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TRANSCRIPT
Investment Memorandum
March 2014
Executive Summary Company Synopsis:
Industry: Trade Shows / Event Staging
Number of Employees: 130
Company Background:
• Headquartered in Townsville, United States
• Founded in 1983
• S-Corporation, 100% Family Owned
Investment Rationale
• Fragmented industry; Positive growth trends
• Attractively priced: 3.9x 2014E EBITDA
– Weighted AVG IRR 25.6%
Return Potential
• Winner: IRR 30.4%
• Walking Wounded: 26.7%
• Wipeout: 12.0%
Buy and Build Strategy:
• Maintain existing business plan while expanding ancillary service offering
• Realize cost and revenue synergies • Reduced freight expense
• Technology sharing
• Concerted sales effort
• Highly diversified equipment portfolio
• Continue to service and support existing customer base • Modest investment in Sales & Marketing to activate sales
pipeline
Expected Case Financials
• 2013 net revenue of $28M (2014E - $30M)
• 2014E EBITDA margin of 15.9% (2019P 23.8%)
Risks
• GSA initiative to result in a $500K cap on government spending for individual trade shows.
Deal Structure
• Asset deal, treated as Stock Deal
• $18.5 M purchase price
• 80 / 20 Leveraged Recapitalization • $2.5 M Equity Rollover
• $5M ABL, $6 Mezzanine Debt, $5 Co-Sponsor Equity
• LOI in Hand
• Management to remain in place through exit
• All associated reps and warranties
Disclaimer: All information contained herein is private and confidential 2
C o m p a n y O v e r v i e w
&
H i s t o r i c a l P e r f o r m a n c e
I
Core Operations
Disclaimer: All information contained herein is private and confidential 4
Staging
• Detailed Design and Production
• Full-Service Audio and Video
Trade Shows
• Individual Exhibits and Booths
• Long-term Recurring Clients
Systems Integration
• Permanent Display Installations
• Contract Service Revenues
• Value-Added Design
• Project Management
• Account Management
• Technical Support
• Creative Content
Primary Divisions Ancillary Services
Equipment Portfolio
• Plasma & LCD Displays
• HD Projection Systems
• Lighting and Sound
• LED Walls
• Touch-screen Technology
• Laptops and Computers
CorPorate Structure and History
Disclaimer: All information contained herein is private and confidential 5
Year Event
1983 Company Founded
1995 John Smith becomes CEO
2005 Launch of Staging Division
2009 Launch of Systems Integration Division
Key Management:
John Smith, President and CEO
• Founding member
• 27 years experience
John Doe, Vice President and CFO
• Head of Labor Relations and Logistics
• Member since 1996
Bob Jones, Director of Operations
• Manages Labor Agreements
Jim Smith, Director of Staging and Events
• Grew Staging Sales by over $7 million
Salaried Hourly Total
% of
Total
Corporate, General and Administrative
Senior Management (1) 5 0 5 3.7%
General Managers - Facilities 3 3 6 4.4%
Sales Manager 1 0 1 0.7%
Account Executives / Sales 18 0 18 13.3%
Accounting 2 0 2 1.5%
Administrative & Clerical 5 1 6 4.4%
Corporate, General and Admin Total 34 4 38 28.1%
Operations (2)
Engineers 3 0 3 2.2%
Creative Services 3 0 3 2.2%
Equipment & Asset Management 2 1 3 2.2%
Project Managers 5 2 7 5.2%
Technical Director 1 0 1 0.7%
Technicians 5 29 34 25.2%
Warehouse 1 6 7 5.2%
Delivery & Installation 0 37 37 27.4%
Dispatch 1 1 2 1.5%
Operations Total 21 76 97 71.9%
Total 55 80 135 100.0%
% of Total 40.7% 59.3% 100.0%
Function
6 strategically located
facilities in:
• Chicago
• Las Vegas
• Los Angeles
• Orlando
• San Francisco
• Washington D.C.
Detail of Employee Distribution
Disclaimer: All information contained herein is private and confidential 6
Client Profile Newco caters its services to:
• Associations
• Government Agencies
• Private Companies
• General Service Contractors
- Secured Preferred Vendor Status with over 400 trade shows
- No single customer represents more than 16% of total revenue
Exhibitors and
Event Organizers
General Service
Contractors
Outsourced
Services
Direct
Engagement
Sales Pipeline
Disclaimer: All information contained herein is private and confidential 7
Growth Potential
Bolster Service Offering
• Foster Cross-selling between Core Divisions
• Build-out Ancillary Design and Management Services
Improve Quotation System
• Reduce Travel and Freight expenses
• Enhance Bidding Process
Concerted Marketing Efforts
• Harness SEO and Online Presence
• Scale Regional Sales Initiatives
Growth through Acquisitions:
• Leverage current relationships
• Facilitated Negotiations
• Diversify Industry Specializations
• Solidify Presence in Prime Events Markets
• Fill in new geographies and/or complement
operations of current facilities
• Hand-chosen Targets
Industry Dynamics
Disclaimer: All information contained herein is private and confidential 8
Fragmentation
• 4,500 companies represent $10 billion in
revenue
• Top 50 companies represent 45% of total
revenue
Growth Metrics
• 14 consecutive periods of quarterly growth
• Forecasted 6% CAGR through 2018
• Q4 2014 posted year over year growth of 3%
• Professional Attendance: YOY increase of 5.8%
Key Indicators:
• Corporate Profits: +3.0% • Increase in discretionary corporate spending
• Real GDP • Macroeconomic trends drive performance
• CEIR Index • Aggregates changes in net square footage, gross revenue,
number of exhibitors and attendees
Source: First Research, Center for Exhibition Industry Research (CEIR)
Center for Exhibition Industry Research
Performance Index
Financial Performance
Disclaimer: All information contained herein is private and confidential 9
2010 2011 2012 2013
ASSETS
Current Assets
Cash $111 $1 $318 $422
Accounts Receivable, net 4,144 3,773 3,479 1,965
Prepaid expenses 0 241 274 297
Total Current Assets 4,254 4,016 4,071 2,684
Rental equipment, net 5,088 5,130 3,794 3,602
Property and equipment, net 564 627 938 950
Other assets 95 95 89 90
Total Assets $10,001 $9,869 $8,892 $7,326
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Current Portion of long-term debt $1,324 $1,544 $1,103 $0
Note payable to bank 980 980 980 480
Accounts payable 1,744 1,912 1,779 1,397
Sales tax payable 49 39 16 63
Accrued expenses 382 521 555 321
Total Current Liabilities 4,479 4,996 4,433 2,261
Long-term debt 1,663 1,415 483 1,221
Mortgage payable 0 0 0 0
Due to shareholder 656 736 699 575
Security deposits 7 7 7 0
Total Liabilities $6,805 $7,153 $5,622 $4,058
Shareholders' Equity
Capital stock, no par value 1 1 1 1
Additional paid-in-capital 92 92 92 92
Treasury stock (420) (420) (420) (420)
Retained earnings 3,524 3,043 3,596 3,596
Total Shareholders' Equity $3,196 $2,715 $3,269 $3,269
Total Liabilities and Shareholders' Equity $10,001 $9,869 $8,892 $7,326
Fiscal Year Ended December 31,
2010 2011 2012 2013
Net Sales $30,636 $30,376 $29,612 $27,677
% Growth -0.8% -2.5% -6.5%
Cost of Sales 21,104 22,877 20,606 18,302
Depreciation 2,888 1,923 2,178 1,695
Gross Profit $6,644 $5,576 $6,828 $11,070
% of Net Sales 21.7% 18.4% 23.1% 40.0%
Operating Expenses 5,352 5,537 5,793 10,105
Depreciation and Amortization 165 141 149 104
Operating Income $1,128 ($102) $886 $1,069
% of Net Sales 3.7% -0.3% 3.0% 3.9%
Operating Income $1,128 ($102) $886 $1,069
Depreciation and Amortization 3,053 2,064 2,327 2,109
EBITDA $4,180 $1,962 $3,213 $3,178
% of Net Sales 13.6% 6.5% 10.9% 11.5%
Adjustements to EBITDA
Family Vehicle Leases 44 34 34 34
Non-Active Employee 54 54 54 54
Miscellaneous Family Expenses 200 176 192 237
Advertising 17 22 28 46
Life Insurance 39 69 27 226
Total Adjustments to EBITDA $355 $355 $336 $597
Adjusted EBITDA $4,535 $2,317 $3,549 $3,775
% of Net Sales 14.8% 7.6% 12.0% 13.6%
Historical Balance Sheet Historical Income Statement
I n v e s t m e n t R a t i o n a l e
&
P r o j e c t i o n s
II
Investment Rationale
• Attractively Priced
– 3.9x 2014E EBITDA
• Return Potential
– Weighted AVG IRR: 25.6%
• Positive Industry Trends
• Experienced Management
Team and Employees
– Average 20 years experience
• Good Pipeline Visibility
– Long-term Recurring Client
Relationships
• Organic Growth and Growth
through Acquisition
Disclaimer: All information contained herein is private and confidential 11
5-Year Sensitivity of IRR - Mezzanine
Exit Multiple and Scenario Exit Multiple and Scenario
### 4.0x 4.5x 5.0x 5.5x 6.0x
1 25.2% 25.3% 25.4% 25.5% 25.6%
2 25.4% 25.5% 25.6% 25.7% 25.8%
3 26.1% 26.2% 26.3% 26.3% 26.4%
5-Year Sensitivity of IRR - Equity
Exit Multiple and Scenario Exit Multiple and Scenario
### 4.0x 4.5x 5.0x 5.5x 6.0x
1 23.1% 26.9% 30.4% 33.6% 36.4%
2 18.7% 23.0% 26.7% 30.1% 33.1%
3 12.0% 15.6% 18.9% 21.7% 24.3%
Key Objectives
• Centralize Finance and HR
• Increase Asset Utilization
• Eliminate Facility Redundancies
• Scale Back Capital Expenditures
• Reduce Freight Costs
• Crystalize Outbound Marketing
Add-on Opportunities
Disclaimer: All information contained herein is private and confidential 12
Alias Nearest City LTM Revenue EBITDANumber of
Employees
Target FL I Orlando, FL $6,600,000 $1,000,000 18
Target FL II Miami, FL $3,500,000 $750,000 17
Target TX I Houston, TX $7,000,000 $1,400,000 25
Target TX II San Antonio, TX $9,000,000 $1,250,000 40
Target CA I Anaheim, CA $2,900,000 $500,000 12
Target CA II San Diego, CA $25,000,000 $3,000,000 55
Target MW I Columbus, OH $12,000,000 $1,700,000 50
Target MW II Columbus, OH $9,000,000 $1,400,000 45
Target MW III Cleveland, OH $8,000,000 $1,120,000 -
Target MW IV Detroit, MI $13,000,000 $1,820,000 -
Target MN I Minneapolis, MN $3,800,000 $500,000 15
Target MN II Minneapolis, MN $4,000,000 $850,000 18
VEGAS SALES FORCE Target NV I Las Vegas, NV $2,900,000 $550,000 15
NORTH CAROLINA
STAGING OPPORTUNITYTarget NC I Raleigh, NC $4,000,000 $800,000 20
Target ME I New York, NY $10,000,000 $1,500,000 30
Target ME II Randolf, NJ $10,000,000 $1,500,000 30
Target ME III Baltimore, MD $4,000,000 $800,000 30
Target CHI I Chicago, IL $3,300,000 $750,000 20
Target CHI II Chicago, IL $4,200,000 $750,000 20
CHICAGO TRADESHOW
MARKET
CALIFORNIA PLATFORM
TEXAS GAP MARKET
FLORIDA TRADESHOW &
LIVE EVENT MARKET
OHIO A / V PLAYER
MINNESOTA SALES FORCE
NEW YORK PRODUCTION &
SALES
Sources and Uses of Funds
Disclaimer: All information contained herein is private and confidential 13
Sources and Uses of Funds at Closing Summary of Inputs
% of Tot Rate
Amount Capital (Cash/PIK)
SOURCES:
Revolver $0.00 0.0% 6.50%
New Bank Term Loan 5.00 27.0% 6.50%
Senior Debt $5.00 27.0%
Mezzanine 6.00 32.4% 12.00% / 12.00%
Total Debt $11.00 59%
Management Equity 2.50 13.5% ----
Funding Co- Sponsor Equity 5.00 27.0% ----
Total Equity 7.50 40.5%
Total Sources of Funds $18.50 100.0%
USES:
Cash to Seller $15.72 84.9%
Management Rollover 0.22 1.2%
Repay Existing Debt 2.28 12.3%
Fees & Expenses 0.29 1.5%
Total Uses of Funds $18.50 100.0%
Platform Deal
• $5 million, ABL
• $6 million, Mezzanine
• $5 million, Equity
• $2.5 million, Rollover
Add-Ons Summary
Target FL II Target TX I Target CA I Target CHI I Target MN II Target NV I
Revenue $3.50 $7.00 $2.90 $3.30 $4.00 $2.90
EBITDA $0.75 $1.40 $0.50 $0.75 $0.85 $0.55
EBITDA Margin 21% 20% 17% 23% 21% 19%
EV/EBITDA Multiple 4.00x 4.00x 4.00x 4.00x 4.00x 4.00x
Enterprise Value 3.0 5.6 2.0 3.0 3.4 2.2
Plus: Fees 0.1 0.2 0.1 0.1 0.1 0.1
Purchase Price $3.1 $5.8 $2.1 $3.1 $3.5 $2.3
Equity, 50% 1.6 2.9 1.0 1.6 1.8 1.1
Mezzanine, 50% 1.6 2.9 1.0 1.6 1.8 1.1
Disclaimer: All information contained herein is private and confidential 14
Exit Strategy Strategic Bids received from:
• SmartSource @ $15-16M
• PRG @ $20-22M
• ANC @ $25M
• SWANK @ $28M
• PSAV
• Significant interest shown by
strategics in the space
• Retain EBITDA margins of 18-20%
on up to $80M of revenue
• Bids at 6-7x EBITDA already
received
Ownership Summary
Primary Warrants Fully-Diluted
Newco Sponsor 0% 10% 10.0%
Mezzanine 0% 2% 2.0%
Co-Sponsor 80% 0 70.4%
Newco MGMT 20% 0 17.6%
P r o J e c t e d F I n a n c I a l s
III
Winner: 6 Add-Ons
Disclaimer: All information contained herein is private and confidential 16
IRR: 30.4%
Wounded: 4 Add-Ons
Disclaimer: All information contained herein is private and confidential 17
IRR: 26.7%
Walking
Wipeout: No Add-Ons
Disclaimer: All information contained herein is private and confidential 18
IRR: 12.0%