jayhawk corp
TRANSCRIPT
Jayhawk CorporationConfidential LBO ProposalDecember 2014
Michael PengJon FarchminRob Rawlings
Company Overview● Jayhawk - Specialty Valve Manufacturer
for automotive & oil & gas industries○ With our customers, we design and
manufacture customized valves○ Auto industry - lubrication and air
drying systems for manufacturing equip
○ Oil & gas industry - emergency shutoff, spray rinse, & sampling valves for extraction and processing
● Family business - started in 1989
● Quality management - average 10 yrs. w/Jayhawk, 25 yrs. industry
Company OverviewReasons for sale
● Current CEO is retiring - wants more time to travel to see grandchildren
● Potential family heirs pursuing other careers (teaching, law)
Company Overview
● Investment opportunity
○ Given the base case assumptions, Jayhawk is a strong investment opportunity that could provide an 18% annual return over a 5 year holding period.
○ Jayhawk is valued at a private company discounted 4.5x EBITDA multiple, or $21.2MM.
Company Overview
● Key profit drivers○ Automotive manufacturing plants in
North America
○ Oil & gas drilling & manufacturing in North America
● Key strengths○ Customer diversity
○ Strong, experienced management
○ Ability to design, not just manufacture
Company Overview● Stability of Revenue - Historically 5.5% for
the past 10 years
○ Historically 5.5% for the past 5 years (industry average is 2.38%)
○ Expanded oil & gas industry revenue during automotive downturn of early 2000’s
● EBITDA Margins = 15% of Gross Revenue (Delphi avg. is 18.24%)
Industry Dynamics● Five major players in the Auto and Truck Parts industry
o C4 (concentration of top 4 competitors) is 27% (IBISWorld website)o $16.5B Industry (CSI Markets website)
● Industry driverso Demand in auto manufacturingo World price of crude oilo Consumer confidence index
● Industry expecting to grow 5.7% for the coming year.o Q3 2014 saw a Y/Y growth of 5.7%
● Highly cyclical industry and highly competitive with foreign entrants.
Financials & AnalysisBasics
● 255,000 units in 2014 represents continued 5.5% annual growth
● Employee levels
● Currently renting facility in Lawrence, KS - $5.6/sq. ft. annual, 200,000 sq. ft.
Income Statement● 50 Days Sales Outstanding
○ Collections rate○ How financed
● Inventory turnover rate = 4.5
● Annual CAPEX of $97,500, or 2.5% annual equipment replacement rate
● Assumed 4.5% growth rate is below historical average of 5.5%
Income Statement
Balance Sheet
Statement of Cash Flows
Financials & Analysis
Proposed Valuation
Proposed Valuation
● (--) Small company - 200 employees
● (++) Strong management○ average 10 yrs. w/Jayhawk○ average 25 yrs. industry
● (++)Stable Revenue - Historically 5.5% for the past 10 years
● (++)EBITDA Margins = 15% of Gross Revenue
● (+-)Diversifying customer base○ auto makers○ oil & gas manufacturers○ growth opportunities internationally
Valuation Analysis
Proposed Capital Structure
Future Growth Opportunities● Large Oil & Gas company represents 15% of current sales.
○ Market niche opportunity○ North American oil production investments already underway○ Companies replacing existing equip. & adding new
● Canadian customers○ new in the past two years○ 5% of sales○ potential for growth
● Reaching new customers● Path to future growth
Customer diversification - auto manufacturing and oil & gas manufacturersStrong management
Value
Jayhawk is valued at a private company discounted 4.5x EBITDA multiple, or $21.2MM.
Given the base case assumptions, Jayhawk is a strong investment opportunity that could provide an 18% annual cash on cash return over a 5 year holding period.
Base assumptions:● 4.5% growth rate - this is lower than recent historical rates● $ 4MM equity investment