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Mekko Graphics: A Tool for Strategic Due Diligence
Presented at the MIT Private Equity SymposiumApril 5, 2013
2
Introduction
Copyright 2013 © Mekko Graphics. All rights reserved.
• Mekko Graphics is used by over 75% of the top 25 private equity firms as identified by Private Equity International
• It plays a critical role in all stages of the strategic due diligence process:• Market analysis• Competitive positioning• Customer analysis• Company analysis
• Mekko Graphics supports chart types and features that are valuable for due diligence and not found in PowerPoint or Excel:
• Marimekko chart• Bar-mekko chart• Cascade, waterfall or bridge chart• Data rows, data columns and CAGR columns that align with the chart• Growth lines and comparison lines
• Mekko Graphics has over 15 years experience satisfying the charting needs of:• Strategy consultants• Private equity firms• Strategy and marketing professionals at Fortune 500 companies
3
Market Analysis
Use a Marimekko chart to map the market by industry vertical, identifying an unpenetrated market opportunity.
0
20
40
60
80
100%
Auto
Primary PlayerShare
CompetitorShare
UnpenetratedMarket
Opportunity
~$900MM
IndustrialMachinery
~$600MM
Medical
~$600MM
Other
~$2.9B
Perc
ent
of
Tota
l
Total = ~$5B
Copyright 2013 © Mekko Graphics. All rights reserved.
4
Market Analysis
A Marimekko chart can also map the market by company size and industry vertical
0
20
40
60
80
100%
Auto
$0-50MMCompanies
$50MM-1B
$1B+
~$900MM
IndustrialMachinery
~$600MM
Medical
~$600MM
Other
~$2.9B Total = ~$5B
Per
cent
of T
ota
l
Copyright 2013 © Mekko Graphics. All rights reserved.
5
0.0
1.0
2.0
3.0
4.0
$5.0B
Other
Medical
I ndustrialMachinery
Auto
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
5%
8%
14%
3%
Tota
l M
ark
et S
ize
($B
)
2002-2012
CAGR
Market Analysis
Use an area chart with a CAGR column to track market trends over time
4.7%Total
Copyright 2013 © Mekko Graphics. All rights reserved.
6
Market Analysis
Use a 100% stacked bar to identify market opportunities.
0
20
40
60
80
100%
Area of Earth
Europe
NorthAmerica
Asia Pacific
LatinAmerica
EMEA
58MM
Population
5.9B
GDP
28.4B
Restaurant Meals
14.4B
QSR Meals
4.4B
Copyright 2013 © Mekko Graphics. All rights reserved.
7
Competitive Positioning
Total Market:~$2.2B
This Marimekko chart presents market share by competitor and industry vertical. We use a data row to show overall competitor revenue.
0
20
40
60
80
100%
Competitor A
Automotive
Medical
Distribution/ Industrial Supplies
Industrial Machinery & Equipment
Electronics
Consumer Goods
Fabricated Metal Products
Hydraulics & Fluid Handling
Appliances & Housewares
Rubber, Paper & Plastic
All Other Industries
Competitor B
Automotive
Medical
Distribution/Industrial Supplies
Industrial Machinery &Equipment
All OtherIndustries
Competitor C
Automotive
Medical
Distribution/IndustrialSupplies
Industrial Machinery &Equipment
Hydraulics & FluidHandling
All OtherIndustries
D
Automotive
Medical
All OtherIndustries
E All Other Competitors
All Other Industries
Perc
ent
of
Tota
l
$800M $400M $300M $200M $50M $500MCompany Revenue
Copyright 2013 © Mekko Graphics. All rights reserved.
The Bar-mekko shows competitor cost analysis. We use color-coding to differentiate countries and average lines to highlight key costs.
CountryCurrent Marginal Cost: ~$80
Previous Marginal Cost: ~$50
Competitive Positioning
0
20
40
60
80
$100
Vale SA
Kumba
I ron
Ore
CVG F/ O
NMDCCSN
Rio Tinto BHPB
Fortes
cue Met
als
Samarc
o
Cleve
land
Cliffs
Uni
t C
ost Chile
Canada
Sweden
USA
Brazil
SouthAfrica
Venezuela
India
Australia
Peru
Mauritania
Copyright 2013 © Mekko Graphics. All rights reserved. 8
9
Competitive PositioningEBITDA %
The bubble chart contrasts earning, market share and revenue for each competitor. The competitors in the shaded area are niche players with relatively high earnings.
RMS
(‘000 $)
Company withhigher EBITDA
-20
0
20
40
60%
0.01 0.02 0.05 0.1 0.2 0.5 1 2 5 10
100,000
Competitor 9
Competitor 10
Competitor 16
100,000
Competitor 1
Competitor 2
Competitor 3
Competitor 4
Competitor 5
Competitor 6
Competitor 7
Competitor 8
Competitor 11
Competitor 12
A.C.M.E.
Competitor 13Competitor 14
Competitor 15
Copyright 2013 © Mekko Graphics. All rights reserved.
10
Customer Analysis
(‘000) lt.
This Marimekko chart presents sales by brand and channel. You can spot opportunities for growing a specific brand in a sales channel.
0
20
40
60
80
100%
MODERN DISTRIBUTION
2,811
10027643
3,245
DISCOUNT
76
173
8260
464
86
3727
617
EXPORT
935
161168
2,066
237
3,567
TRADITIONAL
BRAND 1BRAND 2BRAND 3BRAND 4BRAND 5
Copyright 2013 © Mekko Graphics. All rights reserved.
Customer Analysis
0
20
40
60
80
100%
Revenue in $M
South
Customer1
Customer2
Customer3
others$50,764M
South -East
$20,021M
Mid-West
$42,107M
North/North East
$9,074MTotal =$121,966M
This Marimekko chart presents sales by customer and region.
Copyright 2013 © Mekko Graphics. All rights reserved. 11
12
Customer Analysis
A Bar Mekko is an effective way of summarizing a company’s overall profitability by breaking out its components
– The bar widths in this case are customer industry segment revenues and the height is the contribution margin
0%
50
60
70
80%
Total CompanyProfitability: 65%
Air, La
nd a
nd W
ater
Tra
nspo
rtatio
n
Med
ical
0.7
E lectr
onics
and
Elec
trica
l
Indu
stria
l Mac
hine
ry
and
Equi
pmen
t
0.7
Hardw
are
Hydra
ulics
, Pne
umat
ic
and F
luid H
andl i
ng
Fabr
icate
d Meta
l Pro
ducts
Rubbe
r, Pa
per &
Misc Plas
tic Pr
oduc
ts
Applia
nces
and
House
wares
Auto
mot
ive
Spor
ting
Good
s, To
ys
& Rec
reat
ional Eq
uipm
ent
Con
trib
utio
n M
arg
in (
%) Total Company
Profitability: 65%
Copyright 2013 © Mekko Graphics. All rights reserved.
13
Customer Analysis
Medical and Air, Land & Water Transportation segments display outsized margins vs. what would be expected for customers of that size
R² = 0.68
A Bubble Chart can be used to overlay two additional dimensions of information to the overall profitability.
In this case, profitability is plotted against the average account size for that industry (X-axis) and the total revenue of the segment (bubble size).
0%
50
60
70
80%
0 2 4 6 8 10 12 $14K
SegmentRevenue
HydraulicsPneumaticand FluidHandling
RubberPaper &
Misc PlasticProducts
SegmentRevenue
Average Account Size ($000s)
Cu
stom
er C
on
trib
uti
on M
arg
in
Automotive
Hardware
I ndustrial Machinery and Equipment
Medical
Electronicsand Electrical
Sporting Goods, Toys &Recreational Equipment
FabricatedMetal Products
Appliances andHousewares
Air, Land and Water Transportation
Copyright 2013 © Mekko Graphics. All rights reserved.
14
Customer Analysis
Use a cascade chart to track customer gains and losses.
0
10
20
30
40
50
$60M
2011
All Other
Customer1
Customer2
Customer3Customer4
$49M
Customer Gains
All Other
Customer5Customer6Customer7
$14M
Customer Losses
All Other
Customer1
Customer3Customer8
-$13M
New Product Line
All Other
Customer9
Customer10
$9M
2012
All Other
Customer1
Customer2
Customer3
Customer4
Customer9
$59M
Copyright 2013 © Mekko Graphics. All rights reserved.
15
0
20,000
40,000
60,000
2009 2010 2011
22,597
2012
CAGR +3%
30,970
19,875
1,539
52,812
33,045
20,186
1,612
55,024
32,813
2,101
57,623
31,151
24,684
2,133
58,067
CAGR +3%
0.2%
7.5%
11.5%
-38.8%
09-12CAGR
PRODUCT 1
PRODUCT 2
PRODUCT 3
PRODUCT 4
Company Analysis
‘000 $
Add a growth line and a CAGR column to a stacked bar chart to track sales by product for the last four years.
Copyright 2013 © Mekko Graphics. All rights reserved.
16
0
20
40
60
80
100%
Percent of Total
Brand 1
Operations
Marketing
Corporate Marketing
SupportCurriculum
Training
Ops Processes
CEO Office
$10,162,964
Brand 2
HQ Operations
Operations
Marketing
Corporate Marketing
Training
Training
CEO Office
$4,608,052
Development
Development
RealEstate
Sales
Construction
Design
$2,903,704
HumanResources
Recru
itin
g/
Sta
ffin
gTr
ave
l/Avia
tion
Compensation/Benefits
Fie
ldR
ecr
uit
ing
Oth
er
Adm
inS
erv
ices
Management
$2,083,092
Legal
Ris
kM
anagem
ent
Loss
Pre
vention
Contr
act
Adm
/Leg
al
Other
CEOAssistant
Inte
rnat
ional
Equip
men
t S
erv
ices
$1,641,224
Finance
Finance
Tax
Payr
oll
Tre
asury
Corp
orate
Acco
un
ting
Fran
chis
ee A
ccou
nti
ng
Business Analysis
$4,355,556
InformationTechnology
Telephony /Comm /
Web
Tech
nic
alSu
ppor
tH
elp
Des
kSoft
ware
Develo
pm
ent
P&D
Proc
ure
me
ntM
an
agem
ent
Dis
trib
uti
on
I nternati onalPurchasi ng
/ D i stri buti on
Mis
cQ
A
$1,325,604
$1,136,232
Information Technology
$2,335,588
Total =$30,552,016
Company Analysis
You can use a Marimekko chart to break out costs by department.
Copyright 2013 © Mekko Graphics. All rights reserved.
17
Company Analysis
Plant 1 Profitability: 70%
Plant 2 Profitability:
62%
Cont
ributi
on M
argi
n
Cont
ributi
on M
argi
n
Plant 1 Plant 2
By using two Bar Mekkos side by side, the profitability across two divisions of a company can be shown while retaining the relative size of each.
In this case, the profitability of Plant 1 is higher than Plant 2 even though the automotive segment is weighing it down.
0%
40
50
60
70
80
Total Custom57%
Medica
l
84%79%
75%
69%
54%
Automotive
Total Custom57%
Tran
spor
tatio
n
Rubber
/Pap
er/
Plas
tic P
rodu
cts
Hardw
are
Indus
t rial
Mach in
ery
E lectr
onics
0%
40
50
60
70
80%
Total Custom50%
Medica
l
70%
Appl
iance
s/Hou
sewar
es
Elec
tron
ics/E
lectri
cal Automotive
Hardw
are
58%
Fab
Metal Pr
oducts
Rubb
er/P
aper
/
Plastic
Prod
ucts
Recreational Equipment
Total Custom50%
Indu
stria
l Mac
hine
ry
18
Company Analysis
A Cascade Chart is an effective way of showing the components of profitability change between two points in time.
In this case, the decrease in profitability among automotive customers was more than offset by the increases in industrial machinery, medical, and all others between 2011-2012.
0%2011
ContributionMargin
55%
Automotive
-2%
IndustrialMachinery
3%
Medical
5%
All Others
4%
2012Contribution
Margin
65%
Co
ntri
but
ion
Ma
rgin
(%
)
Copyright 2013 © Mekko Graphics. All rights reserved.
19
Company Analysis
You can use a cascade to estimate the overall change in equity value for the investment.
0
50
100
150
200
250
300
350$375
Equity Value Creation ($M)
Equity Value atClose
PE Firm
Mgmt
$136M
Fees & Expenses
-$14M
Debt Paydown
$108M
EBITDAImprovement
Market Growth
ShareGain
ExpenseReduction
$137M
Equity Value atExit
PE Firm
Mgmt
$367M
Copyright 2013 © Mekko Graphics. All rights reserved.