watterson scientific progress, inc 1
TRANSCRIPT
3SN Consulting Financial Consulting By:
Michael Seitz, Associate Financial AnalystJunior Suarez-Leyva, Associate Financial Analyst
Brandon Schmid, Associate Financial AnalystCal Nickola, Associate Financial Analyst
● Medium Sized, Private company that manufactures equipment used in hydraulic fracking
● Joint ownership between Mr. Calvin (President and CEO) and Mr. Sunday (CFO).○ Each own 50%
● 2014:○ EBITDA: $8,409,000○ Revenue: $176,820,300○ Cash: $2,764,900○ Debt: $12,230,900
WSP Information
● Large private equity firm● Portfolio consists of mid-sized
manufacturing companies● Attracted to highly specialized, high growth
companies with solid management structures.
● Large number of ties to the energy industry, along with high level of knowledge about the energy industry.
● Potential to add great value to WSP
Treasure Everywhere Info
● Large international energy company● Competitor to WSP in the fracking industry,
although not limited to that specific field● Technology is below the level of WSP’s● Looking for more of a “cleaning house”
approach where they would maximize intellectual property and then shut down WSP
Magical World Info
Treasure Everywhere, Inc. (“TE”)● $57.2 Million for 65% of outstanding capital
stock● 100% of Mr. Sunday’s stock ● 30% of Mr. Calvin’s stock● Purchase price would be paid 100% in cash at
closing● Mr. Calvin would continue as President and
CEO● TE will exit its investments in WSP in 6 years
by full sale● Will reduce Operating expenses 3% annually● Cost of Goods Sold would be reduced 1%
annually
Option 1
Magical World, Inc.(“Magical World”)● $92.8 million enterprise value for WSP on a
cash-free, debt-free basis( no adjustment for working capital)
● Would purchase 100% of the outstanding capital stock of the company from Mr.Sunday and Mr.Calvin
● Purchase price would be paid 100% in cash at closing
Option 2
Accept the proposed offer from Treasure Everywhere
● Satisfies qualitative requirements set by current owners
● Fair Value● Great increase to company value over the 6
year window● Allows Mr. Calvin to maintain his position
and salary as well as increase his equity value over 6 year window
● Overall more beneficial to the industry
Our Recommendation
Comparable transactions● Took median amount of EV/EBITDA for all
comparable transactions in the last 24 months
● Multiplied this number by WSP’s EBITDA○ 8,840,900*8.5= $75,147,650 (Enterprise Value) ○ Equity Value of $65,681,650
Comparable Transaction Valuation
● Found Cash Flows using EBIT + Depreciation - Taxes -Capital Expenditures
● Used WACC as a discount rate● Estimated growth to continue at a 2%
decrease each year for the next 6 years
DCF Valuation
● Converted public company average beta into a projected private beta
● Found cost of equity using 3 mo. T-bill rate, industry average Market Risk Premium, and the Beta
● Utilized industry average cost of debt● Found debt/equity ratio utilizing balance
sheet● WACC ended up being 6.89%
WACC
● Utilized a 6.89% Discount Rate (WACC)
● Used inputs from a 6 year outlook
● Results in WSP being valued at $64,471,790.97
DCF Results
● Using both the DCF and the Comparable Transaction valuations we arrived at a range of approximately:○ $64 million to $75 million dollars
● This valuation shows that the Treasure Everywhere offer is definitely fair market value if not even slightly overvaluing WSP.
Final Current Valuation
● Following acquisition Cost of Goods sold drops 1% annually, and Operating Expenses drop 3% annually.
● Through DCF Valuation, this results in a value jump of $32,013,759.03 over the course of 6 years.
● This yields a WSI valuation of $96,485,550.00 after 6 years under ownership of TE
Valuation Post-Acquisition by TE Synergies
(in thousands) 2015 2016 2017 2018 2019 2020Revenue $198,038.7 $217,842.6 $235,270$249,386.2 $259,361.7 $264,548.9% Growth 12% 10% 8% 6% 4%2%Cost of Goods Sold $156,846.7 $170,806 $182,625.8 $191,647.5
$197320.3$199,254.1Operation Expenses $28,814.6 $30,745.2 $32,208.7 $33,116.9 $33,408.4$33,054.3Gross Profit $5,916.5 $9451.9 $13,333 $17,389 $21,413.6$25,180.3Gross Profit w/o TE $3,441.0 $3,792.1 $4,105.9 $4,352.3 $4,526.3 $4,626.9
● Sell 100% of Mr. Sunday’s share, and 30% of Mr Calvins share of WSP.
● Keep Mr. Calvin as President and CEO● Reap immediate benefits provided by TE● Participate in full sale of the corporation in
6 years to achieve utmost profitability for Mr. Calvin
Next Steps
Questions?
Appendix
Comparable Transactions
EBITDA*(8.5x)=Enterprise Value 8,840,900*8.5= $75,147,650