Football Field Analysis Football Field Analysis 10 52-Week Range DCF Precedent Transactions Comparables $6 $8 $10 $12 $14 $16 $18 Implied Share Price Range
III. Strategic Recommendation 11
• Using cash, Staples will execute an open market share repurchase of SPLS; Nasdaq (65 million shares) at the purchase price of $9.05 using 60% of cash reserves (1B) • The target share price post-buyback is between $11.50 and $12.00 • Share price will rise as a result of increased EPS and share holder confidence • Staples used this strategy in both 2007 and 2011 to raise their EPS by an average of 17% from the respective previous years Strategic Recommendation Strategic Recommendation 12 • The increased share price from the share repurchase provides substantial utility in capital to assist in the acquisition of NetScout • Staples Acquires NetScout Systems, which will operate under the Staples brand • Staples benefits from the synergy between NetScout and Staples Business Advantage • Offer Price: $44.01 per share (35% Control Premium) • Transaction Currency: 40% Stock, 40%Debt, 20% Cash Share BuyBack Acquisition of NetScout Staples EPS Growth Shareholder Aspirations • According to I.U. Morgan analysts, Staples stock is currently undervalued • Buying back shares at an undervalued price gives confidence to shareholders and will increase the stock price • Staples has consistently underperformed in comparison to its index (Nasdaq) • Staples has over 1 billion in cash on hand, able to purchase 107+ million shares outstanding • Staples would be protected from tax on cash • EPS and subsequently share price is projected to increase -20% -10% 0% 10% 20% 30% 0 0.2 0.4 0.6 0.8 1 1.2 1.4 1.6 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 EPS Growth %, YoY File a 10B-18 with the SEC, announce share repurchase (N-23-c3) Using industry practices of ASR to complete repurchase timeline of 6 months Allow market trends and analyst reports to help bolster share price following increased EPS Research, propose & close NetScout (with fairness opinion)
Strategic Rationale Strategic Rationale 13 Potential Risks & Mitigations • Acquisition of NetScout may not meet the expectations of technology portion of Staples’ Business Advantage Series • NetScout may not be able to handle the larger network that Staples serves • NetScout provides solutions that are used in various service providers, enterprise and government networks, meaning Staples will be exposed to new sectors improving the technology portion of their Business Advantage Series • NetScout has successfully reacted and changed their practices after numerous acquisitions and company changes Culture Fit • Both companies are headquartered in Massachusetts, less than 40 minutes apart • Companies share many similar corporate responsibility incentives including ROHS and WEEE • Similar mission alignment between both companies as they pride themselves on reliability and “24/7 performance” • NetScout Systems is a member of Technology Alliance Partners, which Staples has worked with in the past with successful results Strategic Fit • Staples is looking to diversify their product and develop a strong presence in the IT services industry • Through the acquisition of NetScout Systems Staples stands to significantly bolster the technology portion of their Business Advantage services • NetScout Systems serves as a Tier 1 ERP software solution, able to meet the demands and breadth of Staples corporate clients • As Staples moves to a digital focus closing all stores that do not turn a profit, NetScout Systems offers a sustainable business model for the retention of Staples’ international clients • Staples would have the utilitarian position and resources to accommodate NetScout Systems growth due to ample increases in client base Acquisition & Integration 42.54% 27.29% 16.87% 7.85% 5.46% Office supplies and equipment Office machines Technology Services Office furniture Post-Acquisition Revenues
• Headquartered in Westford, Massachusetts • Founded as Network General in 1984 by Anil Singhal, who is still the company’s President, CEO, and Chairman • IPO on August 12th, 1999 with 3 million shares sold at $11 per share • Ticker Symbol: NTCT (NASDAQ) • Market Capitalization: $2.880 billion • Currently employs over 3,144 people • Focus on mid-market and large corporate customers NetScout Company Overview Company Target Overview 14 Business Description NetScout shares are currently up over 59% YTD, outperforming the NASDAQ and S&P500 by 38% and 42% respectively Historical Stock Chart (5Y) $0 $5 $10 $15 $20 $25 $30 $35 $40 $45 $50 NetScout announces plans to acquire businesses from Danaher for $2.6B Stock down over 20% in one day over missed earnings 4 large shareholders hold more than 30% of NetScout Ownership Volume Weighted Average Price Expected Return on Investment 11.19% $35.28 35.7% 57.6%$18.67 $29.60 $28.29 32.7% 19.83% 7.75% 7.32% 5.38% Major Shareholders
• R&D expense rose 64% YoY to $209 million in 2016 • Acquired technology assets of Avvasi Inc. in August 2016 • Acquired multiple communications businesses from Danaher for $2.6 billion in July 2015 to expand customer base, fortify distribution, and accelerate adoption of the cybersecurity industry • Businesses acquired from Danaher include Tektronic Communications, Arbor Networks, Fluke Networks, and VSS • Acquired Fox Replay in October 2011, a Dutch information assurance and cybersecurity company • Acquired Psytechnics in April 2011, a U.K. voice and video management company • Recorded revenue of $955 million in 2015, up 110% from $453 million in 2014 • NetScout designs, develops, manufactures, markets, and supports products that enable businesses and service providers to report and manage performance of computer networks and business software applications • Collects information used to optimize application and network performance • Working towards solidifying and expanding its information assurance and cybersecurity business • Sells products directly and through distributers to government and corporate customers NetScout Strategic Focus Strategic Focus 15 Recent DevelopmentsProducts and Services Growth and Revenue 0% 20% 40% 60% 80% 100% 120% $0 $200 $400 $600 $800 $1,000 $1,200 $1,400 2015 2016 2017 2018 2019 Revnues Growth % North America 71% Asia 15% Europe 14% Geographic Segmentation
Key Employees Key Employees 16 Anil K. Singhal Michael Szabados Jean Bua Daryle DeBalski Founder, Chairman of the Board, President and Chief Executive Officer • Co-founded NetScout in June of 1984 and has served as CEO and as a director on the company’s Board since inception • Credited with numerous innovations in the field of network traffic monitoring and analysis Chief Operating Officer • Served as NetScout’s Chief Operating Officer since April 2007 • Previously served as the Senior Vice President, Product Operations • Held senior leadership roles with multiple companies: UB Networks, SynOptics/Bay Networks, and MIPS Corporation Executive Vice President and Chief Financial Officer • Served as NetScout’s Chief Financial Officer and Treasurer since November 2011 • Before NetScout, Ms. Bua served as Executive Vice President, Finance and Treasurer of American Tower Corporation Senior Vice President, Research & Development and General Manager, Tools • Joined NetScout in July 2015 after NetScout’s acquisition of Danaher’s Communications, where he was general manager for the Fluke Networks Enterprise business unit • Mr. DeBalski has more than 20 years of software industry experience from a variety of companies
NetScout Football Field Analysis Football Field Analysis 17 $15 $20 $25 $30 $35 $40 $45 $50 $55 Implied Share Price Range 52-Week Range DCF Precedent Transactions Comparables
IV. Appendix 18
Staples Precedent Transactions Analysis Comparable Companies Analysis 19 Target Acquirer Announced Date Purchase Type Equity Value (in millions) Transaction Value (in millions) TV/Revenue TV/EBIT TV/EBITDA OfficeMax OfficeDepot 2/20/2013 All-Stock $ 1,323.84 $ 1,789.20 .99x 14.31x 11.16x Lamrite West Inc Michaels Cos Inc 2/2/2016 Cash $ 150.00 $ 150.00 .31x 15.59x 7.53x Alfonso Nutrition Vitamin Shoppe 6/9/2014 Cash $ 80.00 $ 80.00 .95x 12.87x 21.25x THSD GNC Holdings 4/17/2014 Cash $ 7.50 $ 7.50 .86x 19.7x 6.29x High $ 1,323.84 $ 1,789.20 .99x 19.7x 21.25x Low $ 7.50 $ 7.50 .31x 12.87x 6.29x Mean $ 390.34 $ 506.68 0.7775x 15.6175x 11.5575x
NetScout Precedent Transactions Analysis Target Precedent Transactions 20 Target Acquirer Announced Date Purchase Type Equity Value (in millions) Transaction Value (in millions) TV/Revenue TV/EBIT TV/EBITDA Net Optics Inc Ixia 10/29/2013 Cash $ 190.00 $ 190.00 1.52x 307.9x 43.02x Airwave Solutions Ltd Motorola Solutions Ltd 12/3/2015 Cash $ 817.50 $ 817.50 2.54x 13.98x 10.17x ADC India Communications CommScope Holding Co Inc 9/4/2015 Cash $ 47.68 $ 47.68 1.06x 11.31x 7.69x Transmode AB Infinera Corp 4/9/2015 Cash & Stock $ 2,659.40 $ 2,954.20 2.91x 31.39x 18.62x High $ 2,659.40 $ 2,954.20 2.91x 307.9x 43.02x Low $ 47.68 $ 47.68 1.06x 11.31x 7.69x Mean $ 928.65 $ 1,002.35 2.0075x 91.145x 19.8x
Staples Comparable Companies Staples Comparables 21 Staples Comparable Anaysis *All values in Millions Except Share Price Data Company Name Ticker Share Price 52 Week High % of 52 week High Enterprise Value Market Cap EV/EBITD A TTM EV/EBITD A NTM EV/EBIT TTM EV/Sales TTM Debt/Equit y P/E TTM P/E NTM Total Debt/ EBITDA EBITDA/ Int. Expense Staples SPLS 9.02 11.37 79% 5,872.95 5,893.95 4.335 4.298 6.47 0.284 19.224 9.208 10.249 0.751 9.921 Tier 1 Comparables Office Depot ODP 4.34 7.91 54.87% 2,608.95 3,073.95 3.511 2.922 5.672 0.18 94.136 13.525 10.914 2.031 7.989 Essendant ESND 20.77 34.99 59.36% 1,897.57 1,211.23 7.751 7.505 9.674 0.354 98.975 17.75 10.973 2.926 11.897 Micheals Cos Inc MIK 20.02 31.36 63.84% 6,916.56 4,556.11 8.253 8.308 9.562 1.408 9.53 11.45 3.305 6.012 Williams-Sonoma Inc] WSM 47.72 61.97 77.01% 4,433.18 4,626.83 6.709 6.521 8.993 0.891 0.161 15.191 14.249 0 Dicks Sporting Goods DKS 50.71 62.88 80.65% 4,254.70 4,367.25 5.776 7.846 7.834 0.585 0.357 13.614 16.723 0.009 183.617 Mean 28.712 39.822 0.671434 4022.192 3567.074 6.4 6.6204 8.347 0.6836 48.40725 13.922 12.8618 1.6542 52.37875 Median 20.77 34.99 0.638393 4254.7 4367.249 6.709 7.505 8.993 0.585 47.2465 13.614 11.45 2.031 9.943 Low 4.34 7.91 0.548673 1897.565 1211.233 3.511 2.922 5.672 0.18 0.161 9.53 10.914 0 6.012 High 50.71 62.88 0.806457 6916.564 4626.825 8.253 8.308 9.674 1.408 98.975 17.75 16.723 3.305 183.617 Tier 2 Comparables Cabellas Inc CAB 54.26 63.3 85.72% 8,405.02 3,169.17 18.097 20.305 25.335 2.102 308.135 16.173 19.729 12.132 20.289 Autonation Inc AN 51.77 54.15 95.60% 12,630.17 6,610.57 12.657 11.409 14.509 0.605 259.384 15.349 12.993 6.107 7 Bed Bath and Beyond BBBY 40.04 52.71 75.96% 8,574.47 7,676.24 5.123 4.895 6.126 0.708 58.604 9.882 8.788 0.896 19.136 GNC GNC 8.63 35.9 24.04% 3,762.07 2,366.08 7.651 5.566 8.659 1.425 309.982 10.613 3.733 2.954 11.458 Best Buy Co BBY 44.31 49.4 89.70% 7,541.15 9,043.15 3.55 5.071 5.141 0.191 40.635 10.784 13.307 0.838 26.55 Mean 39.802 51.092 0.742044 8182.576 5773.042 9.4156 9.4492 11.954 1.0062 195.348 12.5602 11.71 4.5854 16.8866 Median 44.31 52.71 0.857188 8405.016 6610.57 7.651 5.566 8.659 0.708 259.384 10.784 12.993 2.954 19.136 Low 8.63 35.9 0.24039 3762.074 2366.082 3.55 4.895 5.141 0.191 40.635 9.882 3.733 0.838 7 High 54.26 63.3 0.956048 12630.17 9043.147 18.097 20.305 25.335 2.102 309.982 16.173 19.729 12.132 26.55 Valuation implied By P/E Net Income Financial Metric Fully Diluted Shares TTM 0.93 9.53 17.75 5765.76 10738.95 650.55 8.8629 16.5075 Next Year Estmates 0.88 10.914 16.723 6248.09 9573.65 650.55 9.60432 14.71624 Valuation Implied By EV/EBITDA EBITDA Financial Metric Less: Net Debt Fully Diluted Shares TTM 1369 3.511 8.253 4806.559 11298.36 1047 4835.559 11327.36 650.55 7.433032 17.41197 Next Year Estmates 1366.45 2.922 8.308 3992.767 11352.47 1047 4021.767 11381.47 650.55 6.182103 17.49515 Multiple Range Implied Share Price Range Multiple Range Implied Share Price Range Implied Equity Value Implied Equity Value Implied Enterprise Value
NetScout Comparable Companies NetScout Comparables 22 Netscout Comparable Anaysis *All values in Millions Except Share Price Data Company Name Ticker Share Price 52 Week High % of 52 week High Enterprise Value Market Cap EV/EBITD A TTM EV/EBITD A NTM EV/EBIT TTM EV/Sales TTM Debt/Equit y P/E TTM P/E NTM Total Debt/ EBITDA EBITDA/ Int. Expense Netscout NTCT 32.6 33.95 96.02% 2,876.56 2,879.95 14.759 9.324 110.446 2.535 12.278 118.734 16.614 1.67 28.389 Tier 1 Comparables Viavi Solutions VIAV 9.28 9.45 98.20% 1,592.01 2,034.31 14.114 11.453 33.029 1.794 85.347 82.13 26.707 5.206 3.165 IXIA XXIA 19.4 19.5 99.49% 1,510.08 1,597.15 18.257 15.796 59.872 3.05 7.231 159.451 30.727 0.423 10.657 Plantronics Inc PLT 53.04 57.79 91.78% 1,944.79 1,877.39 12.974 10.627 15.04 2.223 156.726 22.696 17.775 3.421 5.69 Finistar Corporation FNSR 29.84 36.85 80.98% 2,858.37 3,249.98 14.05 8.3 26.385 2.134 19.784 32.642 13.7 1.612 12.198 Cienna Corp CIEN 24.46 25.32 96.60% 3,625.13 3,415.44 11.774 8.748 21.812 1.394 164.75 43.14 14.211 4.101 5.434 Mean 27.204 29.782 0.934098 2306.075 2434.854 14.2338 10.9848 31.2276 2.119 86.7676 68.0118 20.624 2.9526 7.4288 Median 24.46 25.32 0.966035 1944.785 2034.311 14.05 10.627 26.385 2.134 85.347 43.14 17.775 3.421 5.69 Low 9.28 9.45 0.809769 1510.08 1597.154 11.774 8.3 15.04 1.394 7.231 22.696 13.7 0.423 3.165 High 53.04 57.79 0.994872 3625.125 3415.439 18.257 15.796 59.872 3.05 164.75 159.451 30.727 5.206 12.198 Tier 2 Comparables Motorola Solutions MSI 81 87.55 92.52% 16,932.22 13,559.22 11.661 10.163 14.169 2.901 21.305 17.222 3.569 6.613 Adtran Inc ADTN 21.8 23.75 91.79% 956.38 1,052.66 18.681 13.715 25.996 1.502 5.589 36.122 23.59 0.523 89.503 Arris International ARRS 28.76 31.52 91.24% 6,671.73 5,447.73 8.921 7.582 22.085 1.081 83.643 25.533 10.346 2.833 7.663 Ubiquiti Networks UBNT 62.73 63 99.57% 4,738.27 5,111.79 17.86 16.412 18.288 6.583 46.211 22.583 20.433 0.843 Calamp Corp CAMP 14.79 19.67 75.19% 569.37 525.17 14.186 11.572 28.103 1.696 73.794 46.859 14.11 3.238 5.684 Mean 41.816 45.098 0.900628 5973.591 5139.312 14.2618 11.8888 21.7282 2.7526 52.30925 30.4804 17.1402 2.2012 27.36575 Median 28.76 31.52 0.917895 4738.269 5111.791 14.186 11.572 22.085 1.696 60.0025 25.533 17.222 2.833 7.138 Low 14.79 19.67 0.751906 569.365 525.166 8.921 7.582 14.169 1.081 5.589 21.305 10.346 0.523 5.684 High 81 87.55 0.995714 16932.22 13559.22 18.681 16.412 28.103 6.583 83.643 46.859 23.59 3.569 89.503 Valuation implied By P/E Net Income Financial Metric Fully Diluted Shares TTM 0.193 22.696 159.451 401.1154 2818.041 91.572 4.380328 30.77404 Next Year Estmates 1.893 13.7 30.727 2374.837 5326.396 91.572 25.9341 58.16621 Valuation Implied By EV/EBITDA EBITDA Financial Metric Less: Net Debt Fully Diluted Shares TTM 179.675 11.774 18.257 2115.493 3280.326 300 2891.493 4056.326 91.572 31.57617 44.29658 Next Year Estmates 308.5 8.3 15.796 2560.55 4873.066 300 3336.55 5649.066 91.572 36.43636 61.68988 Implied Share Price Range Multiple Range Implied Equity Value Implied Share Price Range Multiple Range Implied Enterprise Value Implied Equity Value
Discounted Cash Flow Analysis (Staples) 23Discounted Cash Flow Analysis Pro Forma Income Statement Actual FYE Projected FYE 2014A 2015A 2016A LTM 2017E 2018E 2019E 2020E 2021E 0.5 1.5 2.5 3.5 4.5 Total Revenues (Sales) $ 23,144.26 $ 22,492.00 $ 21,059.00 $ 20,476.00 20,467.00 $19,824.70 $ 19,713.50 $ 19,939.33 $20,168.63 % Growth -2.82% -6.37% -2.77% -0.04% -3.14% -0.56% 1.15% 1.15% Cost of Sales (COGS) $ 17,111.96 $ 16,691.00 $ 15,545.00 $ 15,168.00 $ 15,212.60 $ 14,700.00 $ 14,588.00 $ 14,854.83 $ 15,150.03 % Sales 135.25% 134.76% 135.47% 134.99% 134.54% 134.86% 135.14% 134.23% 133.13% Net Operating Revenues $ 6,032.30 $ 5,801.00 $ 5,514.00 $ 5,308.00 $ 5,254.40 $ 5,124.70 $ 5,125.50 $ 5,084.50 $ 5,018.60 % Margin 26.06% 25.79% 26.18% 25.92% 25.67% 25.85% 26.00% 25.50% 24.88% Selling, General, & Administrative $ 4,735.29 $ 4,815.00 $ 4,600.00 $ 4,382.00 $ 3,887.95 $ 3,751.84 $ 3,761.90 $ 3,749.50 $ 3,667.60 % Sales 20.46% 21.41% 21.84% 21.40% 19.00% 18.93% 19.08% 18.80% 18.18% EBITDA (Adjusted) $ 1,699.80 $ 1,443.00 $ 1,379.00 $ 1,369.00 $ 1,366.45 $ 1,372.86 $ 1,363.60 $ 1,335.00 $ 1,351.00 % Margin 7.34% 6.42% 6.55% 6.69% 6.68% 6.92% 6.92% 6.70% 6.70% Less: D&A $ 55.41 $ 62.00 $ 67.00 444 437.74 455.72 429.93 399 418 % Sales 0.24% 0.28% 0.32% 2.17% 2.14% 2.30% 2.18% 2.00% 2.07% EBIT $ 1,644.39 $ 1,381.00 $ 1,312.00 $ 925.00 928.71 917.14 $ 933.67 $ 936.00 $ 933.00 % Margin 7.10% 6.14% 6.23% 4.52% 4.54% 4.63% 4.74% 4.69% 4.63% Taxes 511.40529 403.252 378.9056 259.925 260.96751 257.71634 262.36127 263.016 262.173 Tax Rate 31.10% 29.20% 28.88% 28.10% 28.10% 28.10% 28.10% 28.10% 28.10% EBIAT 1132.98471 977.748 933.0944 665.075 667.74249 659.42366 671.30873 672.984 670.827 Plus: D&A 55.41 62 67 444 437.74 455.72 429.93 399 418 Less: (Inc.) In Net Working Capital $ 156.10 $ 67.00 $ 131.00 $ 53.00 52.97670443 51.31417757 51.02634792 51.61088543 52.20441061 Less: Capital Expenditures $ 371.20 $ 361.00 $ 381.00 $ 324.00 $ 290.80 $ 324.50 $ 319.70 $ 375.00 $ 375.00 Unlevered Free Cash Flow 661.09471 611.748 488.0944 732.075 761.7057856 739.3294824 730.5123821 645.3731146 661.6225894 WACC 6.91% Discount Factor 96.71% 90.46% 84.61% 79.14% 74.02% Present Value $ 736.67 $ 668.79 $ 618.09 $ 510.74 $ 489.74 WACC Calculation Target Capital Structure Debt-to-Total Capitalization 18.80% Equity-to-Total Capitalization 81.20% Cost of Debt Cost of Debt 2.34% Tax Rate 34.84% After Tax Cost of Debt 2.29% Cost of Equity Risk-Free Rate 2.51% Market Risk Premium 6.93% Levered Beta 0.79 Exected Market Return 9.44% Size Premium Cost of Equity 7.98% CAPM 7.98% WACC 6.91%
Discounted Cash Flow Analysis (NetScout) 24Discounted Cash Flow Analysis

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Staples Inc. Pitch Book

  • 1.
    Discussion Materials |February 3rd , 2017 Recommendation to Staples Inc. | Board of Directors 1
  • 2.
    The I.U. MorganTeam The Team 2 Tim Johnson Majors: Finance and Real Estate Hometown: Cape Cod, Massachusetts Christina Adams Majors: Accounting and Finance Hometown: Wheaton, Illinois Michael Smith Majors: Finance Hometown: Columbia, Maryland Majors: Finance and Accounting Hometown: Cincinnati, Ohio Jake Winans Austin Adamczyk Major: Finance Hometown: Fulton, Maryland Tom Strong Majors: Finance and Accounting Hometown: Bordeaux, France
  • 3.
    Table of Contents Tableof Contents 3 I. Executive Summary 4 II. Industry and Company Analysis 6 III. Strategic Recommendation 11 IV. Appendix 18
  • 4.
  • 5.
    Executive Summary Executive Summary5 • I.U. Morgan proposes that Staples acquires NetScout Systems in order to further develop their markets within IT optimization, cyber securities, and strategically grow their United States customer base • This potential acquisition will allow Staples to expand upon its Business Advantage package and grant them a larger, more diverse number of resources as they continue to differentiate their company within the digital maintenance market Macroeconomic & Industry Outlook Strategic Positioning for M&A Proposal • Consumer spending is expected to increase over the span of the next three years • Consumer Confidence Index is at a 13- year high • Consolidation among the largest firms leaves few remaining major retailers within the industry • Increasing competition from online, substitute retailers • Decline of the office supplies industry is predicted to continue over the course of the next five years • Many of the core products within the industry are now viewed as outdated • With physical office supplies dwindling in terms of significance within the business world year after year, IT and network operations management and security are becoming imperative for all businesses across the globe • History of technology companies performing positively post-acquisition is a key factor for the M&A • Other specialty retailers across various industries have acquired smaller, developing companies in successful attempts to diversify and expand both their products and consumer base • A greater number of convenient online services allows companies to capitalize on the high Consumer Confidence Index • Considering the steady decline within the office supplies industry, expansion into more relevant and developing markets is of the utmost importance • A great number of businesses are expanding their presence within the digital market, and the demand for consistent digital maintenance and security is rapidly increasing as a result • Using cash, Staples will execute an open market share repurchase of SPLS; Nasdaq (65 million shares) at the purchase price of $9.05 using 60% of cash reserves • Post share repurchase, Staples Inc. Acquires NetScout Systems Inc. Offer Price: $44.01 per share (35% Control Premium)
  • 6.
    II. Industry andCompany Analysis 6
  • 7.
    • U.S. GDPprojected to grow 2.7% in 2017 and 3% in 2018 • Trump administration will likely cut corporate tax rates, deregulate, and increase infrastructure spending • Trump administration could also enact high tariffs, increasing costs of importing goods for many U.S. companies • U.S. PMI Composite continuing steady upward trend, reaching 55.4 in January 2017, from 50 in February of 2016 • Consumer Confidence Index has increased to 113.7 in December from 109.4 in November, reaching a 13-year high • Consumer spending expected to average 2.5% growth per year over the next three years • Federal Reserve expected to raise rates by 75 basis points this year, showing strong optimism in U.S. economy Macroeconomic & Industry Analysis Macroeconomic & Industry Analysis 7 • Office supplies industry expected to continue its decline in the next five years • Economy is digitalizing, with online growth and decline in floor space • Increasing competition from substitute retail industries, especially online retailers providing lower prices and at-home convenience • Consolidation among largest firms leaves few remaining major retailers • IVA forecasted to decline at an average annual rate of 6.2% • Some of industry decline is result of many core products becoming obsolete • Households account for 45% of industry sales, while small and medium sized businesses account for another 44.6% Macroeconomic Trends Industry Trends Office Supply Store Forecast $10,000 $12,000 $14,000 $16,000 $18,000 $20,000 U.S. GDP ($B) -7% -6% -5% -4% -3% -2% -1% 0% $10,000 $12,000 $14,000 $16,000 2015 2016 2017 2018 2019 2020 Revenue Growth %
  • 8.
    • Headquartered inFramingham, Massachusetts • Founded in 1985 by two former rivals in the New England supermarket industry • IPO on April 27th, 1989 with $325 million shares sold at stock adjusted price of $0.74 • Ticker Symbol: SPLS (NASDAQ) • Market Capitalization: $6.0501 billion • Currently employs over 79,075 people • Recorded revenue of $21.1 billion in 2015, down 6.37% from $22.5 billion in 2014 • Holds over 36% of industry market share • Subsidiaries: Quill Corporation, Staples Business Advantage, Corporate Express, PNI Media Staples Company Overview Company Overview 8 • Staples has completed over nine acquisitions in past ten years • November 2016: Q3 earnings call unveils “Staples 20/20” strategic plan • November 2016: Agrees to sell U.K. retail division to Hilco as international sales continue to decline • September 2016: Appoints Shira Goodman as CEO, a veteran of 25 years • August 2016: Pays Office Depot $250 million breakup fee for blocked merger due to anti-trust concerns • March 2016: Staples introduces its Business Advantage package to small-medium sized companies • July 2014: Acquires PNI Digital Media, a Canadian printing software company for $67.3 million in cash Business Description Recent Developments Growth and Revenue -8% -6% -4% -2% 0% 2% $19,000 $19,500 $20,000 $20,500 $21,000 $21,500 2015 2016 2017 2018 2019 Revenue Growth % $0 $2 $4 $6 $8 $10 $12 $14 $16 $18 $20 Stock hits 13-year low after FTC files suit to block Office Depot merger Historical Stock Chart (5Y) Staples shares are currently up over 4.3% YTD, underperformi ng the NASDAQ and S&P500 by 17.4% and 13.1% respectively Staples announces purchase of Lonesource Stock advances over 30% based on speculation of merger with Office Depot
  • 9.
    Small Businesses 27.80% Households for EducationPurposes 22.50% Large Businesses 16.80% Households for General Purposes 15.30% Other 17.60% • Main products include office supplies and equipment, office machines, technology, office furniture, staples, and more • Main services include printing, marketing, shipping, tech, office, and finance • Products sold through brick-and-mortar locations as well as online • Focusing on mid-market customers with Staples Business Advantage • 85% of revenue comes from within North America, with only 15% international • Number one office supply superstore in United States and worldwide leader in the office category • Working towards goals of over 60% sales from beyond office supplies, over 80% sales delivered, and over 95% of sales from North America Staples Strategic Focus Strategic Focus 9 Major Market Segmentation North America 85% International 15% Geographic Segmentation Office Supplies and Equipment 44.60% Office Machines 28.50% Technology 13.00% Services 8.20% Office Furniture 5.70% Sales SegmentationProducts and Services
  • 10.
    Staples Football FieldAnalysis Football Field Analysis 10 52-Week Range DCF Precedent Transactions Comparables $6 $8 $10 $12 $14 $16 $18 Implied Share Price Range
  • 11.
  • 12.
    • Using cash,Staples will execute an open market share repurchase of SPLS; Nasdaq (65 million shares) at the purchase price of $9.05 using 60% of cash reserves (1B) • The target share price post-buyback is between $11.50 and $12.00 • Share price will rise as a result of increased EPS and share holder confidence • Staples used this strategy in both 2007 and 2011 to raise their EPS by an average of 17% from the respective previous years Strategic Recommendation Strategic Recommendation 12 • The increased share price from the share repurchase provides substantial utility in capital to assist in the acquisition of NetScout • Staples Acquires NetScout Systems, which will operate under the Staples brand • Staples benefits from the synergy between NetScout and Staples Business Advantage • Offer Price: $44.01 per share (35% Control Premium) • Transaction Currency: 40% Stock, 40%Debt, 20% Cash Share BuyBack Acquisition of NetScout Staples EPS Growth Shareholder Aspirations • According to I.U. Morgan analysts, Staples stock is currently undervalued • Buying back shares at an undervalued price gives confidence to shareholders and will increase the stock price • Staples has consistently underperformed in comparison to its index (Nasdaq) • Staples has over 1 billion in cash on hand, able to purchase 107+ million shares outstanding • Staples would be protected from tax on cash • EPS and subsequently share price is projected to increase -20% -10% 0% 10% 20% 30% 0 0.2 0.4 0.6 0.8 1 1.2 1.4 1.6 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 EPS Growth %, YoY File a 10B-18 with the SEC, announce share repurchase (N-23-c3) Using industry practices of ASR to complete repurchase timeline of 6 months Allow market trends and analyst reports to help bolster share price following increased EPS Research, propose & close NetScout (with fairness opinion)
  • 13.
    Strategic Rationale Strategic Rationale13 Potential Risks & Mitigations • Acquisition of NetScout may not meet the expectations of technology portion of Staples’ Business Advantage Series • NetScout may not be able to handle the larger network that Staples serves • NetScout provides solutions that are used in various service providers, enterprise and government networks, meaning Staples will be exposed to new sectors improving the technology portion of their Business Advantage Series • NetScout has successfully reacted and changed their practices after numerous acquisitions and company changes Culture Fit • Both companies are headquartered in Massachusetts, less than 40 minutes apart • Companies share many similar corporate responsibility incentives including ROHS and WEEE • Similar mission alignment between both companies as they pride themselves on reliability and “24/7 performance” • NetScout Systems is a member of Technology Alliance Partners, which Staples has worked with in the past with successful results Strategic Fit • Staples is looking to diversify their product and develop a strong presence in the IT services industry • Through the acquisition of NetScout Systems Staples stands to significantly bolster the technology portion of their Business Advantage services • NetScout Systems serves as a Tier 1 ERP software solution, able to meet the demands and breadth of Staples corporate clients • As Staples moves to a digital focus closing all stores that do not turn a profit, NetScout Systems offers a sustainable business model for the retention of Staples’ international clients • Staples would have the utilitarian position and resources to accommodate NetScout Systems growth due to ample increases in client base Acquisition & Integration 42.54% 27.29% 16.87% 7.85% 5.46% Office supplies and equipment Office machines Technology Services Office furniture Post-Acquisition Revenues
  • 14.
    • Headquartered inWestford, Massachusetts • Founded as Network General in 1984 by Anil Singhal, who is still the company’s President, CEO, and Chairman • IPO on August 12th, 1999 with 3 million shares sold at $11 per share • Ticker Symbol: NTCT (NASDAQ) • Market Capitalization: $2.880 billion • Currently employs over 3,144 people • Focus on mid-market and large corporate customers NetScout Company Overview Company Target Overview 14 Business Description NetScout shares are currently up over 59% YTD, outperforming the NASDAQ and S&P500 by 38% and 42% respectively Historical Stock Chart (5Y) $0 $5 $10 $15 $20 $25 $30 $35 $40 $45 $50 NetScout announces plans to acquire businesses from Danaher for $2.6B Stock down over 20% in one day over missed earnings 4 large shareholders hold more than 30% of NetScout Ownership Volume Weighted Average Price Expected Return on Investment 11.19% $35.28 35.7% 57.6%$18.67 $29.60 $28.29 32.7% 19.83% 7.75% 7.32% 5.38% Major Shareholders
  • 15.
    • R&D expenserose 64% YoY to $209 million in 2016 • Acquired technology assets of Avvasi Inc. in August 2016 • Acquired multiple communications businesses from Danaher for $2.6 billion in July 2015 to expand customer base, fortify distribution, and accelerate adoption of the cybersecurity industry • Businesses acquired from Danaher include Tektronic Communications, Arbor Networks, Fluke Networks, and VSS • Acquired Fox Replay in October 2011, a Dutch information assurance and cybersecurity company • Acquired Psytechnics in April 2011, a U.K. voice and video management company • Recorded revenue of $955 million in 2015, up 110% from $453 million in 2014 • NetScout designs, develops, manufactures, markets, and supports products that enable businesses and service providers to report and manage performance of computer networks and business software applications • Collects information used to optimize application and network performance • Working towards solidifying and expanding its information assurance and cybersecurity business • Sells products directly and through distributers to government and corporate customers NetScout Strategic Focus Strategic Focus 15 Recent DevelopmentsProducts and Services Growth and Revenue 0% 20% 40% 60% 80% 100% 120% $0 $200 $400 $600 $800 $1,000 $1,200 $1,400 2015 2016 2017 2018 2019 Revnues Growth % North America 71% Asia 15% Europe 14% Geographic Segmentation
  • 16.
    Key Employees Key Employees16 Anil K. Singhal Michael Szabados Jean Bua Daryle DeBalski Founder, Chairman of the Board, President and Chief Executive Officer • Co-founded NetScout in June of 1984 and has served as CEO and as a director on the company’s Board since inception • Credited with numerous innovations in the field of network traffic monitoring and analysis Chief Operating Officer • Served as NetScout’s Chief Operating Officer since April 2007 • Previously served as the Senior Vice President, Product Operations • Held senior leadership roles with multiple companies: UB Networks, SynOptics/Bay Networks, and MIPS Corporation Executive Vice President and Chief Financial Officer • Served as NetScout’s Chief Financial Officer and Treasurer since November 2011 • Before NetScout, Ms. Bua served as Executive Vice President, Finance and Treasurer of American Tower Corporation Senior Vice President, Research & Development and General Manager, Tools • Joined NetScout in July 2015 after NetScout’s acquisition of Danaher’s Communications, where he was general manager for the Fluke Networks Enterprise business unit • Mr. DeBalski has more than 20 years of software industry experience from a variety of companies
  • 17.
    NetScout Football FieldAnalysis Football Field Analysis 17 $15 $20 $25 $30 $35 $40 $45 $50 $55 Implied Share Price Range 52-Week Range DCF Precedent Transactions Comparables
  • 18.
  • 19.
    Staples Precedent TransactionsAnalysis Comparable Companies Analysis 19 Target Acquirer Announced Date Purchase Type Equity Value (in millions) Transaction Value (in millions) TV/Revenue TV/EBIT TV/EBITDA OfficeMax OfficeDepot 2/20/2013 All-Stock $ 1,323.84 $ 1,789.20 .99x 14.31x 11.16x Lamrite West Inc Michaels Cos Inc 2/2/2016 Cash $ 150.00 $ 150.00 .31x 15.59x 7.53x Alfonso Nutrition Vitamin Shoppe 6/9/2014 Cash $ 80.00 $ 80.00 .95x 12.87x 21.25x THSD GNC Holdings 4/17/2014 Cash $ 7.50 $ 7.50 .86x 19.7x 6.29x High $ 1,323.84 $ 1,789.20 .99x 19.7x 21.25x Low $ 7.50 $ 7.50 .31x 12.87x 6.29x Mean $ 390.34 $ 506.68 0.7775x 15.6175x 11.5575x
  • 20.
    NetScout Precedent TransactionsAnalysis Target Precedent Transactions 20 Target Acquirer Announced Date Purchase Type Equity Value (in millions) Transaction Value (in millions) TV/Revenue TV/EBIT TV/EBITDA Net Optics Inc Ixia 10/29/2013 Cash $ 190.00 $ 190.00 1.52x 307.9x 43.02x Airwave Solutions Ltd Motorola Solutions Ltd 12/3/2015 Cash $ 817.50 $ 817.50 2.54x 13.98x 10.17x ADC India Communications CommScope Holding Co Inc 9/4/2015 Cash $ 47.68 $ 47.68 1.06x 11.31x 7.69x Transmode AB Infinera Corp 4/9/2015 Cash & Stock $ 2,659.40 $ 2,954.20 2.91x 31.39x 18.62x High $ 2,659.40 $ 2,954.20 2.91x 307.9x 43.02x Low $ 47.68 $ 47.68 1.06x 11.31x 7.69x Mean $ 928.65 $ 1,002.35 2.0075x 91.145x 19.8x
  • 21.
    Staples Comparable Companies StaplesComparables 21 Staples Comparable Anaysis *All values in Millions Except Share Price Data Company Name Ticker Share Price 52 Week High % of 52 week High Enterprise Value Market Cap EV/EBITD A TTM EV/EBITD A NTM EV/EBIT TTM EV/Sales TTM Debt/Equit y P/E TTM P/E NTM Total Debt/ EBITDA EBITDA/ Int. Expense Staples SPLS 9.02 11.37 79% 5,872.95 5,893.95 4.335 4.298 6.47 0.284 19.224 9.208 10.249 0.751 9.921 Tier 1 Comparables Office Depot ODP 4.34 7.91 54.87% 2,608.95 3,073.95 3.511 2.922 5.672 0.18 94.136 13.525 10.914 2.031 7.989 Essendant ESND 20.77 34.99 59.36% 1,897.57 1,211.23 7.751 7.505 9.674 0.354 98.975 17.75 10.973 2.926 11.897 Micheals Cos Inc MIK 20.02 31.36 63.84% 6,916.56 4,556.11 8.253 8.308 9.562 1.408 9.53 11.45 3.305 6.012 Williams-Sonoma Inc] WSM 47.72 61.97 77.01% 4,433.18 4,626.83 6.709 6.521 8.993 0.891 0.161 15.191 14.249 0 Dicks Sporting Goods DKS 50.71 62.88 80.65% 4,254.70 4,367.25 5.776 7.846 7.834 0.585 0.357 13.614 16.723 0.009 183.617 Mean 28.712 39.822 0.671434 4022.192 3567.074 6.4 6.6204 8.347 0.6836 48.40725 13.922 12.8618 1.6542 52.37875 Median 20.77 34.99 0.638393 4254.7 4367.249 6.709 7.505 8.993 0.585 47.2465 13.614 11.45 2.031 9.943 Low 4.34 7.91 0.548673 1897.565 1211.233 3.511 2.922 5.672 0.18 0.161 9.53 10.914 0 6.012 High 50.71 62.88 0.806457 6916.564 4626.825 8.253 8.308 9.674 1.408 98.975 17.75 16.723 3.305 183.617 Tier 2 Comparables Cabellas Inc CAB 54.26 63.3 85.72% 8,405.02 3,169.17 18.097 20.305 25.335 2.102 308.135 16.173 19.729 12.132 20.289 Autonation Inc AN 51.77 54.15 95.60% 12,630.17 6,610.57 12.657 11.409 14.509 0.605 259.384 15.349 12.993 6.107 7 Bed Bath and Beyond BBBY 40.04 52.71 75.96% 8,574.47 7,676.24 5.123 4.895 6.126 0.708 58.604 9.882 8.788 0.896 19.136 GNC GNC 8.63 35.9 24.04% 3,762.07 2,366.08 7.651 5.566 8.659 1.425 309.982 10.613 3.733 2.954 11.458 Best Buy Co BBY 44.31 49.4 89.70% 7,541.15 9,043.15 3.55 5.071 5.141 0.191 40.635 10.784 13.307 0.838 26.55 Mean 39.802 51.092 0.742044 8182.576 5773.042 9.4156 9.4492 11.954 1.0062 195.348 12.5602 11.71 4.5854 16.8866 Median 44.31 52.71 0.857188 8405.016 6610.57 7.651 5.566 8.659 0.708 259.384 10.784 12.993 2.954 19.136 Low 8.63 35.9 0.24039 3762.074 2366.082 3.55 4.895 5.141 0.191 40.635 9.882 3.733 0.838 7 High 54.26 63.3 0.956048 12630.17 9043.147 18.097 20.305 25.335 2.102 309.982 16.173 19.729 12.132 26.55 Valuation implied By P/E Net Income Financial Metric Fully Diluted Shares TTM 0.93 9.53 17.75 5765.76 10738.95 650.55 8.8629 16.5075 Next Year Estmates 0.88 10.914 16.723 6248.09 9573.65 650.55 9.60432 14.71624 Valuation Implied By EV/EBITDA EBITDA Financial Metric Less: Net Debt Fully Diluted Shares TTM 1369 3.511 8.253 4806.559 11298.36 1047 4835.559 11327.36 650.55 7.433032 17.41197 Next Year Estmates 1366.45 2.922 8.308 3992.767 11352.47 1047 4021.767 11381.47 650.55 6.182103 17.49515 Multiple Range Implied Share Price Range Multiple Range Implied Share Price Range Implied Equity Value Implied Equity Value Implied Enterprise Value
  • 22.
    NetScout Comparable Companies NetScoutComparables 22 Netscout Comparable Anaysis *All values in Millions Except Share Price Data Company Name Ticker Share Price 52 Week High % of 52 week High Enterprise Value Market Cap EV/EBITD A TTM EV/EBITD A NTM EV/EBIT TTM EV/Sales TTM Debt/Equit y P/E TTM P/E NTM Total Debt/ EBITDA EBITDA/ Int. Expense Netscout NTCT 32.6 33.95 96.02% 2,876.56 2,879.95 14.759 9.324 110.446 2.535 12.278 118.734 16.614 1.67 28.389 Tier 1 Comparables Viavi Solutions VIAV 9.28 9.45 98.20% 1,592.01 2,034.31 14.114 11.453 33.029 1.794 85.347 82.13 26.707 5.206 3.165 IXIA XXIA 19.4 19.5 99.49% 1,510.08 1,597.15 18.257 15.796 59.872 3.05 7.231 159.451 30.727 0.423 10.657 Plantronics Inc PLT 53.04 57.79 91.78% 1,944.79 1,877.39 12.974 10.627 15.04 2.223 156.726 22.696 17.775 3.421 5.69 Finistar Corporation FNSR 29.84 36.85 80.98% 2,858.37 3,249.98 14.05 8.3 26.385 2.134 19.784 32.642 13.7 1.612 12.198 Cienna Corp CIEN 24.46 25.32 96.60% 3,625.13 3,415.44 11.774 8.748 21.812 1.394 164.75 43.14 14.211 4.101 5.434 Mean 27.204 29.782 0.934098 2306.075 2434.854 14.2338 10.9848 31.2276 2.119 86.7676 68.0118 20.624 2.9526 7.4288 Median 24.46 25.32 0.966035 1944.785 2034.311 14.05 10.627 26.385 2.134 85.347 43.14 17.775 3.421 5.69 Low 9.28 9.45 0.809769 1510.08 1597.154 11.774 8.3 15.04 1.394 7.231 22.696 13.7 0.423 3.165 High 53.04 57.79 0.994872 3625.125 3415.439 18.257 15.796 59.872 3.05 164.75 159.451 30.727 5.206 12.198 Tier 2 Comparables Motorola Solutions MSI 81 87.55 92.52% 16,932.22 13,559.22 11.661 10.163 14.169 2.901 21.305 17.222 3.569 6.613 Adtran Inc ADTN 21.8 23.75 91.79% 956.38 1,052.66 18.681 13.715 25.996 1.502 5.589 36.122 23.59 0.523 89.503 Arris International ARRS 28.76 31.52 91.24% 6,671.73 5,447.73 8.921 7.582 22.085 1.081 83.643 25.533 10.346 2.833 7.663 Ubiquiti Networks UBNT 62.73 63 99.57% 4,738.27 5,111.79 17.86 16.412 18.288 6.583 46.211 22.583 20.433 0.843 Calamp Corp CAMP 14.79 19.67 75.19% 569.37 525.17 14.186 11.572 28.103 1.696 73.794 46.859 14.11 3.238 5.684 Mean 41.816 45.098 0.900628 5973.591 5139.312 14.2618 11.8888 21.7282 2.7526 52.30925 30.4804 17.1402 2.2012 27.36575 Median 28.76 31.52 0.917895 4738.269 5111.791 14.186 11.572 22.085 1.696 60.0025 25.533 17.222 2.833 7.138 Low 14.79 19.67 0.751906 569.365 525.166 8.921 7.582 14.169 1.081 5.589 21.305 10.346 0.523 5.684 High 81 87.55 0.995714 16932.22 13559.22 18.681 16.412 28.103 6.583 83.643 46.859 23.59 3.569 89.503 Valuation implied By P/E Net Income Financial Metric Fully Diluted Shares TTM 0.193 22.696 159.451 401.1154 2818.041 91.572 4.380328 30.77404 Next Year Estmates 1.893 13.7 30.727 2374.837 5326.396 91.572 25.9341 58.16621 Valuation Implied By EV/EBITDA EBITDA Financial Metric Less: Net Debt Fully Diluted Shares TTM 179.675 11.774 18.257 2115.493 3280.326 300 2891.493 4056.326 91.572 31.57617 44.29658 Next Year Estmates 308.5 8.3 15.796 2560.55 4873.066 300 3336.55 5649.066 91.572 36.43636 61.68988 Implied Share Price Range Multiple Range Implied Equity Value Implied Share Price Range Multiple Range Implied Enterprise Value Implied Equity Value
  • 23.
    Discounted Cash FlowAnalysis (Staples) 23Discounted Cash Flow Analysis Pro Forma Income Statement Actual FYE Projected FYE 2014A 2015A 2016A LTM 2017E 2018E 2019E 2020E 2021E 0.5 1.5 2.5 3.5 4.5 Total Revenues (Sales) $ 23,144.26 $ 22,492.00 $ 21,059.00 $ 20,476.00 20,467.00 $19,824.70 $ 19,713.50 $ 19,939.33 $20,168.63 % Growth -2.82% -6.37% -2.77% -0.04% -3.14% -0.56% 1.15% 1.15% Cost of Sales (COGS) $ 17,111.96 $ 16,691.00 $ 15,545.00 $ 15,168.00 $ 15,212.60 $ 14,700.00 $ 14,588.00 $ 14,854.83 $ 15,150.03 % Sales 135.25% 134.76% 135.47% 134.99% 134.54% 134.86% 135.14% 134.23% 133.13% Net Operating Revenues $ 6,032.30 $ 5,801.00 $ 5,514.00 $ 5,308.00 $ 5,254.40 $ 5,124.70 $ 5,125.50 $ 5,084.50 $ 5,018.60 % Margin 26.06% 25.79% 26.18% 25.92% 25.67% 25.85% 26.00% 25.50% 24.88% Selling, General, & Administrative $ 4,735.29 $ 4,815.00 $ 4,600.00 $ 4,382.00 $ 3,887.95 $ 3,751.84 $ 3,761.90 $ 3,749.50 $ 3,667.60 % Sales 20.46% 21.41% 21.84% 21.40% 19.00% 18.93% 19.08% 18.80% 18.18% EBITDA (Adjusted) $ 1,699.80 $ 1,443.00 $ 1,379.00 $ 1,369.00 $ 1,366.45 $ 1,372.86 $ 1,363.60 $ 1,335.00 $ 1,351.00 % Margin 7.34% 6.42% 6.55% 6.69% 6.68% 6.92% 6.92% 6.70% 6.70% Less: D&A $ 55.41 $ 62.00 $ 67.00 444 437.74 455.72 429.93 399 418 % Sales 0.24% 0.28% 0.32% 2.17% 2.14% 2.30% 2.18% 2.00% 2.07% EBIT $ 1,644.39 $ 1,381.00 $ 1,312.00 $ 925.00 928.71 917.14 $ 933.67 $ 936.00 $ 933.00 % Margin 7.10% 6.14% 6.23% 4.52% 4.54% 4.63% 4.74% 4.69% 4.63% Taxes 511.40529 403.252 378.9056 259.925 260.96751 257.71634 262.36127 263.016 262.173 Tax Rate 31.10% 29.20% 28.88% 28.10% 28.10% 28.10% 28.10% 28.10% 28.10% EBIAT 1132.98471 977.748 933.0944 665.075 667.74249 659.42366 671.30873 672.984 670.827 Plus: D&A 55.41 62 67 444 437.74 455.72 429.93 399 418 Less: (Inc.) In Net Working Capital $ 156.10 $ 67.00 $ 131.00 $ 53.00 52.97670443 51.31417757 51.02634792 51.61088543 52.20441061 Less: Capital Expenditures $ 371.20 $ 361.00 $ 381.00 $ 324.00 $ 290.80 $ 324.50 $ 319.70 $ 375.00 $ 375.00 Unlevered Free Cash Flow 661.09471 611.748 488.0944 732.075 761.7057856 739.3294824 730.5123821 645.3731146 661.6225894 WACC 6.91% Discount Factor 96.71% 90.46% 84.61% 79.14% 74.02% Present Value $ 736.67 $ 668.79 $ 618.09 $ 510.74 $ 489.74 WACC Calculation Target Capital Structure Debt-to-Total Capitalization 18.80% Equity-to-Total Capitalization 81.20% Cost of Debt Cost of Debt 2.34% Tax Rate 34.84% After Tax Cost of Debt 2.29% Cost of Equity Risk-Free Rate 2.51% Market Risk Premium 6.93% Levered Beta 0.79 Exected Market Return 9.44% Size Premium Cost of Equity 7.98% CAPM 7.98% WACC 6.91%
  • 24.
    Discounted Cash FlowAnalysis (NetScout) 24Discounted Cash Flow Analysis

Editor's Notes

  • #15 Founded as Network General in 1984 by Anil Singhal, who is still the companies President, CEO, and Chairman
  • #16 Acquired multiple communications businesses from Danaher for $2.6 billion in July 2015 to expand customer base, fortify distribution, and accelerate adoption of cybersecurity industry Businesses acquired from Danaher include Tektronic Communications, Arbor Networks, Fluke Networks, and VSS Monitoring