Download - Imperial Capital - Daimler - Final
Acquisition opportunity of Audi AG
Prepared for Daimler AG
London, November 2016
Prepared for Daimler AG | Confidential 2
Disclaimer
This presentation is for discussion purposes only and is not intended to be an offer to sell or the solicitation of an offer to buy any securities issued by
Imperial Capital. In the event Imperial Capital were to offer structured investments, this presentation will be superseded and replaced in its entirety by a
preliminary or final term sheet or pricing supplement, and the documents therein which would be filed with the SEC. In the event of any inconsistency
between the information presented herein and any such preliminary or final term sheet or pricing supplement, such preliminary or final term sheet or
pricing supplement shall govern.
The presentation was developed, compiled, prepared and arranged by Imperial Capital through the expenditure of substantial time, effort and money and
constitutes valuable intellectual property and trade secrets of Imperial Capital. All right, title, and interest in and to the presentation is vested in Imperial
Capital and the presentation cannot be used without Imperial Capital’s prior written consent. Information herein is believed to be reliable but Imperial
Capital does not warrant its completeness or accuracy.
The information contained in this presentation has been distributed to you on a stand alone basis and is not to be combined with, consolidated,
incorporated or otherwise used with any other written materials provided by Imperial Capital.
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investors. This information is not intended to provide and should not be relied upon as providing accounting, legal, regulatory or tax advice. Investors
should consult with their own advisors as to these matters.
Prepared for Daimler AG | Confidential 3
Executive Summary
Acquisition of Audi AG
Drivers of Value Transaction Structure
Market Outlook
We recommend Daimler acquire 49.9% stake in Audi,
and seek joint operational control of the firm.
With 'Vorsprung Durch Technik’ (Progress through
Technology) at the core of their mission, Audi has played a
key role in the development of the automobile industry.
This merger accelerates our strategy to extend our leading
brands into new robust opportunities.
Positive macroeconomic outlook combined with low costs
of debt creates fertile environment to carry out the
transaction.
Automotive:
Sales in Europe have improved YoY, still below 2007 levels.
US markets are at peak levels.
Continued underperformance against expectations in
Emerging Markets.
By completing the deal Daimler gains exposure to new
technologies that Audi possesses,
including autonomous driving and electric cars.
Low Cost of Capital Environment
Shared Cost Base of New Regulatory Compliance
Reshaping the Value Proposition
Embracing Platform Modularisation
All cash offer, financed by
33.3% cash on hand and 66.6% new debt.
Taking all valuation methods into account we consider a
range of $56.0bn – $66.0bn for Audi’s business.
Prepared for Daimler AG | Confidential 4
Imperial CapitalDeal team
Igor Kalota John TriesteAdrian Radu Max Rooney Kitan Oladapo
MSc Investment &
Wealth Management
Imperial College
Business School
Mr Kalota joined the
company in 2006 as
an Analyst. Currently
acts as Managing
Director at Imperial
Capital.
MSc Finance
Imperial College
Business School
Mr Trieste joined the
company in 2011 as
Vice President.
Currently acts as
Managing Director
of Industrials at
Imperial Capital.
MSc Investment &
Wealth Management
Imperial College
Business School
Mr Radu joined the
company in 2012 as
Vice President. At
the moment he is
Managing Director
at Imperial Capital.
Previously worked at
Jefferies.
MSc Finance
Imperial College
Business School
Mr Rooney joined
the company in 2010
as an Associate.
Currently he holds
position of
Managing Director
at Imperial Capital.
MSc Finance
Imperial College
Business School
Mr Oladapo joined
the company in 2007
as an Analyst.
Currently he is
Managing Director
in M&A department
of Imperial Capital
Prepared for Daimler AG | Confidential 5
Imperial CapitalOur experience
• Imperial Capital is a top global Investment Banking boutique specialising in M&A transactions, with particular expertise in the TMT, Industrial and Health
Care sectors. The company was established in 2001 and has since experienced constant growth fuelled by our expertise and focus on clients’ needs.
• Currently we have 5 offices across 3 continents and employ over 200 people in investment activities, giving us wide geographical exposure and
expertise across the globe. Total value of our deals surpassed $1.2tn mark in 2015.
• We pride ourselves on going beyond advisory. Our mantra is that we only win when the client’s win and our median client relationships length
stretches beyond 7 years. The longevity of our client relationships is our greatest achievement.
OUR RECENT DEALS INCLUDE
$40bn Acquisition of
Twotter by TechFund
Lead financial
advisor to TechFund
August 2016
$30bn Acquisition of
Nazda by
Specific Motors
Financial advisor to
Nazda
June 2016
$10bn Reverse
Takeover of HiPi by
ProInvest
Lead financial
advisor to Dall
May 2016
$12.5bn Acquisition
of LuxMed by BUBA
Lead financial
advisor to BUBA
March 2016
$6.7bn Acquisition of
UKHospital by BUBA
Financial advisor to
BUBA
December 2015
Providing the crown jewel in our Client’s strategy
Prepared for Daimler AG | Confidential
1. Market Overview
1.1 Macroeconomic Outlook
1.2 Automotive Industry - Worldwide
1.3 Automotive Industry – Germany
1.4 Automotive Industry – China
2. Daimler Overview
3. Audi Overview
4. Valuation
5. Investment Highlights
6. Transaction
7. Appendix
Agenda
Prepared for Daimler AG | Confidential 7
INFLATION US AND EURO AREA
Market OverviewMacroeconomic Outlook
MARKIT COMPOSITE PMI AND CONSUMER CONFIDENCE INDEXLONG TERM BOND YIELDS
YOY PERCENTAGE GDP GROWTH KEY MARKETS
-1%
0%
1%
2%
3%
4%
5%
01.10 01.11 01.12 01.13 01.14 01.15 01.16
US 10 Yr German 10 Yr
-0.5%
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
01.16 02.16 03.16 04.16 05.16 06.16 07.16 08.16 09.16
Core PCE US HCPI Euro Area (28 Countries)
-10%
-5%
0%
5%
10%
15%
20%
03.05 03.07 03.09 03.11 03.13 03.15
US China Germany Euro Area
Source: Bloomberg, Eurostat
Low debt costs and EM growth drive global consumption
60
70
80
90
100
110
50
52
54
56
58
60
62
11.13 05.14 11.14 05.15 11.15 05.16
Germany PMI (Left Axis) US PMI (Left Axis) Confidence Index (Right Axis)
Prepared for Daimler AG | Confidential
GEOGRAPHIC TRENDS
8
Market OverviewAutomotive Industry - Worldwide
North America
• 2015 set sales record of approximately 17.5m vehicles in the US.
• Mexican auto sales increased 19.0% in 2015 to approximately
1.3m vehicles.
Europe
• German new car registration increased by 7.7% in 2015.
• EU auto sales are weak due to weak growth environments in many
member states.
Emerging Markets
• Contractionary environments in commodity dependent economies
(Russia and Brazil) present headwinds, robust growth in China.
0
10
20
30
40
50
60
70
80
1990 to
1999*
2000 to
2012*
2013 2014 2015 2016
CHINA AND US MARKETS (MILLIONS)
FUEL PRICES
WORLDWIDE CAR SALES (MILLIONS)
-30%
-10%
10%
30%
50%
70%
90%
110%
8
10
12
14
16
18
20
01.07 01.08 01.09 01.10 01.11 01.12 01.13 01.14 01.15 01.16
US Auto Sales (M, Left Axis) China YoY Passenger Car Sales (Right Axis)
0
1
2
3
4
5
0
20
40
60
80
100
120
140
01.13 07.13 01.14 07.14 01.15 07.15 01.16 07.16
WTI ($, Left Axis) Brent ($, Left Axis) On Highway Diesel ($, Right Axis)
Source: Bloomberg, Scotiabank
Record high car sales spurred by low fuel costs
Prepared for Daimler AG | Confidential
21%
9%
8%
8%7%
7%
6%
3%
3%
27%
VW
Mercedes
Audi
BMW
Opel
Ford
Skoda
Renault
Hyundai
Other
9
Market OverviewAutomotive Industry - Germany
• Germany’s automotive sector accounts for 33.0% of the country’s
total industry R&D expenditure.
• In 2013 approximately 77.0% of cars manufactured in Germany were
exported.
• Domestic market growth looks poised to grow at a modest pace.
• Industry is fragmented with VW Group carrying the largest market
share.
• Carbon based fuel sources still dominate the industry but electric
vehicles are increasingly capturing market share.
• The number of passenger cars per 1,000 people in Germany has
remained relatively flat at just under 550 in the past four years.
TOTAL MOTOR VEHICLE MANUFACTURING REVENUE (BILLIONS)
NEW CAR REGISTRATIONS BY FUEL (THOUSANDS)INDUSTRY ANALYSIS
NEW PASSENGER VEHICLE REGISTRATION BY COMPANY (2015)
Source: Bloomberg, Eurostat, ACEA
0
50
100
150
200
250
300
350
400
450
500
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
0.0
0.5
1.0
1.5
2.0
2.5
0
50
100
150
200
01.12 07.12 01.13 07.13 01.14 07.14 01.15 07.15 01.16 07.16
Diesel (Left Axis) Petrol (Left Axis) Electric (Right Axis)
Fragmented and changing market presents opportunities
3.2m in total
Prepared for Daimler AG | Confidential
13%
8%
6%
5%
5%5%
5%
4%
4%
2%
23%
Volkswagen
Wuling
Hyundai
Nissan
Chang'an/Chana
Toyota
Buick
Chevrolet
Honda
Audi
Other
10
Market OverviewAutomotive Industry – China
• China, the world’s fastest growing automotive market, is extremely
fragmented and there are ample opportunities for expansion.
• Explosive growth in emerging market economies relative to
developed countries means they will be taking a much larger market
share by 2018.
• Passenger car sales in China are set to more than double from 2011
levels by 2018.
• China is increasingly becoming a hub for automobile manufacturing,
making up almost a quarter of global automobiles.
• Establishing a presence in this pivotal market is essential for
remaining globally competitive in the future.
PASSENGER CAR SALES GLOBAL MARKETS (MILLIONS)
CHINA CARS PRODUCTION AS A SHARE OF WORLD PRODUCTIONINDUSTRY ANALYSIS
Source: CAAM, BMW
0
5
10
15
20
25
30
35
40
China United
States
Japan Brazil Germany India ASEAN
countries
Russia
2011(M) 2018(M)
0%
5%
10%
15%
20%
25%
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
15.8m in total
CHINA UNIT SALES BY COMPANY (2012)
Emerging Markets are rapidly increasing in significance
Prepared for Daimler AG | Confidential
1. Market Overview
2. Daimler Overview
2.1 Company Snapshot
2.2 Financial Snapshot
3. Audi Overview
4. Valuation
5. Investment Highlights
6. Transaction
7. Appendix
Agenda
Prepared for Daimler AG | Confidential 12
• Daimler Group is a leading German automotive manufacturer
across global automotive markets headquartered in Stuttgart, DE.
• Product range includes entry to premium passenger cars, vans,
trucks and buses.
• Worldwide manufacturing and development operations in
19 countries, with over 8.5k sales centers and employing 284k
people across the globe.
• Operational divisions include Daimler trucks, Daimler buses,
Daimler financial services and champion brand Mercedes-Benz.
• Largest market is Western Europe (inc. Germany) with ca. 33.2% of
revenue, for which it holds 6.0% market share, followed by the US,
its second largest market.
54%
24%
7%
3%
12%Mercedes-Benz Cars
Daimler trucks
Mercedes-Benz Vans
Daimler buses
Daimler Financial
Services
33%
32%
23%
12%
Western Europe
NAFTA
Asia
Other Markets
Mercedes-Benz
Daimler(Trucks & Buses)
Daimler
Financial
Service
COMPANY OVERVIEW
DAIMLER GROUP STRUCTURE
REVENUE BREAKDOWN BY DIVISION IN 2015
REVENUE BREAKDOWN BY REGION IN 2015
Daimler OverviewCompany Snapshot
Source: Bloomberg, Daimler
Top global player in premium automobiles market
EUR149.5bn
EUR149.5bn
Prepared for Daimler AG | Confidential 13
EURbn 2011 2012 2013 2014 2015
Revenue 106.6 114.3 118.0 129.9 149.5
YoY 9.0% 7.3% 3.2% 10.1% 15.1%
Gross profit 25.5 25.5 25.2 28.3 31.8
Gross margin 24.0% 22.4% 21.4% 21.8% 21.3%
EBITDA 12.3 12.3 11.7 14.0 17.6
EBITDA margin 11.5% 10.7% 10.3% 11.1% 12.1%
Net income 5.8 5.9 4.9 7.6 8.7
Net margin 5.4% 5.2% 4.2% 5.9% 5.8%
Total assets 148 163 168 190 217
Current assets 61 67 70 77 91
Cash 10 11 11 10 10
Stockholders’ equity 41 39 43 45 55
Liabilities 107 124 125 145 163
Debt 48 59 60 70 83
Net debt/EBITDA* -1.3x -1.3x -1.5x -1.5x -1.3x
Operating cash flow -0.7 -1.1 3.3 -1.3 0.2
Investment cash flow -6.5 -8.9 -6.8 -2.7 -9.7
Financing cash flow 5.8 11.5 3.9 2.3 9.6
Net cash flow -1.3 1.4 0.0 -1.4 0.3
CAPEX 4.2 4.8 5.0 4.8 5.1
• 12/99 Daimler acquired 50% stake in McLaren Formula One
• 10/00 Daimler acquired Chrysler Group, forming DaimlerChrysler
• 10/00 Acquired 100% of Detroit Diesel Corporation
• 01/05 Daimler acquired high performance tuning company AMG
• 01/05 Daimler completed the sale of Chrysler to Cerberus Capital
Management
• 11/09 Daimler acquired Westfalia Manufacturing Plant in
Germany
PROFITABILITY IN 2011-2015 PERIOD (EUR BILLIONS)
KEY DEVELOPMENTS
KEY FINANCIALS IN 2011-2015 PERIOD
Daimler OverviewFinancial Snapshot
* - Net debt/EBITDA excludes impact of Financial Subsidiary’s accountsSource: Bloomberg, Daimler, Zephyr
0%
2%
4%
6%
8%
10%
12%
14%
0
20
40
60
80
100
120
140
160
2011 2012 2013 2014 2015
Revenue (Left Axis) EBITDA (Left Axis)
EBITDA Margin (Right Axis) Operating Margin (Right Axis)
Strong financial performance is a key driver
Prepared for Daimler AG | Confidential
1. Market Overview
2. Daimler Overview
3. Audi Overview
3.1 Company Snapshot
3.2 Financial Snapshot
3.3 Snapshot of Daimler and Audi Combined
4. Valuation
5. Investment Highlights
6. Transaction
7. Appendix
Agenda
Prepared for Daimler AG | Confidential 15
• German luxury automobile manufacturer with over 83k employees
headquartered in Ingolstadt, DE.
• Audi also owns Italian sports car manufacturer Lamborghini SpA
and motorbike maker Ducati.
• Largest market is Europe (exc. Germany, c. 33.4% of revenues).
• Experienced revenue growth in every geographical segment since
2010. Revenues in North America and Asia – Pacific have grown at
the fastest rate of the period, increasing by over 100%.
• Consistent growth in vehicles sold since 2010 resulting in an
increase of 57% with over 2m vehicles sold worldwide in 2015.
• Subsidiary company of Volkswagen since 1966.
Audi OverviewCompany Snapshot
COMPANY OVERVIEW
REVENUE BREAKDOWN BY REGION IN 2015
33%
26%
21%
19% Rest of Europe
Asia - Pacific
Germany
North America
South America
Africa
AUDI
Source: Bloomberg, Audi
REVENUE BREAKDOWN BY DIVISION IN 2015
75%
12%
10%3%
Audi
Ducati
Lamborghini
Giugiaro
AUDI’S BRANDS
A leading manufacturer of premium automobiles
EUR58.4bn
EUR58.4bn
Prepared for Daimler AG | Confidential 16
Audi OverviewFinancial Snapshot
PROFITABILITY IN 2011-2015 PERIOD (EUR BILLIONS) KEY FINANCIALS IN 2011-2015 PERIOD
6%
8%
10%
12%
14%
16%
18%
0
10
20
30
40
50
60
70
2011 2012 2013 2014 2015
Revenue EBITDA EBITDA Margin Operating Margin
Source: Bloomberg, Audi, Thomson Reuters
• The vision of Audi’s Strategy 2020 is to develop Audi into the
world’s leading brand in the premium automobile segment.
• Lead the way in both design and technology through innovation
by focusing on efficiency of products, connected automated
driving and appealing vehicle architecture.
• Expand worldwide production structures to establish a broader
network and increase international dealerships in major growth
markets.
• Steady growth of demand for cars; growth in 2015 was 9.0% in
Western Europe, and 2.6% globally.
• Low fuel prices due to the collapse in the price of crude oil since
2014 have been a boost to automobile sales.
COMPANY OVERVIEW
EURbn 2011 2012 2013 2014 2015
Revenue 44.1 48.8 49.9 53.8 58.4
YoY 24.4% 10.6% 2.3% 7.8% 8.6%
Gross profit 8.2 9.7 9.2 9.4 11.4
Gross margin 18.6% 19.9% 18.4% 17.4% 19.5%
EBITDA 8.6 7.3 7.1 7.6 7.4
EBITDA margin 19.6% 14.9% 14.2% 14.1% 12.7%
Net income 5.4 4.3 4.0 4.4 4.2
Net margin 12.3% 8.8% 7.9% 8.1% 7.2%
Total assets 37 40 45 51 57
Current assets 25 22 25 28 31
Cash 10 13 16 15 17
Stockholders’ equity 13 15 19 19 22
Liabilities 24 25 27 32 35
Debt 1 1 1 2 2
Net debt/EBITDA -1.2x -1.6x -2.0x -1.7x -2.0x
Operating cash flow 6.3 6.1 6.8 7.4 7.2
Investment cash flow -6.9 -4.8 -2.7 -8.9 -2.2
Financing cash flow -0.7 -1.6 -1.8 -1.3 -1.5
Net cash flow -1.4 -0.3 2.3 -2.8 3.5
CAPEX 2.9 3.3 3.6 4.3 4.8
Stable revenues demonstrate financial discipline
Prepared for Daimler AG | Confidential 17
REVENUE BREAKDOWN BY DIVISION IN 2015
Merger OverviewSnapshot of Daimler and Audi Combined
EURbn 2015
Revenue 207.9
YoY 13.2%
Gross profit 43.2
Gross margin 20.8%
EBITDA 25.9
EBITDA margin 12.5%
Net income 12.9
Net margin 6.2%
Total assets 274
Current assets 122
Cash 27
Stockholders’ equity 77
Liabilities 198
Debt 85
Operating cash flow 7.4
Investment cash flow -11.9
Financing cash flow 8.1
Net cash flow 3.8
CAPEX 9.9
39%
21%
19%
9%
5%3%3%
Mercedes-Benz
Audi
Daimler Brands
Daimler Financial
Services
Mercedes-Benz Vans
Ducati
Lamborghini
EUR207.9bn
Mercedes-Benz
AUDI
Daimler(Brands &
Financial Services)
Source: Bloomberg, Daimler, Audi, Statista
• Combined Half-year luxury car sales from
January to June 2016 is approximately
2.08m units worldwide.
• Tremendous Research & Development
capabilities, with Daimler and Audi R&D
expenditure totaling over €10.8bn.
Combined, the partnership will emerge
automotive leader in R&D.
• Combined passenger car sales in China for
Audi and Mercedes-Benz is over 625k units
in 2014, overtaking BMW, Peugeot, Citroën
and Skoda.
COMBINED FINANCIALS (2015)
COMBINED ENTITY’S BRANDS
Top 3 global player in terms of revenue
Prepared for Daimler AG | Confidential
1. Market Overview
2. Daimler Overview
3. Audi Overview
4. Valuation
4.1 Comparable Companies Analysis
4.2 Precedent Transactions Analysis
4.3 Discounted Cash Flow
4.4 Summary
5. Investment Highlights
6. Transaction
7. Appendix
Agenda
Prepared for Daimler AG | Confidential 19
USDbn Market
Cap
Net
Debt
EV/EBIT P/E EV/Sales EBIT margin
Company 2015A 2016E 2017E 2015A 2016E 2017E 2015A 2016E 2017E 2015A 2016E 2017E
Europe
Daimler 74.0 -25.4 4.8x 3.7x 3.5x 9.9x 7.9x 7.6x 0.4x 0.3x 0.3x 8.5% 8.6% 8.8%
BMW 55.8 41.3 10.7x 9.5x 9.5x 10.1x 7.9x 8.1x 1.1x 1.0x 1.0x 10.4% 10.4% 10.1%
Peugeot 12.1 -4.2 5.5x 2.9x 2.7x 16.8x 7.0x 6.6x 0.2x 0.1x 0.1x 3.6% 5.0% 5.3%
Renault 23.2 -4.0 10.7x 6.1x 5.5x 8.9x 6.2x 5.4x 0.5x 0.4x 0.3x 4.9% 6.1% 6.2%
Volkswagen 66.7 -25.8 N/A 2.9x 2.5x N/A 7.3x 6.2x 0.2x 0.2x 0.2x (1.9%) 5.7% 6.5% USA
Ford 47.5 -12.7 5.7x 5.3x 5.5x 7.4x 6.6x 7.1x 0.3x 0.3x 0.3x 5.1% 4.8% 4.7%
GM 50.5 -11.6 8.1x 3.4x 3.8x 6.6x 5.5x 5.8x 0.3x 0.3x 0.3x 3.2% 7.4% 6.8% Japan
Honda 52.0 48.8 18.8x 14.1x 13.5x 13.8x 11.2x 10.5x 0.9x 0.8x 0.7x 5.0% 5.4% 5.4%
Mazda 9.4 0.2 7.9x 6.9x 6.3x 9.2x 9.9x 8.2x 0.5x 0.3x 0.3x 6.7% 4.8% 5.1%
Nissan 40.4 -13.4 7.0x 5.1x 4.6x 11.2x 7.9x 7.0x 0.4x 0.3x 0.3x 5.2% 6.1% 6.5%
Toyota 188.8 114.0 14.9x 17.4x 15.9x 12.2x 11.5x 10.5x 1.5x 1.3x 1.2x 10.1% 7.2% 7.7%
Suzuki 16.7 -2.1 9.3x 8.2x 7.1x 20.9x 12.7x 13.7x 0.6x 0.5x 0.5x 6.0% 6.6% 7.2%
Summary
1st quartile 6.4x 3.4x 3.4x 9.1x 6.6x 6.2x 0.3x 0.2x 0.2x 4.6x 5.3x 5.4x
Average 9.5x 6.8x 6.4x 11.5x 8.2x 7.7x 0.6x 0.5x 0.4x 5.6x 6.5x 6.7x
Median 8.1x 5.6x 5.3x 10.1x 7.6x 7.1x 0.5x 0.3x 0.3x 5.1x 6.1x 6.5x
3rd quartile 11.0x 8.4x 7.7x 13.0x 9.2x 8.1x 0.7x 0.6x 0.5x 7.1x 7.2x 7.0x
Audi AG 3.0x 6.9x 0.2x 8.1%
Discount to peers 62.8% 31.1% 47.0% N/A
Implied Equity Value
(USDbn, median-based)57.4 45.9 46.2 48.0 33.3 33.1 44.6 35.1 35.8
ValuationComparable Companies Analysis
Source: Bloomberg, as of 16.11.2016
Audi seems to be trading at a significant discount to its peers. Due to low trading volume we assume that the share price of Audi is not fully reliable.
Furthermore Audi is not covered by analysts’ and hence forward looking multiples are unavailable. Implied valuation is based on our forecasts.
Significant potential, enormous value yet to be realised
Prepared for Daimler AG | Confidential 20
ValuationPrecedent Transaction Analysis
Source: Zephyr, Bloomberg, Thomson Reuters
Transaction Date Target Name Acquirer Name EV/EBIT EV/Sales Deal Value (USDbn)
23/07/2015 Ferrari SpA Ferrari NV 29.6x 3.9x 10.0
13/11/1998 Chrysler Daimler 9.9x 0.9x 38.4
18/04/2012 Ducati Lamborghini 20.8x 2.2x 1.1
Summary
Min 9.9x 0.9x
Median 20.8x 2.2x
Max 29.6x 3.9x
Implied Equity Value
(USDbn, median-based)124.0 154.5
Limitations in the size of accurately representative transactions under mirrored circumstances significantly affected the strength of the precedent transaction methodology.
In an effort to preserve quality in our valuation, a sample of 3 transactions has been chosen.
TRANSACTIONS OVERVIEW
• Ferrari N.V. (NYSE:RACE) acquired 100% controlling interest in a luxury carmaker Ferrari S.p.A. from American-Italian car manufacturer, Fiat-Chrysler
Automobiles (NYSE:FCA) as part of broad “restructuring” plan in October 2015. The transaction included a 90% stake attributed to Fiat S.p.A. and a 10%
minority stake in ownership by Piero Ferrari, son of Founder Enzo Ferrari.
• Daimler AG completed the merger of Chrysler Corporation in an all stock transaction framing the creation of the DaimlerChrylser group in May 1998.
The acquisition saw the target valued at $38.4bn, excluding any debt assumed. The new entity was quickly considered the largest global car
manufacturer at the time.
• Audi announced the acquisition of Ducati in July 2012, through its wholly owned high performance automobile subsidiary, Lamborghini S.p.A. At $1.1bn
the acquisition represented the next stage of the globalisation process the company was undergoing, for which Audi believed it stood the best suited
partner to facilitate the growth.
Prepared for Daimler AG | Confidential 21
USDbn 2016E 2017E 2018E 2019E 2020E
Revenue $69.4 $73.7 $78.2 $83.1 $88.2
COGS (% of Revenue) 80.5% 80.5% 80.5% 80.5% 80.5%
Gross profit 13.5 14.3 15.2 16.2 17.2
SG&A (% of Revenue) 11.0% 11.0% 11.0% 11.0% 11.0%
D&A (% of Revenue) 4.6% 4.6% 4.6% 4.6% 4.6%
Operating Income 5.7 6.0 6.4 6.8 7.2
Less Taxes 1.4 1.5 1.6 1.7 1.8
Plus D&A 3.2 3.4 3.6 3.8 4.0
Less NWC 0.8 0.7 0.8 0.8 0.9
Less CAPEX 1.0 1.1 1.1 1.2 1.3
FCFF 5.6 6.0 6.4 6.8 7.2
PV of FCFF $5.4 $5.5 $5.4 $5.4 $5.4
Implied Price Share Sensitivity
Discount Rate
$1,623.97 5.8% 6.3% 6.8% 7.3% 7.8%
Term
inal EB
IT
Mu
ltip
le
4.5 x $1,548 $1,527 $1,508 $1,487 $1,468
5.0 x $1,611 $1,588 $1,568 $1,546 $1,525
5.5 x $1,674 $1,650 $1,629 $1,604 $1,582
6.0 x $1,737 $1,712 $1,689 $1,663 $1,640
6.5 x $1,800 $1,773 $1,749 $1,722 $1,697
DCF Assumptions & Output
Cost of Equity 6.8%
Cost of Debt 1.0%
Tax Rate 25.0%
WACC: 6.8%
Terminal EBIT
Multiple:5.5x
Enterprise Value: $55,611
Net Debt: -$14,424
Implied Share Price: $1,628.71
• In the last 5 years revenues in automotive had a CAGR of 14.8%. We have
assumed growth of 6.2% CAGR in the next 5 years, taking historical growth
as weighted.
• 6.76% WACC assumed, which is lower than 8.00% of industry. European
Corporate Bonds continue to hit record lows. Corporates with similar scope
and credit rating (i.e. Henkel and Sanofi) sell at near zero levels.
• Consideration of low trading volume - given the free float of only 0.4% of
total shares outstanding – taken into account.
• Terminal EBIT Multiple assumed to be in line with peers valuation at 5.5x
2016E.
• According to forward-guidance we maintain R&D as % of revenue at 7.3%
based on historical levels.
• We see scope for Accounts Receivable to fall within combined entity but
have maintained at 6.9% for conservatism.
• We see a continued uptick in CAPEX at 1.5% of revenue due to required
capital investment in forward developments.
• Unlevered Beta at 0.51 based on historical regression analysis.
• Risk Free rate at 2.17%.
ValuationDiscounted Cash Flow Analysis
Source: Bloomberg, Thomson Reuters, Audi
Prepared for Daimler AG | Confidential
46
33
63
67
72
62
77
171
0 10 20 30 40 50 60 70 80 90 100 110 120 130 140 150 160 170 180
EV/EBIT
P/E
DCF
EV/EBIT
22
ValuationSummary
Using the discounted cash flow methodology we calculated a range of scenarios and found a fair value of between $33bn and $171bn. This valuation is
corroborated by multiples drawn from comparable companies.
In our opinion DCF and Comparable Companies Analysis are the most relevant for this transaction. Based on this assumption we weighted of valuation
methodologies as follows: DCF (50%), P/E (25%), EV/EBIT (25%) (Comparable Companies Analysis). Based on this assumption we concluded that a valuation
range of between $56.0bn to $66.0bn is appropriate.
Our valuation puts a premium of between 98% to 133% over current market cap of $28.3bn. This is caused by the fact that 99.6% of Audi’s shares are
owned by Volkswagen, hence trading volume is extremely low. That limits efficiency of the market’s price discovery mechanisms.
Precedent Transaction Analysis
Comparable Companies Analysis
Valu
ati
on
ran
ge
Prepared for Daimler AG | Confidential
1. Market Overview
2. Daimler Overview
3. Audi Overview
4. Valuation
5. Investment Highlights
5.1 Transaction Rationale - Strategy
5.2 Transaction Rationale - Synergies
6. Transaction
7. Appendix
Agenda
Prepared for Daimler AG | Confidential
Investment HighlightsTransaction Rationale - Strategy
22
Combined Strategy
Cost Synergies
Brand and Values
• To maintain strategic goals to stay ahead of current market trends, we have protected the R&D budget.
• Software Economies-of-Scale, greater availability of data across the partnership.
• We estimate a conservative 0.25% - 0.50% cost savings on SG&A at €550m - €1.1bn.
• Lower tax charges due to higher depreciation.
Revenue
Synergies
• Combine strategic efforts to tackle product modularisation. This will achieve greater product customisation but reduce
product commonality. Based on consumer trend reports, this will be advantageous to the combined company.
• Combined Marketing strength to take advantage of rapidly growing demand in Emerging Markets.
• Integrated customer networks open opportunities to enhance sales across several segments.
• Brand Appeal: Continue roadmap of highly innovative automobiles i.e. Audi Tron.
• Company value alignment creates greater shared investor satisfaction, further amplifying overall value creation.
DAIMLER AUDI
• One of the world’s most successful automotive companies
• 2nd largest truck manufacturer in the world
• Group sold around 2.9 million vehicles last year
• Strong holding in Emerging Markets
• Well established luxury brand through Mercedes with several other
world renowned subsidiaries
• Leading global premium automobile manufacturer
• Group sold 1.8 million vehicles last year
• Extensive developments in autonomous & electric cars
• Lamborghini achieved historic 3,000 supercars sold in one year
We want to encompass as much of the future Value Chain as possible
Prepared for Daimler AG | Confidential
Investment HighlightsTransaction Rationale - Strategy
22
1Shifts in Consumer Demand
Future growth: Emerging Markets
Product Modularisation: greater customisation and reduced product commonality. Seamless car-buying experience.
2Regulatory Requirements
Post-emissions scandal, combined with momentum from Paris accord and CAFE regulation in United States, greater
expenditure required for compliance including Backup Cameras, Blind-sport warnings and automatic pre-collision braking. By2025, 60mpg is a requirement.
3Technology
Increasing Availability of Data: DEMAND SIDE Consumers have greater bargaining power. SUPPLY: connected cars.
Sharing of best practises: Electronic Systems represent 90% of new automobile innovation.ENERGY OF THE FUTURE: Wireless Charging, Autonomous Logistics, Audi’s HERE pioneering Virtual Mapping.
4Shifting Revenue Structure
Sharing Economy impact on transportation machines.
Post-sale service, add-ons: including OTA (over-the-air) software updates and further consumer tie-ins.
5Value Chain (Increased non-traditional suppliers)
Electronics and Software presents 35% of cost. Electronic systems 90% of automotive innovation.
Value from Big Data including on-demand mobility services $1.5t dollar future industry.
6Greater Collaboration (shared risk and return)
Continued success in motorsport, luxury and high-performance brands AMG and Quattro.
Ability to support a larger array of engine technologies: electric, hybrid, plug-in, battery and hydrogen.
Prepared for Daimler AG | Confidential
1. Market Overview
2. Daimler Overview
3. Audi Overview
4. Valuation
5. Investment Highlights
6. Transaction
6.1 Recommendation
6.2 Proposed Structure and Financing
7. Appendix
Agenda
Prepared for Daimler AG | Confidential 27
TransactionRecommendation
Our Recommendation
Emissions Scandal gives VW headache
• US judge approved $15bn settlement for US consumers.
• VW faces ongoing court cases regarding settlements
for investors and emission regulators.
• Total settlement from the emissions scandal will exceed the
€18.2bn VW has set aside to cover the costs of the scandal.
VW has incentive to sell stake in Audi
• Given our evaluation of VW’s business, we consider it
unfeasible for VW to tender Audi wholesale to Daimler.
• Given the ongoing financial distress of the emissions
scandal and changing automotive market, we see this as
a good opportunity to create a long-term partnership.
• We are approaching VW with a 49.9% equity stake bid for Audi, with Daimler seeking joint operational
control of the firm.
• We recommend Daimler acquire Audi with an all-cash offer, supported by syndicated loan facilities.
Prepared for Daimler AG | Confidential 28
TransactionProposed Structure and Financing
Overview:
Pros
Valuation
• Taking all valuation methods into account we see consider a range of $56.0bn – $66.0bn for Audi’s business.
• We recommend to offer $60bn for 100% of Audi’s equity. Therefore equity deal value would be $30bn.
Transaction structure
• Audi’s shares are currently trading at €618.1 (November 17th, 2016).
• Daimler currently has a Debt-to-Equity ratio of -0.43x, with €19bn of cash and short term investments, which
is currently in line with the industry average and opens the possibility of taking on additional debt.
Cons
• Partnership Offer: increases the likelihood of Audi’s parent company (99.6% institutional ownership) to accept
the offer.
• Debt/Cash split: We propose to finance it with 66.6% debt and 33.3% cash on hand.
• Borrowing terms: Considering Daimler’s existing rating of A- and Audi’s rating also of A - we see extensive
opportunity to receive favourable interest rates.
• We recommend Daimler acquire Audi with an all-cash offer, supported by syndicated loan facilities.
• Given our evaluation of Volkswagen’s business and of the considerable contribution Audi makes to the top-
line, we consider it unfeasible and untenable for VW to tender Audi wholesale to Daimler.
• Consequently we are approaching VW with a 49.9% equity stake bid for Audi, with Daimler seeking joint
operational control of the firm. We see this as an opportunity to create a long-term partnership for mutual
benefit.
• We see key areas to leverage our existing strengths to bolster the firm going forwards.
• The strategy and vision these firms share would enable a significant amplification in shared best practices and
technologies. This will lead to a paradigm shift in the evolution of the transportation industry.
• Operational control: At 49.9% we wish to form a new joint supervisory board with equally allocated seats from
both companies. VW will still continue to hold a majority stake in Audi as a subsidiary, which does not defer
from outstanding corporate forward guidance.
Prepared for Daimler AG | Confidential
Contact Details
Igor [email protected]
7543 581 497
Adrian [email protected]
7783 007 707
7896 133 874
Kitan [email protected]
7450 031 428
John [email protected]
7903 159 808
30 St Mary Ave
London
EC3A 8EP
7564 235 754
Prepared for Daimler AG | Confidential
1. Market Overview
2. Daimler Overview
3. Audi Overview
4. Valuation
5. Investment Highlights
6. Transaction
7. Appendix
Agenda
Prepared for Daimler AG | Confidential 31
AppendixShare Price Performance
60%
70%
80%
90%
100%
110%
11.2015 01.2016 03.2016 05.2016 07.2016 09.2016
Daimler Audi DAX
Source: Bloomberg
Prepared for Daimler AG | Confidential 32
AppendixDetailed Financial Information - Daimler
EURbn 2013 2014 2015
Revenue 118.0 129.9 149.5
Gross Profit 25.1 28.2 31.8
EBITDA 11.7 14.0 17.6
EBIT 7.8 9.4 12.7
Net Income 6.8 7.0 8.7
Cash from Operations 3.3 -1.3 0.2
Cash from Investing -6.8 -2.7 -9.7
Cash from Financing 3.9 2.3 9.6
Net Cash Flow 0.1 -1.4 0.3
CapEx 5.0 4.8 5.1
D&A 3.9 4.6 4.9
Cash & Equivalents 18 16 19
Inventories 17 20 23
Total Current Assets 70 77 91
Total Assets 168 190 217
Total Current Liabilities 59 67 77
Total Liabilities 125 145 163
Total Equity 43 45 55
Total Debt 60 70 83
EURbn 2013 2014 2015
Revenue Growth 3.2% 10.1% 15.1%
EBIT Growth -3.3% 20.1% 35.7%
Quick ratio 0.83 0.78 0.82
Current ratio 1.19 1.15 1.19
ROA 4.1% 3.9% 4.1%
EBITDA Margin 10.3% 11.1% 12.1%
EBIT Margin 6.6% 7.2% 8.5%
Net Debt to EBITDA -1.5x -1.5x -1.3x
Net Debt to EBIT -2.4x -2.3x -1.8x
EBITDA to Interest Expense 13.8x 20.1x 30.1x
EBIT to Interest Expense 8.8x 13.1x 21.2x
Days Sales Outstanding 93.3 93.0 97.2
Days Inventory 68.9 68.6 69.2
AP Turnover Days 35.4 33.4 31.4
Cash Conversion Cycle 126.9 128.2 135.0
ROE 17.0% 16.1% 17.3%
Net Income Margin 4.2% 5.9% 5.8%
Asset Turnover 0.7x 0.7x 0.7x
Equity Multiplier 3.9x 4.3x 4.0x
Source: Bloomberg, Thomson Reuters, Daimler
Prepared for Daimler AG | Confidential 33
AppendixDetailed Financial Information - Audi
EURbn 2013 2014 2015
Revenue 49.9 53.8 58.4
Gross Profit 9.2 9.4 11.4
EBITDA 7.1 7.6 7.4
EBIT 5.0 5.2 4.8
Net Income 4.0 4.4 4.2
Cash from Operations 6.8 7.4 7.2
Cash from Investing -2.7 -8.9 -2.2
Cash from Financing -1.8 -1.3 -1.5
Net Cash Flow 2.3 -2.9 3.5
CapEx 3.6 4.3 4.8
D&A 2.0 2.4 2.6
Cash & Equivalents 15 15 17
Inventories 4 5 6
Total Current Assets 25 28 31
Total Assets 45 51 57
Total Current Liabilities 16 19 22
Total Liabilities 27 32 35
Total Equity 18 19 22
Total Debt 1 2 2
EURbn 2013 2014 2015
Revenue Growth 2.3% 7.8% 8.6%
EBIT Growth -6.2% 2.4% -7.6%
Quick ratio 1.15 0.98 0.99
Current ratio 1.54 1.51 1.43
ROA 9.3% 9.1% 7.8%
EBITDA Margin 14.2% 14.1% 12.7%
EBIT Margin 10.1% 9.6% 8.1%
Net Debt to EBITDA -2.0x -1.7x -2.1x
Net Debt to EBIT -2.8x -2.5x -3.2x
EBITDA to Interest Expense 118.4x 130.7x 119.7x
EBIT to Interest Expense 83.8x 88.8x 76.7x
Days Sales Outstanding 19.9 23.2 24.2
Days Inventory 39.6 39.3 44.2
AP Turnover Days 42.1 44.6 49.2
Cash Conversion Cycle 17.3 17.9 19.1
ROE 23.9% 23.6% 21.0%
Net Income Margin 7.9% 8.1% 7.2%
Asset Turnover 1.2x 1.1x 1.1x
Equity Multiplier 2.4x 2.6x 2.6x
Source: Bloomberg, Thomson Reuters, Audi