LBO of National Presto Industries Team 18 Pitch Deck
Agenda Company Overview Industry Overview Investment ThesisValuation & Deal Structure Appendix
National Presto Industries OverviewNPK is a unique company with three distinct business segments1. Defense – manufactures ...
National Presto Industries OverviewPresto’s stock price performed exceptionally well during the financial crisis120% 80% 4...
Key Profit DriversKey Profit Drivers in Each Segment Overall Gross Margins, 2002-2011Defense ...
Segment Breakdown Gross Profit (2000-2010) Operating Profit (2000-2010) Historical Sales (2000-2010) His...
Defense SegmentCorporate Structure of the Defense Segment ...
ManagementManagement has a long-term track record and deep experience• Chairman, President, and CEO: Maryjo Cohen – 36 y...
Agenda Company Overview Industry Overview Investment ThesisValuation & Deal Structure Appendix
Industry OverviewHistorical Growth Projected Growth• Defense: 5.1% 5-yr CAGR ...
Competitive LandscapeOverview Appliances Segment - HighEach business segment h...
Agenda Company Overview Industry Overview Investment ThesisValuation & Deal Structure Appendix
Investment ThesisThree attributes make NPK an attractive investment:1. Sum of Parts Play • Optimize value through 3 seg...
Value CreationWe see three opportunities to unlock significant value in NPK:1. Reverse Morris Trust Transaction2. Expansio...
1) Reverse Morris Trust TransactionStep 1: Buy National Presto Industries Sponsor
1) Reverse Morris Trust TransactionStep 2: Form subsidiaries for the appliance and absorbent segments ...
1) Reverse Morris Trust TransactionStep 2: Form Subsidiaries for the Appliance to the PE sponsor 3: Distribute 100% of...
1) Reverse Morris Trust TransactionStep 3: Distribute 100% of subsidiary stock to the PE sponsor ...
1) Reverse Morris Trust TransactionStep 4: Sell off subsidiaries to strategic buyer in stock-for-stock exchange ...
1) Reverse Morris Trust TransactionStep 4: Sell off subsidiaries to strategic buyer in stock-for-stock exchange ...
1) Reverse Morris Trust TransactionStep 4: Sell off subsidiaries to strategic buyer in stock-for-stock exchange ...
1) Reverse Morris Trust TransactionAdvantages of the spin-off Reasons for the defense segment• Strateg...
2) Expansion of Less-Than-LethalAcquired Less than Lethal Systems in November 2011 Plans for expansion: ...
3) Enter Private Ammunition MarketThe private ammunition market is fast growing and has limited transaction costs• 2 pos...
3) Enter Private Ammunition MarketCase Study - Alliant Tech Systems• “For the last few years, commercial ammunition has ...
Summary of Value CreationAt an EBITDA exit multiple of 6.5x, improvements will add $355mm of equity value ...
Risks of InvestmentThis deal has several risks, but these factors help mitigate them1. Future Contracts with the Departm...
Exit StrategiesNPK’s defense segment could add significant value to a financial or strategic buyerThe exit strategy is dep...
Agenda Company Overview Industry Overview Investment ThesisValuation & Deal Structure Appendix
Valuation SummaryNPK is trading at a 52-week low, putting it in an ideal position for a buyout
Discounted Cash FlowAnalysis and Assumptions
Discounted Cash FlowAnalysis and Assumptions
Trading CompsAnalysis and Assumptions
Trading CompsAnalysis and Assumptions
Precedent TransactionsAnalysis and Assumptions Appliances D...
Precedent TransactionsAnalysis and Assumptions Incontinence ...
Transaction OverviewPurchase Price Allocation Sources & UsesCurrent Price p/ Share $7...
Transaction OverviewProceeds from SpinoffCash proceeds from the spinoff are reduced by 15% to account for the open-market ...
Transaction OverviewThe early spinoff of two segments will add significant value to the buyoutAssumptions of the transacti...
Financial Summary: Base Case PROFORMA FINANCIAL DATA 2007 2008 2009 2010 2011 2012...
Revenue Projections: Base CaseAssumes deployed soldiers use 4x as much ammunition as non-deployed PROFORMA REVENUE ...
IRR Analysis: Base Case IRR ANALYSIS 2012 2013 2014 2015 ...
Financial Summary: Upside Case PROFORMA FINANCIAL DATA 2007 2008 2009 2010 2011 201...
Revenue Projections: Upside CaseAssumes deployed soldiers use 4x as much ammunition as non-deployed PROFORMA REVENUE ...
IRR Analysis: Upside Case IRR ANALYSIS 2012 2013 2014 2015 ...
Financial Summary: Downside Case PROFORMA FINANCIAL DATA 2007 2008 2009 2010 2011 2...
Revenue Projections: Downside CaseAssumes deployed soldiers use 4x as much ammunition as non-deployed PROFORMA REVENUE ...
IRR Analysis: Downside Case IRR ANALYSIS 2012 2013 2014 2015 ...
Agenda Company Overview Industry Overview Investment ThesisValuation & Deal Structure Appendix
Assumptions Assumptions 2012 2013 2014 2015 2016 2017 Sales (% growth) ...
Debt Schedule FREE CASH FLOW - DEFENSE 2011 2012 2013 2014 2015 2016 2017 ...
Debt Schedule Term Loan L + 400 bps Beginning Balance $11...
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NPK Buyout Slide Deck

National Presto Industries (ticker: NPK) Pitched in BYU Private Equity Case Competition 2012. 2nd place finish.
Published on: Mar 3, 2016
Source: www.slideshare.net


Transcripts - NPK Buyout Slide Deck

  • 1. LBO of National Presto Industries Team 18 Pitch Deck
  • 2. Agenda Company Overview Industry Overview Investment ThesisValuation & Deal Structure Appendix
  • 3. National Presto Industries OverviewNPK is a unique company with three distinct business segments1. Defense – manufactures 20-40mm ammunition, LAP operations, cartridge cases2. Appliance – designs, markets, and distributes small home electrical appliances3. Absorbent – manufactures and sells private label adult incontinence products and diapers Founded in Eau Claire, WI Publicly traded on NYSE Acquire Spectra and NCN Acquires Less than Lethal 2001 2006 1905 1969 2003 2011 Purchase RMED to form Acquires AMRON absorbent segmentSales Breakdown Key Financial Data REVENUE AND GROSS MARGIN BREAKDOWN 100% 5% • 7% 7% 90% 16% 17% 23% Stock Price: $72.89 80% 70% • FY 2011 Sales: $431mm 60% 53% 56% 50% 60% 66% • LTM EBITDA: $83.02mm 47% 50% Absorbent Defense • Market Capitalization: $520.6mm 40% 30% Appliances • Enterprise Value: $388.2mm 20% 31% 37% 33% 33% 30% 29% • EV/EBITDA Multiple: 4.7x 10% 0% • Free cash flow per share: $10.51 Rev Gross Rev Gross Rev Gross 2009 2010 2011
  • 4. National Presto Industries OverviewPresto’s stock price performed exceptionally well during the financial crisis120% 80% 40% NPK S&P 500 0% 4/1/2007 4/1/2008 4/1/2009 4/1/2010 4/1/2011 4/1/2012-40%-80%
  • 5. Key Profit DriversKey Profit Drivers in Each Segment Overall Gross Margins, 2002-2011Defense 40%• US Government contracts 30%• Department of Defense budget• Military conflicts and troop deployment 20%• Manufacturing plant utilization 10%Home Appliances• Per capita disposable income 0%• Import penetration• Existing home sales• Commodity costs Overall EBITDA Margins, 2002-2011 30%Absorbent Products• Aging population• New product development 20%• Manufacturing plant utilization 10% 0%
  • 6. Segment Breakdown Gross Profit (2000-2010) Operating Profit (2000-2010) Historical Sales (2000-2010) Historical Free Cash Flow (2000-2010)
  • 7. Defense SegmentCorporate Structure of the Defense Segment Products/services: • Training ammunition AMTEC CORPORATION • Firing devices and initiators acq. 2001 • Fuses Janesville, WI SPECTRA TECHNOLOGIES AMRON LESS LETHAL SYSTEMS acq. 2003 acq. 2006 acq. 2011 East Cambden, AR Antigo, WI Bull Shoals, AR Products/services: Products/services: Products/services: • Smoke and tear gas grenades • Load, Assemble, and Pack (LAP) • Medium caliber ammunition (20- 40mm) for DOD and DOD prime • Specialty impact munitions services for 40mm ammunition • Diversionary devices contractors • Cartridge casings • Stun munitions • Launchers and gas masks • Training for use of products
  • 8. ManagementManagement has a long-term track record and deep experience• Chairman, President, and CEO: Maryjo Cohen – 36 years at Presto• CFO: Randy Lieble – 35 years at Presto• VP – Sales: Donald Hoeschen – 41 years at Presto• VP – Engineering: Lawrence Tienor – 42 years at PrestoMaryjo Cohen owns 30% of Presto. Presto’s management team is a double-edged sword. They have deep industryexperience and long track record with the company. They are responsible for the consistent growth Presto hasachieved over the last 35 years. Yet, they have traditionally operated the business with little leverage and inefficientlevels of working capital. We believe our partnership will add a fresh perspective on new opportunities.Shares owned by management (of the float) Insider Transactions as of May 2010 5000 Maryjo Cohen 332,785 4000 Randy Lieble 1,478 3000 2000 Donald Hoeschen 372 1000 Lawrence Tienor 319 0 Shares Bought Shares Sold
  • 9. Agenda Company Overview Industry Overview Investment ThesisValuation & Deal Structure Appendix
  • 10. Industry OverviewHistorical Growth Projected Growth• Defense: 5.1% 5-yr CAGR • Defense: 3.2% 5-yr CAGR • Small arms ammo: 14.8%• Appliances: 1.1% 5-yr CAGR • Other ammo: 12.6% • Appliances: 3.6% 5-yr CAGR• Absorbent: 1.1% 5-yr CAGR • Small appliances: 0% • Absorbent: 1.6 % 5-yr CAGR • Disposable sanitary products as primary source of segment growthHistorical and Projected Industry Growth (Revenue $ mm)14,00013,00012,00011,000 Small Appliances10,000 Guns and Ammo 9,000 Paper Products 8,000 7,000 6,000 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
  • 11. Competitive LandscapeOverview Appliances Segment - HighEach business segment has moderate to high Substitutescompetitive rivalry. We believe the defensesegment is most favorable due to barriers to entryfrom (1) high fixed costs and (2) long-term Competitive Buyersgovernment relationships. Suppliers Rivalry High Medium Low New EntrantsDefense Segment - Medium Absorbent Product Segment - High Substitutes Substitutes Competitive Competitive Buyers Suppliers Buyers Suppliers Rivalry Rivalry New Entrants New Entrants
  • 12. Agenda Company Overview Industry Overview Investment ThesisValuation & Deal Structure Appendix
  • 13. Investment ThesisThree attributes make NPK an attractive investment:1. Sum of Parts Play • Optimize value through 3 segments • Spin off appliances and absorbent Current Ratio (2002- 2011) 8 5.8 5.62. Strong Financial Condition 6 5 4.9 5.3 5.1 5.2 5 4.3 4 • No leverage 4 • Current ratio of 5.0 2 • Strong margins 03. Attractive Valuation EV/EBITDA Multiple • EV/EBITDA of 4.4x 14 12 • P/E ratio of 10.4x 10 8 6 NPK 4 Industry Average 2 0
  • 14. Value CreationWe see three opportunities to unlock significant value in NPK:1. Reverse Morris Trust Transaction2. Expansion of Less-Than-Lethal Product Line3. Enter Private Ammunition Market
  • 15. 1) Reverse Morris Trust TransactionStep 1: Buy National Presto Industries Sponsor
  • 16. 1) Reverse Morris Trust TransactionStep 2: Form subsidiaries for the appliance and absorbent segments Sponsor 100% 100% Sub Appliance Sub Absorbent
  • 17. 1) Reverse Morris Trust TransactionStep 2: Form Subsidiaries for the Appliance to the PE sponsor 3: Distribute 100% of subsidiary stock and Absorbent Segments Sponsor 100% 100% stock stock 100% 100% Sub Appliance Sub Absorbent
  • 18. 1) Reverse Morris Trust TransactionStep 3: Distribute 100% of subsidiary stock to the PE sponsor Sponsor 100% 100% 100% Sub Appliance Sub Absorbent
  • 19. 1) Reverse Morris Trust TransactionStep 4: Sell off subsidiaries to strategic buyer in stock-for-stock exchange Sponsor 100% 100% 100% Sub Appliance Sub Absorbent merger merger Buyer 1 Buyer 2
  • 20. 1) Reverse Morris Trust TransactionStep 4: Sell off subsidiaries to strategic buyer in stock-for-stock exchange > 50% Sponsor > 50% 100% Buyer 1 Buyer 2 Sub Sub Appliance Absorbent < 50% < 50%
  • 21. 1) Reverse Morris Trust TransactionStep 4: Sell off subsidiaries to strategic buyer in stock-for-stock exchange Sponsor > 50% > 50% 100% Buyer 1 Buyer 2 Sub Sub Appliance Absorbent < 50% < 50%
  • 22. 1) Reverse Morris Trust TransactionAdvantages of the spin-off Reasons for the defense segment• Strategic focus • Largest growth potential in ammo market • Only one segment • Leads all segments in key ratios and metrics• Tax-deferred sales • Long-term capital gains: 15% • Contract with DOD through 2015• Boost to overall IRR • Growth potential in Less than Lethal • Returns in years 3 and 4 through block trade • Potential to expand into private sector
  • 23. 2) Expansion of Less-Than-LethalAcquired Less than Lethal Systems in November 2011 Plans for expansion: • CapEx investment of $10mm in 2013 $2mm in 2014 to expand manufacturing capacity LESS LETHAL SYSTEMS acq. 2011 Bull Shoals, AR Clients: Products/services: Other: • Law enforcement • Smoke and tear gas • 15,000 sq. ft • Corrections grenades manufacturing facility • Military • Specialty impact • $8mm of revenue in 2011 munitions • Diversionary devices • Stun munitions • Launchers and gas masks • Training for use of products
  • 24. 3) Enter Private Ammunition MarketThe private ammunition market is fast growing and has limited transaction costs• 2 possible ways to accomplish this: • Acquire a small ammunition manufacturer • Modify existing plants if demand from DoD declines• High growth potential • 5-yr projected CAGR of 14.8%• Customer diversification • Way to hedge risk of decline in government demand• Use Less than Lethal law enforcement relationships to build customer base• Potential targets: • Black Hills Ammunition • Rio Ammunition • Fiocchi Ammunition • Selliers & Belloitt • Hornady
  • 25. 3) Enter Private Ammunition MarketCase Study - Alliant Tech Systems• “For the last few years, commercial ammunition has been Alliants fastest-growing business, fueled in part by Americans increased concern over their safety and fears that stricter gun control laws could be ahead. The segments performance has helped Alliant offset declines in its aerospace and defense segments due to federal budget cuts and the end of the U.S. war in Iraq.”• “The commercial business grew from $258 million to $930 million in annual sales in the last 10 years, accounting for an ever-larger part of Alliants overall sales.”• “The sporting groups 22 percent increase in sales last year was fueled in part by Wal-Marts decision to start selling shotguns, rifles and ammunition in more of its stores. Other major customers include Cabelas, Dicks Sporting Goods, Bass Pro and Gander Mountain; They also sell to security companies and law enforcement agencies.”
  • 26. Summary of Value CreationAt an EBITDA exit multiple of 6.5x, improvements will add $355mm of equity value $600 $500 $400 Equity Value $300 $200 $100 $0 Sponsor Leverage Spinoff Less-than- Private Ammo Total Equity Equity Value Lethal Value
  • 27. Risks of InvestmentThis deal has several risks, but these factors help mitigate them1. Future Contracts with the Department of Defense • Troop deployment • DoD budget Mitigating Factors • Unrealized budget cuts • Slow-moving military decisions • Ammo is essential • 5-year contract renewal in Feb. 2010 • Order backlog of $342mm2. No Buyer for Appliance and Absorbent Product Segment Mitigating Factors Order Backlog ($ mm) • Less than $500mm is ideal for these industries • 100 years of brand recognition for appliances 350 • High growth potential in absorbent 300 2503. Difficulty Entering Private Ammunition Market 200 150 Mitigating Factors 100 50 • Acquire small manufacturer for client relationships 0 • Law enforcement connection (Less than Lethal) 2009 2010 2011
  • 28. Exit StrategiesNPK’s defense segment could add significant value to a financial or strategic buyerThe exit strategy is deployed early, with the spinoff of two subsidiaries. Conservative estimates give1.5 years for the spinoff and an additional 2 years for the sale of the stock. After building up thedefense segment, we believe it will be a prime target for either a large strategic buyer or a largefinancial buyer.Any company looking to expand its operations specifically into medium caliber round manufacturingwould benefit from the synergies that may exist within distribution and operations and would benefithighly from the key relationship NPK’s defense segment has created within the Department ofDefense and other government agencies.
  • 29. Agenda Company Overview Industry Overview Investment ThesisValuation & Deal Structure Appendix
  • 30. Valuation SummaryNPK is trading at a 52-week low, putting it in an ideal position for a buyout
  • 31. Discounted Cash FlowAnalysis and Assumptions
  • 32. Discounted Cash FlowAnalysis and Assumptions
  • 33. Trading CompsAnalysis and Assumptions
  • 34. Trading CompsAnalysis and Assumptions
  • 35. Precedent TransactionsAnalysis and Assumptions Appliances Date Enterprise Enterprise Value/LTM Ann. Acquiror Target Value Sales EBITDA 01/10/12 Carrier Aircon Ltd GD Midea Holding Co Ltd $7,366.9 0.5x NA 08/22/11 Electrolux AB CTI Cia Tecno Industrial SA 514.8 1.1x 4.1x 12/13/11 Polair OAO Snaige AB 32.1 0.6x 6.9x 12/11/09 Qingdao Haier Co Ltd Haier Electronics Group Co Ltd 2,542.1 0.4x 8.7x 09/29/09 China Overseas Land & Investment Ltd China Overseas Grand Oceans Group Ltd 1,624.1 2.3x 4.5x 07/15/09 Whirlpool Corp Hisense Kelon Electrical Holdings Co Ltd 1,342.5 0.1x 3.6x 05/27/09 Haier Group Corp Fisher & Paykel Appliances Holdings Ltd 679.0 0.3x 3.9x Q1 0.4x 3.9x Median 0.5x 4.3x Q3 0.9x 6.3x Defense Date Enterprise Enterprise Value/LTM Ann. Acquiror Target Value Sales EBITDA 09/21/11 United Technologies Corp Goodrich Corp $16,950.9 2.0x 9.6x 05/15/09 General Dynamics Corp Elbit Systems Ltd 2,376.1 0.6x 4.5x 08/14/08 Goodrich Corp Rolls-Royce Holdings PLC 21,491.6 1.4x 10.5x 07/15/08 General Electric Co Safran SA 13,822.0 0.9x 6.7x Q1 0.8x 6.1x Median 1.2x 8.1x Q3 1.5x 9.8x
  • 36. Precedent TransactionsAnalysis and Assumptions Incontinence Date Enterprise Enterprise Value/LTM Ann. Acquiror Target Value Sales EBITDA 08/25/09 CMC Holdings Ltd/Hong Kong Fancl Corp 554.3 0.8x 7.7x 06/27/08 Financiere FC 1 Clarins 2,953.9 3.8x 05/30/08 JW Holdings Co Ltd JW Shinyak Corp 168.8 4.4x 31.0x 07/12/07 Energizer Holdings Inc Playtex Products Inc 1,601.2 2.1x Q1 1.7x 3.4x Median 2.6x 5.8x Q3 3.5x 13.5x Low end High end Implied Share Price of NPK (applying multiples to the three segments) 90.65 96.82
  • 37. Transaction OverviewPurchase Price Allocation Sources & UsesCurrent Price p/ Share $73.00 Sources Amount Multples % of total Revolver - 0.0 0.0 0%Offer Premium 25% Term 166.04 2.0 2.0 33%Offer Price p/ Share $91.25 High Yield 180.00 2.2 4.2 36%Fully Diluted Shares 6.78mm Sponsor Equity 154.84 1.9 6.0 31% Total 500.88 6.0 100%Equity Value (before deal) $368.51mmEquity Offer Price $493.89mm Uses AmountImplied Entry Multiple 6.03x Equity 493.89 Debt - Fees 6.99 Total 500.88Reverse Morris Trust Capital Structure PRE-SPINOFF DEFENSE APPLIANCE ABSORBENT POST-SPINOFFDebt Amount Amount Mult Amount Mult Amount Mult AmountRevolver - - - - - - - -Term 166.0 117.0 2.0 35.4 2.0 13.6 2.0 166.0High Yield 180.0 105.6 1.8 54.0 3.0 20.4 3.0 180.0Total Debt 346.0 222.6 3.8 89.4 5.0 34.0 5.0 346.0
  • 38. Transaction OverviewProceeds from SpinoffCash proceeds from the spinoff are reduced by 15% to account for the open-market block sales that occur in mid-2014 and mid-2015.Base case, upside case, and downside case returns BASE Segment 2012 EBITDA Multiple Enterprise Value Net Debt Equity Value Realizable Value Appliances 24.11 4.3 103.65 89.42 14.24 12.10 Absorbent 12.31 5.8 71.38 33.99 37.39 31.78 UPSIDE Segment 2012 EBITDA Multiple Enterprise Value Net Debt Equity Value Realizable Value Appliances 24.11 6.3 151.86 89.42 62.45 53.08 Absorbent 12.31 7.5 92.30 33.99 58.31 49.57 DOWNSIDE Segment 2012 EBITDA Multiple Enterprise Value Net Debt Equity Value Realizable Value Appliances 24.11 3.9 94.01 89.42 4.59 3.90 Absorbent 12.31 3.4 41.84 33.99 7.86 6.68
  • 39. Transaction OverviewThe early spinoff of two segments will add significant value to the buyoutAssumptions of the transaction:• The spinoff takes 2 years to complete• The equity portions of the segments are sold off over a period of 2 years at a 15% discountWith conservative exit multiples of 6.5x and 5.5x for the two segments, NPK shareholders willreceive 50% of their investment. PAYBACK PERIOD SENSITIVITY ANALYSIS - % of initial investment recovered from spinoff Exit Multiple - Absorbent 28.3% 4.5x 5.5x 6.5x 7.5x 8.5x 3.5x 9.0% 15.7% 22.5% 29.2% 36.0% Exit Multiple 4.5x 22.2% 29.0% 35.7% 42.5% 49.2% - Appliances 5.5x 35.4% 42.2% 49.0% 55.7% 62.5% 6.5x 48.7% 55.4% 62.2% 68.9% 75.7% 7.5x 61.9% 68.7% 75.4% 82.2% 88.9% IRR SENSITIVITY ANALYSIS - IRR after defense exit in year 5 Exit Multiple - Absorbent 27.7% 4.5x 5.5x 6.5x 7.5x 8.5x 3.5x 24.1% 25.4% 26.6% 27.9% 29.1% Exit Multiple 4.5x 26.6% 27.8% 29.1% 30.3% 31.6% - Appliances 5.5x 29.0% 30.3% 31.5% 32.8% 34.0% 6.5x 31.5% 32.7% 34.0% 35.2% 36.5% 7.5x 33.9% 35.2% 36.4% 37.7% 38.9%
  • 40. Financial Summary: Base Case PROFORMA FINANCIAL DATA 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 INCOME STATEMENT Historical Period Projection Period Revenue 224.4 238.8 253.8 240.8 202.4 235.0 237.9 227.4 223.2 219.5 222.3 % growth 0% NA - 6.4% - 6.3% - -5.1% - -15.9% - 16.1% - 1.2% - -4.4% - -1.8% - -1.7% - 1.3% - COGS 176.1 188.5 191.9 172.7 140.4 157.5 161.8 154.6 156.3 155.9 160.0 % margins 0% 78.5% 0% 79.0% 0% 75.6% 0% 71.7% 0% 69.4% 0% 67.0% 0% 68.0% 0% 68.0% 0% 70.0% 0% 71.0% 0% 72.0% 0% SG&A 0% 8.9 0% 3.5 0% 3.5 0% 3.0 0% 3.5 0% 3.4 0% 3.4 0% 3.2 0% 3.2 0% 3.1 0% 3.2 0% EBITDA 39.4 46.8 58.4 65.1 58.5 74.2 72.7 69.5 63.8 60.5 59.1 % margins 0% 17.6% 0% 19.6% 0% 23.0% 0% 27.0% 0% 28.9% 0% 31.6% 0% 30.6% 0% 30.6% 0% 28.6% 0% 27.6% 0% 26.6% 0% D&A 0% 2.7 0% 3.2 0% 3.6 0% 3.7 0% 3.5 0% 4.7 0% 5.5 0% 5.7 0% 5.6 0% 5.5 0% 5.6 0% EBIT 36.7 43.6 54.8 61.4 55.0 69.5 67.3 63.8 58.2 55.0 53.5 % margins 16.4% 18.2% 21.6% 25.5% 27.2% 29.6% 28.3% 28.1% 26.1% 25.1% 24.1% FREE CASH FLOW EBITDA 39.4 46.8 58.4 65.1 58.5 74.2 72.7 69.5 63.8 60.5 59.1 Cash Interest - - - - - (13.1) (12.1) (9.4) (6.2) (3.6) (1.6) Cash Taxes (12.8) (15.2) (19.2) (21.5) (19.3) (19.8) (19.3) (19.0) (18.2) (18.0) (18.2) (Increase) / Decrease in NWC - (3.6) (3.8) 3.3 9.6 (3.5) (0.7) 2.4 0.9 0.9 (0.6) Capex (4.8) (2.6) (1.3) (3.5) (1.6) (2.8) (12.4) (4.5) (2.7) (2.6) (2.7) Free Cash Flow 21.8 25.3 34.1 43.3 47.2 35.1 28.3 38.9 37.6 37.1 36.0 % of revenue 9.7% 10.6% 13.5% 18.0% 23.3% 14.9% 11.9% 17.1% 16.9% 16.9% 16.2% Cumulative Free Cash Flow 35.1 63.4 102.3 140.0 177.1 213.1 Revolver Balance - - - - - - Term Loan Balance 105.3 94.8 85.3 76.8 45.5 9.5 High Yield Balance 82.2 64.4 35.0 5.9 - - CREDIT STATISTICS Total Debt / EBITDA 2.5x 2.2x 1.7x 1.3x 0.8x 0.2x FCF / Mandatory Interest Payments 3.0x 2.7x 4.1x 4.4x 4.8x 7.9x FCF / Cash Interest 2.7x 2.3x 4.1x 6.0x 10.3x 23.1x (EBITDA - Capex) / Cash Interest 5.5x 5.0x 6.9x 9.8x 16.0x 36.2x
  • 41. Revenue Projections: Base CaseAssumes deployed soldiers use 4x as much ammunition as non-deployed PROFORMA REVENUE 2012 2013 2014 2015 2016 2017 Ammunition 40mm Backlog 170.0 113.0 40mm 4/1/12 option 40.5 40.5 Addl options - 12.9 112.8 146.1 139.0 137.8 Total Ammunition Revenue 170.0 166.4 153.3 146.1 139.0 137.8 % change -2.1% -7.9% -4.7% -4.9% -0.9% Other Revenue 50.0 50.0 50.0 50.0 50.0 50.0 Less-than-Lethal 15.0 16.5 18.2 20.0 22.0 24.2 Private Sales - 5.0 6.0 7.2 8.6 10.4 Total Revenue 235.0 237.9 227.4 223.2 219.5 222.3 REVENUE DRIVERS 2012 2013 2014 2015 2016 2017 Total Army Troops 558,571 552,241 545,982 539,794 533,676 527,628 Army Troops Deployed - Middle East 54,000 50,000 30,000 20,000 10,000 10,000 Army Troops Deployed - Other 46,000 46,000 46,000 46,000 46,000 46,000 Army Troops Not Deployed 458,571 456,241 469,982 473,794 477,676 471,628 Adjusted Amount of Troops 858,571 840,241 773,982 737,794 701,676 695,628 % Change -2.1% -7.9% -4.7% -4.9% -0.9%
  • 42. IRR Analysis: Base Case IRR ANALYSIS 2012 2013 2014 2015 2016 Initial Equity Investment (154.84) CF from Divestment 21.94 21.94 Exit Year EBITDA 60.53 Exit Multiple 6.5x Enterprise Value 393.44 Less: Net Debt 45.52 Equity Value 347.92 Equity Proceeds (154.84) 0 21.94 21.94 347.92 IRR 27.7% Cash Return 1.0x 0.0x 0.1x 0.3x 2.5x IRR SENSITIVITY ANALYSIS Entry Premium 27.7% 15% 20% 25% 30% 35% 5.5x 36.0% 28.3% 22.4% 17.5% 13.5% Exit 6.0x 39.0% 31.2% 25.1% 20.2% 16.1% Multiple 6.5x 41.8% 33.9% 27.7% 22.7% 18.5% 7.0x 44.4% 36.4% 30.1% 25.0% 20.8% 7.5x 46.9% 38.8% 32.4% 27.3% 23.0%
  • 43. Financial Summary: Upside Case PROFORMA FINANCIAL DATA 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 INCOME STATEMENT Historical Period Projection Period Revenue 224.4 238.8 253.8 240.8 202.4 235.0 244.7 246.6 249.5 250.8 250.5 % growth 0% NA - 6.4% - 6.3% - -5.1% - -15.9% - 16.1% - 4.1% - 0.8% - 1.2% - 0.5% - -0.1% - COGS 176.1 188.5 191.9 172.7 140.4 157.5 166.4 175.1 177.2 178.0 177.9 % margins 0% 78.5% 0% 79.0% 0% 75.6% 0% 71.7% 0% 69.4% 0% 67.0% 0% 68.0% 0% 71.0% 0% 71.0% 0% 71.0% 0% 71.0% 0% SG&A 0% 8.9 0% 3.5 0% 3.5 0% 3.0 0% 3.5 0% 3.4 0% 3.5 0% 3.5 0% 3.6 0% 3.6 0% 3.6 0% EBITDA 39.4 46.8 58.4 65.1 58.5 74.2 74.8 68.0 68.8 69.1 69.1 % margins 0% 17.6% 0% 19.6% 0% 23.0% 0% 27.0% 0% 28.9% 0% 31.6% 0% 30.6% 0% 27.6% 0% 27.6% 0% 27.6% 0% 27.6% 0% D&A 0% 2.7 0% 3.2 0% 3.6 0% 3.7 0% 3.5 0% 4.7 0% 5.6 0% 6.2 0% 6.2 0% 6.3 0% 6.3 0% EBIT 36.7 43.6 54.8 61.4 55.0 69.5 69.2 61.8 62.6 62.9 62.8 % margins 16.4% 18.2% 21.6% 25.5% 27.2% 29.6% 28.3% 25.1% 25.1% 25.1% 25.1% FREE CASH FLOW EBITDA 39.4 46.8 58.4 65.1 58.5 74.2 74.8 68.0 68.8 69.1 69.1 Cash Interest - - - - - (13.6) (12.3) (9.4) (6.0) (3.2) (1.1) Cash Taxes (12.8) (15.2) (19.2) (21.5) (19.3) (19.6) (19.9) (18.4) (19.8) (20.9) (21.6) (Increase) / Decrease in NWC - (3.6) (3.8) 3.3 9.6 (8.2) 2.5 4.5 (0.6) (0.3) 0.0 Capex (4.8) (2.6) (1.3) (3.5) (1.6) (2.8) (11.7) (4.4) (3.0) (3.0) (3.0) Free Cash Flow 21.8 25.3 34.1 43.3 47.2 30.1 33.3 40.3 39.4 41.8 43.4 % of revenue 9.7% 10.6% 13.5% 18.0% 23.3% 12.8% 13.6% 16.4% 15.8% 16.7% 17.3% Cumulative Free Cash Flow 30.1 63.4 103.7 143.1 184.9 228.3 Revolver Balance - - - - - - Term Loan Balance 105.3 94.8 85.3 76.8 37.8 - High Yield Balance 87.2 64.4 33.6 2.7 - - CREDIT STATISTICS Total Debt / EBITDA 2.6x 2.1x 1.7x 1.2x 0.5x – FCF / Mandatory Interest Payments 2.6x 3.2x 4.3x 4.6x 5.4x 11.5x FCF / Cash Interest 2.2x 2.7x 4.3x 6.6x 12.9x 40.7x (EBITDA - Capex) / Cash Interest 5.3x 5.1x 6.8x 11.0x 20.4x 61.8x
  • 44. Revenue Projections: Upside CaseAssumes deployed soldiers use 4x as much ammunition as non-deployed PROFORMA REVENUE 2012 2013 2014 2015 2016 2017 Ammunition 40mm Backlog 170.0 113.0 40mm 4/1/12 option 40.5 40.5 Addl options - 12.9 121.8 158.1 150.9 140.8 Total Ammunition Revenue 170.0 166.4 162.3 158.1 150.9 140.8 % change -2.1% -2.5% -2.6% -4.5% -6.7% Other Revenue 50.0 51.0 52.0 53.1 54.1 55.2 Less-than-Lethal 15.0 17.3 19.8 22.8 26.2 30.2 Private Sales - 10.0 12.5 15.6 19.5 24.4 Total Revenue 235.0 244.7 246.6 249.5 250.8 250.5 REVENUE DRIVERS 2012 2013 2014 2015 2016 2017 Total Army Troops 558,571 552,241 545,982 539,794 533,676 527,628 Army Troops Deployed - Middle East 54,000 50,000 45,000 40,000 30,000 15,000 Army Troops Deployed - Other 46,000 46,000 46,000 46,000 46,000 46,000 Army Troops Not Deployed 458,571 456,241 454,982 453,794 457,676 466,628 Adjusted Amount of Troops 858,571 840,241 818,982 797,794 761,676 710,628 % Change -2.1% -2.5% -2.6% -4.5% -6.7%
  • 45. IRR Analysis: Upside Case IRR ANALYSIS 2012 2013 2014 2015 2016 Initial Equity Investment (154.84) CF from Divestment 51.32 51.32 Exit Year EBITDA 69.14 Exit Multiple 6.5x Enterprise Value 449.43 Less: Net Debt 37.76 Equity Value 411.68 Equity Proceeds (154.84) 0 51.32 51.32 411.68 IRR 39.3% Cash Return 1.0x 0.0x 0.3x 0.7x 3.3x IRR SENSITIVITY ANALYSIS Entry Premium 39.3% 15% 20% 25% 30% 35% 5.5x 50.4% 41.3% 34.3% 28.7% 24.0% Exit 6.0x 53.2% 44.0% 36.9% 31.2% 26.4% Multiple 6.5x 55.8% 46.5% 39.3% 33.5% 28.7% 7.0x 58.2% 48.8% 41.6% 35.7% 30.9% 7.5x 60.5% 51.0% 43.7% 37.8% 32.9%
  • 46. Financial Summary: Downside Case PROFORMA FINANCIAL DATA 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 INCOME STATEMENT Historical Period Projection Period Revenue 224.4 238.8 253.8 240.8 202.4 228.0 212.4 196.4 195.2 194.0 192.8 % growth 0% NA - 6.4% - 6.3% - -5.1% - -15.9% - 12.7% - -6.8% - -7.6% - -0.6% - -0.6% - -0.6% - COGS 176.1 188.5 191.9 172.7 140.4 152.8 144.5 141.4 144.5 145.5 144.6 % margins 0% 78.5% 0% 79.0% 0% 75.6% 0% 71.7% 0% 69.4% 0% 67.0% 0% 68.0% 0% 72.0% 0% 74.0% 0% 75.0% 0% 75.0% 0% SG&A 0% 8.9 0% 3.5 0% 3.5 0% 3.0 0% 3.5 0% 3.3 0% 3.0 0% 2.8 0% 2.8 0% 2.8 0% 2.7 0% EBITDA 39.4 46.8 58.4 65.1 58.5 72.0 65.0 52.2 48.0 45.7 45.5 % margins 0% 17.6% 0% 19.6% 0% 23.0% 0% 27.0% 0% 28.9% 0% 31.6% 0% 30.6% 0% 26.6% 0% 24.6% 0% 23.6% 0% 23.6% 0% D&A 0% 2.7 0% 3.2 0% 3.6 0% 3.7 0% 3.5 0% 4.6 0% 4.9 0% 4.9 0% 4.9 0% 4.9 0% 4.8 0% EBIT 36.7 43.6 54.8 61.4 55.0 67.4 60.1 47.3 43.1 40.9 40.6 % margins 16.4% 18.2% 21.6% 25.5% 27.2% 29.6% 28.3% 24.1% 22.1% 21.1% 21.1% FREE CASH FLOW EBITDA 39.4 46.8 58.4 65.1 58.5 72.0 65.0 52.2 48.0 45.7 45.5 Cash Interest - - - - - (13.5) (12.6) (10.5) (8.4) (6.5) (4.4) Cash Taxes (12.8) (15.2) (19.2) (21.5) (19.3) (18.9) (16.6) (12.9) (12.1) (12.0) (12.7) (Increase) / Decrease in NWC - (3.6) (3.8) 3.3 9.6 (6.4) 3.9 4.0 0.3 0.3 0.3 Capex (4.8) (2.6) (1.3) (3.5) (1.6) (2.7) (11.9) (4.3) (2.3) (2.3) (2.3) Free Cash Flow 21.8 25.3 34.1 43.3 47.2 30.5 27.8 28.5 25.4 25.2 26.3 % of revenue 9.7% 10.6% 13.5% 18.0% 23.3% 13.4% 13.1% 14.5% 13.0% 13.0% 13.7% Cumulative Free Cash Flow 30.5 58.2 86.7 112.1 137.3 163.7 Revolver Balance - - - - - - Term Loan Balance 105.3 94.8 85.3 76.8 69.1 59.0 High Yield Balance 86.9 69.6 50.6 33.7 16.2 - CREDIT STATISTICS Total Debt / EBITDA 2.7x 2.5x 2.6x 2.3x 1.9x 1.3x FCF / Mandatory Interest Payments 2.6x 2.6x 3.0x 3.0x 3.3x 3.8x FCF / Cash Interest 2.3x 2.2x 2.7x 3.0x 3.9x 5.9x (EBITDA - Capex) / Cash Interest 5.1x 4.2x 4.6x 5.4x 6.7x 9.7x
  • 47. Revenue Projections: Downside CaseAssumes deployed soldiers use 4x as much ammunition as non-deployed PROFORMA REVENUE 2012 2013 2014 2015 2016 2017 Ammunition 40mm Backlog 170.0 113.0 40mm 4/1/12 option 40.5 40.5 Addl options - 1.0 98.0 137.2 136.0 134.8 Total Ammunition Revenue 170.0 154.5 138.5 137.2 136.0 134.8 % change -9.1% -10.4% -0.9% -0.9% -0.9% Other Revenue 50.0 50.0 50.0 50.0 50.0 50.0 Less-than-Lethal 8.0 8.0 8.0 8.0 8.0 8.0 Private Sales - - - - - - Total Revenue 228.0 212.4 196.4 195.2 194.0 192.8 REVENUE DRIVERS 2012 2013 2014 2015 2016 2017 Total Army Troops 558,571 552,241 545,982 539,794 533,676 527,628 Army Troops Deployed - Middle East 54,000 30,000 5,000 5,000 5,000 5,000 Army Troops Deployed - Other 46,000 46,000 46,000 46,000 46,000 46,000 Army Troops Not Deployed 458,571 476,241 494,982 488,794 482,676 476,628 Adjusted Amount of Troops 858,571 780,241 698,982 692,794 686,676 680,628 % Change -9.1% -10.4% -0.9% -0.9% -0.9%
  • 48. IRR Analysis: Downside Case IRR ANALYSIS 2012 2013 2014 2015 2016 Initial Equity Investment (154.84) CF from Divestment 5.29 5.29 Exit Year EBITDA 45.74 Exit Multiple 6.5x Enterprise Value 297.29 Less: Net Debt 85.32 Equity Value 211.97 Equity Proceeds (154.84) 0 5.29 5.29 211.97 IRR 9.7% Cash Return 1.0x 0.0x 0.0x 0.1x 1.4x IRR SENSITIVITY ANALYSIS Entry Premium 9.7% 15% 20% 25% 30% 35% 5.5x 14.4% 8.2% 3.5% -0.4% -3.7% Exit 6.0x 18.0% 11.6% 6.7% 2.7% -0.7% Multiple 6.5x 21.2% 14.8% 9.7% 5.6% 2.1% 7.0x 24.3% 17.6% 12.4% 8.2% 4.7% 7.5x 27.1% 20.3% 15.0% 10.7% 7.1%
  • 49. Agenda Company Overview Industry Overview Investment ThesisValuation & Deal Structure Appendix
  • 50. Assumptions Assumptions 2012 2013 2014 2015 2016 2017 Sales (% growth) 16.1% 4.1% 0.8% 1.2% 0.5% -0.1% Base Case 1 16.1% 1.2% -4.4% -1.8% -1.7% 1.3% Upside Case 2 16.1% 4.1% 0.8% 1.2% 0.5% -0.1% Worst Case 3 12.7% -6.8% -7.6% -0.6% -0.6% -0.6% Gross Margin (% sales) 67.0% 68.0% 71.0% 71.0% 71.0% 71.0% Base Case 1 67.0% 68.0% 68.0% 70.0% 71.0% 72.0% Upside Case 2 67.0% 68.0% 71.0% 71.0% 71.0% 71.0% Worst Case 3 67.0% 68.0% 72.0% 74.0% 75.0% 75.0% SG&A (% sales) 1.4% 1.4% 1.4% 1.4% 1.4% 1.4% Base Case 1 1.4% 1.4% 1.4% 1.4% 1.4% 1.4% Upside Case 2 1.4% 1.4% 1.4% 1.4% 1.4% 1.4% Worst Case 3 1.4% 1.4% 1.4% 1.4% 1.4% 1.4% D&A (% sales) 2.0% 2.3% 2.5% 2.5% 2.5% 2.5% Base Case 1 2.0% 2.3% 2.5% 2.5% 2.5% 2.5% Upside Case 2 2.0% 2.3% 2.5% 2.5% 2.5% 2.5% Worst Case 3 2.0% 2.3% 2.5% 2.5% 2.5% 2.5% Capex (% sales) 1.2% 4.8% 1.8% 1.2% 1.2% 1.2% Base Case 1 1.2% 5.2% 2.0% 1.2% 1.2% 1.2% Upside Case 2 1.2% 4.8% 1.8% 1.2% 1.2% 1.2% Worst Case 3 1.2% 5.6% 2.2% 1.2% 1.2% 1.2% NWC (% sales) 25.0% 23.0% 21.0% 21.0% 21.0% 21.0% Base Case 1 23.0% 23.0% 23.0% 23.0% 23.0% 23.0% Upside Case 2 25.0% 23.0% 21.0% 21.0% 21.0% 21.0% Worst Case 3 25.0% 25.0% 25.0% 25.0% 25.0% 25.0%
  • 51. Debt Schedule FREE CASH FLOW - DEFENSE 2011 2012 2013 2014 2015 2016 2017 EBITDA 58.5 74.2 74.8 68.0 68.8 69.1 69.1 Cash Interest - (13.6) (12.3) (9.4) (6.0) (3.2) (1.1) Cash Taxes (19.3) (19.6) (19.9) (18.4) (19.8) (20.9) (21.6) (Increase) / Decrease in NWC 9.6 (8.2) 2.5 4.5 (0.6) (0.3) 0.0 Capex (1.6) (2.8) (11.7) (4.4) (3.0) (3.0) (3.0) Cash Available for Debt Repayment 47.2 30.1 33.3 40.3 39.4 41.8 43.4 Less: Mandatory Payments -11.7 -10.5 -9.5 -8.5 -7.7 -3.8 Less: Principal Repayment -18.4 -22.8 -30.8 -30.9 -34.1 -34.0 Free Cash Flow after Pmts 0.0 0.0 0.0 0.0 0.0 5.7 DEBT SCHEDULE - DEFENSE Rate 2012 2013 2014 2015 2016 2017 LIBOR CURVE 0.60% 0.73% 0.94% 1.17% 1.43% 1.66% Revolver L + 250 bps Beginning Balance $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 Paydown Yes - - - - - - Ending Balance - - - - - - Interest Expense - - - - - - Commitment Fee 50 bps -0.39 -0.45 -0.56 -0.69 -0.85 -1.13
  • 52. Debt Schedule Term Loan L + 400 bps Beginning Balance $117.0 $105.3 $94.8 $85.3 $76.8 $37.8 Mandatory Amortization 10% ($11.70) ($10.5) ($9.5) ($8.5) ($7.7) ($3.8) Additional Paydown Yes - - - - (31.4) (34.0) Ending Balance 105.3 94.8 85.3 76.8 37.8 - Interest Expense (4.8) (4.7) (4.4) (4.2) (3.1) (1.1) High Yield 10.0% Beginning Balance $105.6 $87.2 $64.4 $33.6 $2.7 $0.0 Paydown Yes (18.4) (22.8) (30.8) (30.9) (2.7) - Ending Balance 87.2 64.4 33.6 2.7 - - Interest Expense (8.7) (7.6) (4.9) (1.8) (0.1) - Total Net Debt (EB) $192.6 $159.2 $118.9 $79.5 $37.8 $0.0 Total Net Interest Expense (13.6) (12.3) (9.4) (6.0) (3.2) (1.1) Total Free Cash Flow 30.1 33.3 40.3 39.4 41.8 43.4 Debt Service (13.6) (12.3) (9.4) (6.0) (3.2) (1.1) CREDIT STATISTICS 2012 2013 2014 2015 2016 2017 Total Debt / EBITDA 2.6x 2.1x 1.7x 1.2x 0.5x – FCF / Mandatory Interest Payments 2.6x 3.2x 4.3x 4.6x 5.4x 11.5x FCF / Cash Interest 2.2x 2.7x 4.3x 6.6x 12.9x 40.7x (EBITDA - Capex) / Cash Interest 5.3x 5.1x 6.8x 11.0x 20.4x 61.8x

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