Anuj PatelGeorge Mason University

Finance 302-001

Barkley Enterprises M&A Analysis

Executive SummaryBarkley Enterprises

Family-owned private consumer good company consisting of two separate business lines:Snacks and Personal Hygiene

Management team has decided to sell each division separately to maximize proceeds due to higher synergies obtainableThis analysis will mostly focus on selling Personal Hygiene

Personal Hygiene DivisionMarket Comparables Valuation indicates enterprise value

range of $431,982-$547,246 thousands, but valuations through discounted cash flows model and synergies consideration show an increase in value

Recommend the sale of this division to a large industry such as Procter & GamblePossible realizable transaction between $544,365MM to $761,025MM

Company OverviewBarkley is a private consumer goods

company that is family-owned and operated since 1935Headquartered in Atlanta, GA with a work

force of 3,500 employees Manufactures its own products and sells

them in North and South AmericaContains two separate business lines:

Snacks (2013 Revenue: $759MM, 2013 EBITDA: $140MM)

Personal Hygiene (2013 Revenue: $243MM, 2013 EBITDA: $360MM)

Economy and OutlookPersonal care products are less sensitive to

economic conditions

Recovering U.S. economy has increased competitiveness due to lack of consumer spending

Positive growth in employment and real wages have given consumers extra spending power

S&P Economics forecast that real personal consumption would grow by 2.5% in 2013Reference: http://www.netadvantage.standardandpoors.com.mutex.gmu.edu/NASApp/NetAdvantage/showIndustrySurvey.do?code=hnd

Economy and Outlook (cont.)•Disposable income determines the amount of money consumers can spend on goods

•Historical data shows that quantity of household products consumed remains steady even through different levels of disposable income

Reference: http://www.netadvantage.standardandpoors.com.mutex.gmu.edu/NASApp/NetAdvantage/showIndustrySurvey.do?code=hnd

Industry and OutlookProjected 2013 industry revenue: $49BAnnual Growth: -2.4%

Although negative annual growth, economic recovery will push industry to further growth Increase in disposable income will increase

consumption of essentials and non-essentialsHigher growth potential in emerging markets

U.S. and Western Europe have reached a mature point and a slower growth phase Reference:

Cosmetic & Beauty Products Manufacturing Market Research Report | NAICS 32562 | Nov 2013http://www.netadvantage.standardandpoors.com.mutex.gmu.edu/NASApp/NetAdvantage/showIndustrySurvey.do?code=hnd

Industry and OutlookPrivate labels are an important factor in

this industryIncreased demand in private labels from

retail companies in order to develop loyal customers

Private label products becoming popular because of similar quality but lower costOn average priced 29% lower than branded

products

Reference: http://www.netadvantage.standardandpoors.com.mutex.gmu.edu/NASApp/NetAdvantage/showIndustrySurvey.do?code=hnd

Market Comparables Valuation

•Market Comparables contains publicly traded companies in the Personal Hygiene industry• Comparables may be larger companies compared to

Barkley enterprises, but generally produce similar products

•EV/EBITDA multiples implies a valuation range of $432MM to $547MM

Financial Projections2014-2017 Assumptions

Net Working Capital remains constant at 8% of revenueBranded products’ growth in revenue remains constant

at 2%Private label products’ growth in revenue increases

annually by 10 bps starting 2016; due to increase in demand of private label products

Expenses change by the average change in historical dataCOGS increases by average of 20 bpsS&M decreases by average of 40 bpsG&A decreases by average 20 bpsDepreciation decreases by average 6 bpsCAPEX decreases by average 1 bps

Consolidated Forecast

WACC Calculation

*Assumptions made from Damodaran: http://people.stern.nyu.edu/adamodar/

Discounted Cash Flow•Using calculated WACC of 9.28•Assuming Terminal Growth of 5% calculated from 2-stage growth model•-From DCF model, a valuation range of $468MM to $654MM is obtained

Synergies AssumptionsBarkley can expect a higher valuation than

the intrinsic valuation due to the following revenue and cost synergy opportunities:Revenues of Branded Product and Private

Label Revenue will increase by 1% Annual reductions to G&A by 2% (as

percentage of revenue)Procurement Savings increase Gross Margin

by 1.5%

DCF with Potential Synergies•Use calculated WACC of 9.28% and Terminal Growth rate of 5%•Valuation of DCF with synergies range between $544MM to $761MM

Potential Buyer – UnileverUnilever is an Anglo-Dutch multinational

consumer goods company based in London, UKMarket Cap: $119.48B

Unilever’s categories of operations include:Personal care, foods, home care, and

refreshmentsUnilever’s popular products include:

Dove, Axe, TRESemme, Sunsilk

Reference: Unilever Annual Reports and Accounts 2013

Potential Buyer – Procter & Gamble

P&G is multinational consumer goods company based in Cincinnati, Ohio Market Cap: $228.93B

P&G’s operating segments include:Beauty, Grooming, Health Care, Home Care, and

Family CareP&G’s popular products include:

Gillette, Pantene, Head & Shoulders

Reference: Procter & Gamble 2013 Annual Report 10K

RecommendationIdeal Buyer – Unilever

A company with popular personal hygiene products like axe, dove, and TRESemme

42% of Unilever’s operating profit comes from personal care, so will gain more benefits from synergy opportunities

Great opportunity for Unilever to develop more private label products in the U.S.Demand for private label products is on the rise

according to industry reports

Recommendation (cont.)Division Valuation Range

Market Comparables: $432MM to $547MMDiscounted Cash Flows: $468MM to $654MMDCF + Synergies: $544MM to $761MM

RecommendationConsider Market Comparables value of $432MM as minimum Discounted Cash Flows with synergies consists of ideal value

range of $544MM to $761MM