IronHorse Business valuation presentation

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IRONHORSE LLC

Certified Valuation Analysts

6709 W. 119th St., Suite 443

Overland Park, KS 66209-2013

PH: (913) 851-0027; (816) 589-4848

FAX: (913) 851-3844

[email protected]@ihorsellc.com

IIRONRONHHORSEORSE LLCLLC

Business Valuation / AppraisalBusiness Valuation / Appraisal

Forensic Examinations & Litigation SupportForensic Examinations & Litigation Support

Business SuccessionBusiness Succession

Mergers, Acquisitions, Buy/Sell AgreementsMergers, Acquisitions, Buy/Sell Agreements

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Mergers, Acquisitions, Buy/Sell AgreementsMergers, Acquisitions, Buy/Sell Agreements

Estate & Wealth PlanningEstate & Wealth Planning

E.S.O.P.E.S.O.P.

Private Equity Investment Advisory Due DiligencePrivate Equity Investment Advisory Due Diligence

Bankruptcy, Insolvency, & Preemptive Value AlertsBankruptcy, Insolvency, & Preemptive Value Alerts


Turnarounds & workoutsTurnarounds & workouts

Financial restructuringFinancial restructuring

Corporate Value RecoveryCorporate Value Recovery

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Financial restructuringFinancial restructuring

Crisis & interim managementCrisis & interim management

Distressed enterprise investment bankingDistressed enterprise investment banking

Operations improvementOperations improvement


Asset recoveryAsset recovery

Avoidable preferences/fraudulent transfersAvoidable preferences/fraudulent transfers

Insolvency & Bankruptcy SupportInsolvency & Bankruptcy Support

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Avoidable preferences/fraudulent transfersAvoidable preferences/fraudulent transfers

ValuationValuation

Financial & operating reportingFinancial & operating reporting

Creditor & debtor advisoryCreditor & debtor advisory


Investment BankingInvestment Banking

Corporate FinanceCorporate Finance

RestructuringRestructuring

Seller advisorySeller advisory

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Seller advisorySeller advisory

Buyer advisoryBuyer advisory

Initial, secondary offering assistanceInitial, secondary offering assistance

Debt & equity placementDebt & equity placement

Due diligenceDue diligence

Fairness opinionsFairness opinions


Executive TeamExecutive Team

CollectivelyCollectively, 30 years of combined success in corporate renewal, corporate finance, and senior, 30 years of combined success in corporate renewal, corporate finance, and senioroperations managementoperations management--including the dramatic recovery and renewal of the largest racing andincluding the dramatic recovery and renewal of the largest racing andpremium custom wheel manufacturer in North America.premium custom wheel manufacturer in North America.

Dennis O’HaraDennis O’Hara--20 years in all phases of strategic planning, operations and financial management.20 years in all phases of strategic planning, operations and financial management.Senior finance executive for startSenior finance executive for start--up satellite television licensor that was successfully sold for $1up satellite television licensor that was successfully sold for $1billion after just four years of operation. Managed due diligence process for over 50 acquisitions,billion after just four years of operation. Managed due diligence process for over 50 acquisitions,and directed the turnaround and recovery of several firms in various industries. B.S., Southwestand directed the turnaround and recovery of several firms in various industries. B.S., SouthwestMissouri State University. Masters of Accountancy, University of Missouri. Certified PublicMissouri State University. Masters of Accountancy, University of Missouri. Certified PublicAccountant.Accountant.

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Tony WayneTony Wayne--15+ years experience as CRO, COO, and CFO, primarily with middle & small market,15+ years experience as CRO, COO, and CFO, primarily with middle & small market,privately held manufacturers/distributors. Extensive restructuring, reorganization, M & A, andprivately held manufacturers/distributors. Extensive restructuring, reorganization, M & A, anddivestiture experience, largely within highly leveraged and financially “stressed” environments.divestiture experience, largely within highly leveraged and financially “stressed” environments.B.S.B.A., Accounting & Business Administration, University of Kansas. Executive Fellow & MBA,B.S.B.A., Accounting & Business Administration, University of Kansas. Executive Fellow & MBA,Rockhurst University. Certified Public Accountant, Certified Valuation Analyst, Certified InsolvencyRockhurst University. Certified Public Accountant, Certified Valuation Analyst, Certified Insolvency& Restructuring Advisor. Adjunct Professor of Accounting& Restructuring Advisor. Adjunct Professor of Accounting--Johnson County Community College andJohnson County Community College andBaker UniversityBaker University

Members:Members: Turnaround Management Association, Association of Insolvency & RestructuringTurnaround Management Association, Association of Insolvency & RestructuringAdvisors, American Bankruptcy Institute, National Association of Certified Valuation Analysts,Advisors, American Bankruptcy Institute, National Association of Certified Valuation Analysts,Association for Corporate Growth.Association for Corporate Growth.


Our advantageOur advantage Industry focusIndustry focus--intuitive issue recognition, rapid response.intuitive issue recognition, rapid response.

Unmatched chemistry & teamworkUnmatched chemistry & teamwork--30+ years combined success and proven, dramatic results.30+ years combined success and proven, dramatic results.

UltraUltra--lean, yet scalable contingent organization.lean, yet scalable contingent organization.

Complementary service offering.Complementary service offering.

Local alternative.Local alternative.

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Local alternative.Local alternative.

Experienced in complex, emotional challenges of familyExperienced in complex, emotional challenges of family--owned business lifeowned business life--cycle transitions.cycle transitions.

Certified Insolvency & Restructuring Advisor, Certified Valuation Analyst credentials ensuresCertified Insolvency & Restructuring Advisor, Certified Valuation Analyst credentials ensurescommitment to outstanding quality service with adherence to the highest possible professionalcommitment to outstanding quality service with adherence to the highest possible professionalstandards.standards.

“ Financial literacy” diagnostic model accelerates evaluation of:“ Financial literacy” diagnostic model accelerates evaluation of: External & internal reporting capabilityExternal & internal reporting capability

Core business viabilityCore business viability Operational improvement opportunities.Operational improvement opportunities. Organizational & executive effectivenessOrganizational & executive effectiveness Likelihood of inLikelihood of in--court, vs. out of court solutions approachcourt, vs. out of court solutions approach


Recent valuation EngagementsRecent valuation Engagements

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VALUATIONVALUATION FOUNDATIONFOUNDATION


The Business PlanThe Business Plan

The plan comes first, then the capitalThe plan comes first, then the capitalstructure and related valuation.structure and related valuation.

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Plan components:Plan components:

•• ManagementManagement

•• Core business unitsCore business units

•• Projected financial resultsProjected financial results

CORE BUSINESSCORE BUSINESS

What business or segments are part of the on going business?What business or segments are part of the on going business?

What external factors must be considered?What external factors must be considered?

•• CompetitionCompetition

Strengths/weaknessesStrengths/weaknesses

••


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•• LongLong--term dynamicsterm dynamics

Production shifting offshore?Production shifting offshore?

Currency /interest rate outlookCurrency /interest rate outlook

Commodity pricesCommodity prices

Trade policiesTrade policies

PROJECTED RESULTSPROJECTED RESULTS

Review and challenge basic assumptions:Review and challenge basic assumptions:•• RevenueRevenue

•• Operating resultsOperating results

•• EBITDAEBITDA

•• Free cash flowFree cash flow

••


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•••• Working capital and the balance sheetWorking capital and the balance sheet

•• Past performance vs. projected future performancePast performance vs. projected future performance

OtherOther•• Market ShareMarket Share

•• What do projections imply? Realistic?What do projections imply? Realistic?

•• The telecom conundrum: 100 companies cannot each achieve 5%The telecom conundrum: 100 companies cannot each achieve 5%market sharemarket share

VALUATIONVALUATION –– INTRODUCTIONINTRODUCTION

General Premise:General Premise:

•• Present value ofPresent value of futurefuture benefitsbenefits

••


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•• Investor should only pay what one thinks benefits are worth given a rateInvestor should only pay what one thinks benefits are worth given a rateof returnof return

•• Rate of return varies depending on type of investor, asset, risk, etc.Rate of return varies depending on type of investor, asset, risk, etc.

•• Enterprise Approach vs. Equity ApproachEnterprise Approach vs. Equity Approach

VALUATIONVALUATIONDistribution Of Cash Flow Among ConstituentsDistribution Of Cash Flow Among Constituents

Lenders

Company

EBIT

$Interest


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Government

PreferredShareholders

EBT

Earnings

CommonShareholders

$Dividends

$Taxes

Dividends $

VALUATIONVALUATION

Theories Behind Premiums and DiscountsTheories Behind Premiums and Discounts

Maximum valueattributable to astrategic buyer

Sale valueMBOLBO

Premium for strategicvalue / synergies

Controlling interestvalue

($ in millions, except share price)

Fully Diluted Shares 100.0

Share price $20.00

Market Value of Equity $2,000.0Controlling

Interest

Investment Value


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MBOLBO

IPOPublic trading

Non-public stock

Premium forcontrol

Minority interestdiscount

Discount for lack of

marketabilityMinority interestvalue

plus: Total Debt (book) 1,500.0

less: Converted Debt 0.0

plus: Preferred Stock 200.0

less: Converted Preferred 0.0

less: Cash & Cash Equivalents 100.0

plus: Minority Interest in Subs 0.0

Enterprise Value $3,600.0Discount for lack of marketability / liquidity

[NYSE vs. OTC:BB]

Non-MarketableMinority

Value

MarketableMinority

Value

InterestValue

VALUATIONVALUATION

ApproachesApproaches

Market approachMarket approach

•• Comparable companyComparable company –– marketable minority basismarketable minority basis


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•• Comparable companyComparable company –– marketable minority basismarketable minority basis

•• TransactionTransaction –– controlling basiscontrolling basis

Discounted Cash Flow (“DCF”) approachDiscounted Cash Flow (“DCF”) approach

Liquidation / Asset approachLiquidation / Asset approach

VALUATIONVALUATION

DriversDrivers

Quantitative characteristicsQuantitative characteristics

•• Cash flowCash flow

•• ProfitabilityProfitability

•• Growth (historical and projected)Growth (historical and projected)


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•• Growth (historical and projected)Growth (historical and projected)

•• SizeSize

•• ReinvestmentReinvestment

•• LiquidityLiquidity

•• Capitalization / leverageCapitalization / leverage –– financial flexibilityfinancial flexibility

•• Fixed charge coverageFixed charge coverage

•• Activity ratios (e.g. asset and inventory turnover, accountsActivity ratios (e.g. asset and inventory turnover, accountsreceivable and accounts payable DSO, ROI, ROE, etc.)receivable and accounts payable DSO, ROI, ROE, etc.)

VALUATIONVALUATION

DriversDrivers (cont.)(cont.)

Qualitative characteristicsQualitative characteristics

•• Quality and depth of managementQuality and depth of management

•• Customer and vendor concentrationCustomer and vendor concentration

•• Industry dynamics [Market share, competition, rawIndustry dynamics [Market share, competition, rawmaterials/commodities]materials/commodities]


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•• Company’s position / reputation in the industryCompany’s position / reputation in the industry

•• DiversificationDiversification

Product offeringProduct offering

GeographyGeography

•• Vendor relationshipsVendor relationships

•• Seasonality / cyclicalitySeasonality / cyclicality

•• Power over vendors / customersPower over vendors / customers

•• Ability to expandAbility to expand

•• Emergence / intensification of foreign competitionEmergence / intensification of foreign competition

WHERE DOES SUBJECTIVITYWHERE DOES SUBJECTIVITYIMPACT VALUATION MOST?IMPACT VALUATION MOST?

Discounted Cash Flow AnalysisDiscounted Cash Flow Analysis•• Discount rate usedDiscount rate used

Cost of equityCost of equity Cost of debtCost of debt

Terminal ValueTerminal Value


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Terminal ValueTerminal Value Multiple chosenMultiple chosen

-- Based on market comparables?Based on market comparables?-- Choosing time to sellChoosing time to sell ––buy low, sell highbuy low, sell high

Market Comparables and M&AMarket Comparables and M&A•• Period for analysis (LTM, Projected)Period for analysis (LTM, Projected)•• Choice of comparablesChoice of comparables

Size, Business, Competitors not ComparablesSize, Business, Competitors not Comparables

Choice of M&A CompsChoice of M&A Comps How do you look back?How do you look back? “Perfect” comps?“Perfect” comps?

Documents

IronHorse Business valuation presentation