william blair case competition (miami university) - 2016

Kona Adventures“Your One Stop Travel Partners”

Clare Adams | Sean Hynes | Cameron Mogk | Ethan Retcher

2016 William Blair Investment Banking Case Competition

Executive Summary

Industry Trends

Positioning Analysis

Valuation Analysis

3

5

8

11

Strategic Options 19

Final Thoughts 24

Appendix 26

2

ExecutiveSummary

Executive Summary

3IndustryTrends

ValuationAnalysis

StrategicOptions

FinalThoughts Appendix

Potential BuyersValuation Ranges

ValuationPositioning Sell-SideAdvisory

Ø Industry-wide push for consolidation and technological booking

Ø Kona is positioned to be an industry leader with strong management and convenience factor

Ø Valuation analysis places the enterprise value for Kona between the range of

$640mm - $680mm

Ø 2016E Revenue: $206.2mm§ 8.7% growth from 2015

Ø 2016E EBITDA: $52.6mm

Ø Analysis leads to a recommendation of a sale to a strategic buyer with: § large international presence § corporate focus

Ø Mid-market business share, unique growth segments and customer retention rate can provide synergies

PositioningAnalysis

550 590 630 670 710

Comparables EV/EBITDA

Precedent Transactions

LBO Analysis

DCF Exit Multiple

DCF Perpetuity Growth

Industry Trends

4Appendix

General Outlook

IndustryTrends

CompanyOverview

ValuationAnalysis

StrategicOptions

FinalThoughts AppendixExecutive

Summary5

Ø Companies originally focused on costing trips by segment

Ø Have since switched to costing trips as a whole

Ø Kona’s platform is ideal for these costing strategies

Leisure Travel Volume

Recent Sector Growth Costing Strategies

(In

mill

ions

)

Data via Statistia

Ø Stagnant business spending following 2008

Ø Business travels have grown steadily

Ø Consumer discretionary spending has grown more rapidly

-6%

-4%

-2%

0%

2%

4%

0

500

1000

1500

2000

-6%

-4%

-2%

0%

2%

4%

0

100

200

300

400

500

Business Travel Volume

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%(I

n m

illio

ns)

(CAG

R)

(CAG

R)

Travel Expenditures as % of GDP

Consolidation and Tech

IndustryTrends

CompanyOverview

ValuationAnalysis

StrategicOptions


Summary6

Millennials

0

20

40

60

80

100

2014 2015 2016E 2017E 2018E 2019E

(In

mill

ions

)

Trips Booked via Travel Apps

Millenials

Recently implemented ERP system places Kona as an industry leader moving forward

Consolidation

Ø Hotel and airline industries have seen consolidation

Ø Travel agencies streamline booking process for consumers

Ø Kona will benefit from these new conglomerates

Ø Beneficial to Kona’s business platform

Ø More perceptive to loyalty incentives

Ø Find booking burdensome

Ø More likely to alternate between airlines

75%

47%

Travel App Usage When Booking

Non-Millenials

Data via Boston Consulting Group

Positioning Analysis

7Appendix

Company Overview

IndustryTrends

ValuationAnalysis

StrategicOptions


Summary8

2016E Sales by End MarketIndustry Leader with Expanding Opportunities

Product Portfolio

45%

25%

20%

10% Small to Medium Business

Large Corporations

Personal (Luxury)

Local Business

Airfare Accommodation2013-2016E Sales

CAGR: 6%

Hotel Booking2013-2016E Sales

CAGR: 10%

Transportation Services2013-2016E Sales

CAGR: 4%

Entertainment Planning2013-2016E Sales

CAGR: 27%

Part

ners

ship

s

55% of 2015 Revenue 25% of 2015 Revenue 10% of 2015 Revenue 10% of 2015 Revenue

Ø Proven success in corporate and personal luxury travel§ Initiated expansion of vacation services

Ø Recent expansion into Asian markets

Ø Use of proprietary and licensed digital products§ Ideal placement as the industry becomes more price sensitive

Personal (Luxury) was just 5% in 2011

PositioningAnalysis

Growth Trends

EBIT

DA

(in

mill

ions

)

EBIT

DA

Mar

gin

20%

21%

22%

23%

24%

25%

26%

27%

28%

29%

0

10

20

30

40

50

60

70

80

90

2013 2014 2015 2016E 2017E 2018E 2019E 2020E 2021E

Ø High debt requires a greater increase in revenue

Ø Lack of exposure to high-growth international markets

Ø Reliance on partnerships to maintain low prices

Ø Increasing digitization will create more price sensitive market§ Lowers the ceiling for

revenue growth from price increases

Ø Leisure travel cyclicality

Ø Leveraging current relationships to achieve the best prices

Ø First-time sales may pull in new business and increase brand recognition

Ø Digitization to simplify process and retain customers

SWOT Analysis

IndustryTrends

ValuationAnalysis

StrategicOptions


Summary9

Ø Full travel experience covering all ends of travel

Ø Strong partnerships keep overall product quality high

Ø Business travel is not as cyclical as leisure travel

S W

TO

PositioningAnalysis

Valuation Analysis

10Appendix

Valuation Overview

IndustryTrends

ValuationAnalysis

StrategicOptions


Summary11

2015 EBITDA

2016E EBITDA

11.8x

10.5x

12.7x

11.2x

13.5x

12.0x

14.4x

12.7x

PositioningAnalysis

15.3x

13.5x

550 570 590 610 630 650 670 690 710



LBO Analysis

DCF Exit Multiple (10.5x - 11.5x)


550 590 630 670 710



LBO Analysis

DCF Exit Multiple


Company NameTicker & Exchange

Price Enterprise Value Equity ValueLTM

2016E EBITDALTM EBITDA

MarginEnterprise Value

Revenue EBITDA LTM Revenue LTM EBITDA 2016E EBITDATravelZoo TZOO US $12.00 $138.6 $166.1 $134.6 $11.3 $12.8 8.4% 1.0x 12.3x 13.0x

WebJet LTD WEB AU 9.02 836.1 1,158.5 110.7 27.0 63.0 24.4% 7.5x 31.0x 18.4x

Hanjin Kal Corp 180640 KS 14.43 1,254.6 852.7 723.7 94.4 75.5 13.0% 1.7x 13.3x 11.3x

MoneySuperMarket.com MONY LN 339.89 1,846.7 1,862.0 438.4 168.8 151.1 38.5% 4.2x 10.9x 12.3x

Kakaku.com Inc 2371 JP 17.34 3,545.2 3,778.4 364.4 182.1 243.5 50.0% 9.7x 19.5x 15.5x

Kona Adventures 189.7 46.5 52.6 24.5%

High 3,545.2 3,778.4 723.7 182.1 243.5 50.0% 9.7x 31.0x 18.4x

3rd Quartile 2,695.9 2,820.2 581.0 175.5 197.3 44.2% 8.6x 25.2x 17.0x

Median 1,254.6 1,158.5 364.4 94.4 75.5 24.4% 4.2x 13.3x 13.0x

Mean 1,524.2 1,563.5 354.4 96.7 109.2 26.9% 4.9x 17.4x 14.1x

1st Quartile 487.3 509.4 122.7 19.1 37.9 10.7% 1.4x 11.6x 11.8x

Low 138.6 166.1 110.7 11.3 12.8 8.4% 1.0x 10.9x 11.3x

Comparable Companies Analysis

IndustryTrends

ValuationAnalysis

StrategicOptions


Summary12

Implied Valuation RangeAnalysis NotesØ Used multiple foreign companies due to the large size of most

U.S. travel conglomerates§ The multiples from these smaller companies are more

accurate as to where Kona should be valued

Ø Other notable U.S. comps: TripAdvisor, Expedia, Priceline

PositioningAnalysis

Kona Adventures 2016E EBITDA $52.6Comparable Multiple Range 12.7x 13.3xEnterprise Value Range $665.4 $697.0

Precedent Transactions Analysis

IndustryTrends

ValuationAnalysis

StrategicOptions


Summary13

Implied Valuation RangeAnalysis NotesØ Majority of deals in the LTM were performed by strategic buyers

Ø Significantly higher multiples have surfaced when one travel conglomerate buys a smaller, growth-driven travel company§ i.e., (Priceline-KAYAK, Expedia-HomeAway)

PositioningAnalysis

Kona Adventures 2016E EBITDA $52.6Precedents Multiple Range 12.5x 13.5x Enterprise Value Range $657.5 $710.1

Hotels.com

Hotwire.com

trivago

HomeAway

Orbitz

Travelocity

Venere.com

3 Others

Priceline.com

Booking.com

OpenTable

KAYAK

Rentalcars.com

Agoda.com

Target Company AcquirerTransaction

TypeAnnouncement

DateTransaction Value Premium

Transaction ValueRevenue EBIT EBITDA

Homeinns Hotel Group BTG Hotels Group Co Ltd Strategic 12/8/15 $1,137.4 16.5% 1.8x 22.6x 9.0x

Club Mediterranee SA Multiple acquirers Sponsor 9/12/14 1,258.9 15.2% 0.7x 69.3x 12.0x

Kuoni Reisen Holding AG EQT Partners AB Sponsor 2/2/16 1,351.3 25.0% 0.4x 16.6x 10.0x

KAYAK Software Corp Priceline Group Strategic 5/22/13 1,659.6 24.9% 5.9x 35.6x 30.2x

HomeAway Inc Expedia Inc Strategic 12/16/15 3,014.1 23.2% 6.2x 88.0x 44.5x

Orbitz Worldwide Inc Expedia Inc Strategic 2/12/15 1,595.5 26.5% 1.7x 19.5x 11.4x

High 6.2 88.0 44.5 3rd Quartile 6.0 74.0 33.7

Median 1.8 29.1 11.7 Mean 2.8 41.9 19.5

1st Quartile 0.6 18.7 9.7 Low 0.4 16.6 9.0

Discounted Cash Flow

IndustryTrends

ValuationAnalysis

StrategicOptions


Summary14

Implied Valuation RangesAnalysis Notes

Perpetuity Growth

EBITDA Exit Multiple

Growth Assumptions:Ø High growth is both organic and inorganicØ Peaks in 2018E, management’s end projection year

WACC Assumptions:Ø All assumptions based on comparable companies

PositioningAnalysis

*Based on comparables

WACC CalculationBook Value of Debt $126 Market Value of Equity* 674

Total Capital $800

Beta* 1.1 Market Risk Premium 8.6%Risk Free Rate 1.8%

Cost of Equity 11.2%

Pre-Tax Cost of Debt* 7.5%Tax Rate 40.0%

Cost of Debt 4.5%

WACC 10.2%

Estimated Projected

2016E 2017E 2018E 2019E 2020E 2021E

EBITDA $52.6 $60.6 $66.6 $75.2 $77.8 $79.8

Less: D&A (0.5) (0.5) (0.6) (0.6) (0.7) (0.7)

EBIT 52.1 61.1 67.2 75.8 78.5 80.5

Taxes 20.8 24.1 26.4 29.8 30.9 31.6

NOPAT 31.3 37.1 40.8 46.0 47.6 48.8

Plus: D&A 0.5 0.5 0.6 0.6 0.7 0.7

Less: CapEx (0.7) (0.6) (0.7) (0.6) (0.7) (0.7)

Less: Change in NWC - - (5.0) (1.4) (2.4) (0.1) (0.1)

Unlevered Free Cash Flow $31.1 $32.0 $39.3 $43.6 $47.5 $48.7

Present Value of Projection Period $26.4 $29.4 $29.6 $29.3 $27.2

2021E Unlevered Free Cash Flow $48.7 Perpetuity Growth Rate 2.5% 3.0%Enterprise Value Range $575.1 $611.4

2021E EBITDA $79.8 EBITDA Exit Multiple 10.5x 11.5x Enterprise Value Range $632.7 $680.0

Leveraged Buyout Analysis

IndustryTrends

ValuationAnalysis

StrategicOptions


Summary15Positioning

Analysis

Capital Structure

Implied Valuation Range and Return MetricsAnalysis Notes

(In M

illio

ns)

Ø Low CapEx creates strong free cash available for debt repaymentØ Strong qualitative drivers combat cyclicality and can spark future

growth

Transaction Assumptions:Ø Debt/EBITDA Purchase Multiple: 5.5xØ Purchase/Exit Multiple: 11.0x

2016E EBITDA $52.6 EBITDA Multiple 10.5x 11.5x Enterprise Value Range $552.4 $605.2

Investor Return Metrics*IRR 28.4%Cash-on-Cash Return 2.4x

*Based on transaction assumptions listed left

$0

$200

$400

$600

$800

$1,000

2017E 2018E 2019E 2020E 2021E

Equity Debt

Bear Case Scenario

IndustryTrends

ValuationAnalysis

StrategicOptions



Analysis

Rationale

Ø Management has bullish forward projections for growth

Ø Decreased discretionary spending would hinder our projectionsØ Terrorist attackØ 2008Ø Political uncertainty

Comparative Metrics

Ø Modeled reduced management projections to long run

Ø Our implied valuation of $598.4mm - $620.3mm decreases our enterprise value by 7.6%

Commentary

2021E$0

$50

$100

$150

$200

$250

$300

$350

Revenue EBITDA

Standard

Bear

Implied Valuation Ranges

570 590 610 630 650 670 690

Bear Case

Standard

7.6%

Ø Actions should be taken to brace for this scenario

Ø Three ways to protect our growth segment

Preventative Actions

IndustryTrends

ValuationAnalysis

StrategicOptions



Analysis

Suggested courses of action

Discounts to extend business trips into leisure

trips

Discounted rates to book multiple

trips at once

Create a point-based system for our luxury travel

segment

Help attract millennials and retain them in our luxury

segment

Discounts and simplicity would entice customers while

securing future sales

Business clients are more likely to have continued discretionary spending in

downturn—likely to continue extending trips

Strategic Options

18Appendix

Potential Acquisition

IndustryTrends

ValuationAnalysis

StrategicOptions


Summary19

Implied MetricsPotential Target

Why Now?

PositioningAnalysis

Description

Metrics

Rationale

Privately Held

Rhino Africa Safaris is an agency that books individual and group safari trips in Africa.

Ø Great opportunity if we believe discretionary spending will continue to increase

Ø Grow entertainment planning segment

Ø Expand geographicallyØ Our IT expertise will benefit them greatlyØ Establish connections with upper-class citizens

As IsWith Acquisition

Ø Revenues have been damaged the past few years by Ebola paranoia—need to capitalize before metrics recover

Ø Increasing demand for African safari trips

2017E Revenue

2021E Revenue

2017E EBITDA Margin

2021 EBITDA Margin

$224.7 $306.8 27% 26%$233.8 $325.4 30% 27%

2021E EBITDA $91.3 Enterprise Value Range $676.6 $709.6

Strategic Buyer Universe

IndustryTrends

ValuationAnalysis

StrategicOptions


Summary20

Description Metrics Rationale

Ctrip.com International provides online travel agency services for consumers as well as services for corporate travel management headquartered in Shanghai.

Airbnb operates an online marketplace for travelers and residents looking to temporarily rent out their house.

JetBlue Airways Corporation provides low-cost airline flights. It is headquartered out of John F. Kennedy International Airport in New York City.

Carlson Wagonlit Travel provides travel management services, including: travel bookings, program management and security services, for mostly large corporations.

Direct Travel is an online travel services agency that focuses primarily on scheduling business travels and meetings. They also provide vacation travels.

LTM Revenue: $2,274.3 M Market Cap: $21,239.5 M

Privately Held(Estimated IPO value of ~$30B)

LTM Revenue: $6,585.0 MMarket Cap: $5,594.1 M

Privately Held

Privately Held

Ø Strong M&A activity in the global marketplace Ø International placement complimenting Kona’s

expansion goals set in place by management

Ø Opportunity for Kona to add lodging services to their repertoire

Ø Expansion route into the lodging market

Ø Opportunity for Kona to add cruise line services to their repertoire

Ø Able to get a leg up on competition

Ø Impressive opportunity for synergies that allow Kona to penetrate the large corporation customer base

PositioningAnalysis

Ø Strong international focus and M&A activityØ In need of a stronger digital presence Ø Two-way synergies

Financial Buyer Universe

IndustryTrends

ValuationAnalysis

StrategicOptions


Summary21

Reasoning Reasoning

Ø $250mm - $2,500mm EV investments Ø Geographic expansion opportunities Ø Willingness to work with Kona’s current

management team

Ø Expertise across several industries Ø Strong team with organic and inorganic

growth strategies Ø Impressive track record through current

and past investments

Ø Focused on building high growth companies and shows proven success

Ø Buy-and-build investment approachØ Several strong synergy opportunities

through currently held portfolio comps

Ø Heavy focus on software companies Ø Pick-and-place management opportunitiesØ Strong qualitative growth opportunities

available to create value for Kona

Ø Several secured commitments across Europe and Asia

Ø Able to help Kona with global expansion goals that management has set in place

Ø Travel oriented investment criteria Ø Numerous synergy opportunities with

current portfolio companies Ø Bear case scenario alternative for Kona

PositioningAnalysis

Ø Numerous investments in the leisure industry, a growing industry for Kona

Ø Extremely strong team with an impressive track record throughout investments

Ø Business service focus historicallyØ Operationally focused helping organic

and inorganic growth Ø Strong synergy opportunity with MNX

Best Fit Buyers

IndustryTrends

ValuationAnalysis

StrategicOptions



Analysis

Ø Thomas H. Lee Partners is focused on creating organic growth and inorganic growth through acquisitions

Ø Work with management teams to provide forward guidance rather than replacing them

Ø Business services is one of the their three primary sectors

Ø Kona meets criteria for strong cash flow and secular growth

Ø Direct Travel has a strong international presence, expanding our geographic boundaries

Ø Key synergies:§ Greater exposure to international markets§ Direct Travel gets access to our event planning segment

and industry relationships

Ø Direct Travel has been acquisitive lately

Final Thoughts

23Appendix

Final Thoughts

IndustryTrends

ValuationAnalysis

StrategicOptions



Analysis

Valuation Ranges

Why Direct Travel?Recommendation

After analysis of potential synergies and recent market activity, recommend a strategic sale to Direct Travel

Suggested TimeFrame

With consumer discretionary spending high, the recent multiples being paid for travel service/travel service acquisitions and a

plausible bear case, recommend a sale early 2017

Ø Heavy international presence would help Kona’s expansion

Ø They would expand by integrating our entertainment planning segment

Ø Our established industry relationships will lead them to retain management

550 570 590 610 630 650 670 690 710



LBO Analysis

DCF Exit Multiple


Appendix

25

26

Contents

IndustryTrends

ValuationAnalysis

StrategicOptions

FinalThoughts

ExecutiveSummary

PositioningAnalysis Appendix

Ø Executive Summary

Ø Industry Trends

Ø Positioning Analysis

Ø Valuation Analysis

Ø Strategic Options

Ø Final Thoughts

Pro Forma Income Statements

IndustryTrends

ValuationAnalysis

StrategicOptions



Analysis

No Acquisition With acquisition of Rhino Africa SafarisProjected

Fiscal Year ended December 31, 2017E 2018E 2019E 2020E 2021E

Service $62.1 $62.1 $62.6 $62.6 $63.8 Digital 57.3 62.1 65.2 67.8 69.1

Airfare Accomodation 119.3 124.1 127.8 130.4 133.0 Service 17.7 20.8 23.4 25.7 28.1 Digital 39.3 44.2 49.7 54.7 59.6

Hotel Booking 57.0 65.0 73.1 80.4 87.7 Service 8.6 9.0 8.9 8.7 9.0 Digital 12.9 13.5 14.5 15.5 16.0

Transportation Services 21.5 22.5 23.4 24.2 24.9 Service 18.8 24.9 30.2 35.1 40.4 Digital 8.1 10.7 14.2 18.1 20.8

Entertainment Planning 26.9 35.5 44.3 53.2 61.2 Total Revenue $224.7 $247.1 $268.7 $288.2 $306.8

Service Costs (non-Payroll) 94.4 106.3 112.8 125.4 135.0 Payroll Costs 27.0 29.7 32.2 34.6 36.8 Digital/Apps/Online Costs 42.7 44.5 48.4 51.9 55.2

Total Expenses 164.1 180.5 193.4 211.8 227.0 EBITDA $60.6 $66.6 $75.2 $76.4 $79.8

ProjectedFiscal Year ended December 31, 2017E 2018E 2019E 2020E 2021E

Service $62.1 $62.1 $63.5 $64.0 $66.0 Digital 57.3 62.1 66.1 69.4 71.5

Airfare Accomodation 120.1 125.2 129.5 133.4 137.4 Service 17.7 20.8 24.7 27.2 29.8 Digital 39.3 44.2 52.4 57.8 63.3

Hotel Booking 59.7 68.2 77.0 85.1 93.1 Service 8.6 9.0 9.0 8.9 9.2 Digital 12.9 13.5 14.7 15.8 16.4

Transportation Services 21.6 22.7 23.8 24.7 25.6 Service 18.8 24.9 35.6 43.2 54.0 Digital 8.1 10.7 16.8 22.3 27.8

Entertainment Planning 32.3 41.9 52.4 65.5 81.9 Total Revenue $233.6 $258.1 $282.8 $308.7 $338.0

Service Costs (non-Payroll) 98.1 106.3 118.8 134.3 148.7 Payroll Costs 28.0 31.0 33.9 37.0 40.6 Digital/Apps/Online Costs 42.0 45.2 48.1 52.5 57.5

Total Expenses 168.2 182.4 200.8 223.8 246.7 EBITDA $65.4 $75.6 $82.0 $84.9 $91.3