watterson scientific progress, inc 1

3SN Consulting Financial Consulting By:

Michael Seitz, Associate Financial AnalystJunior Suarez-Leyva, Associate Financial Analyst

Brandon Schmid, Associate Financial AnalystCal Nickola, Associate Financial Analyst

● Medium Sized, Private company that manufactures equipment used in hydraulic fracking

● Joint ownership between Mr. Calvin (President and CEO) and Mr. Sunday (CFO).○ Each own 50%

● 2014:○ EBITDA: $8,409,000○ Revenue: $176,820,300○ Cash: $2,764,900○ Debt: $12,230,900

WSP Information

● Large private equity firm● Portfolio consists of mid-sized

manufacturing companies● Attracted to highly specialized, high growth

companies with solid management structures.

● Large number of ties to the energy industry, along with high level of knowledge about the energy industry.

● Potential to add great value to WSP

Treasure Everywhere Info

● Large international energy company● Competitor to WSP in the fracking industry,

although not limited to that specific field● Technology is below the level of WSP’s● Looking for more of a “cleaning house”

approach where they would maximize intellectual property and then shut down WSP

Magical World Info

Treasure Everywhere, Inc. (“TE”)● $57.2 Million for 65% of outstanding capital

stock● 100% of Mr. Sunday’s stock ● 30% of Mr. Calvin’s stock● Purchase price would be paid 100% in cash at

closing● Mr. Calvin would continue as President and

CEO● TE will exit its investments in WSP in 6 years

by full sale● Will reduce Operating expenses 3% annually● Cost of Goods Sold would be reduced 1%

annually

Option 1

Magical World, Inc.(“Magical World”)● $92.8 million enterprise value for WSP on a

cash-free, debt-free basis( no adjustment for working capital)

● Would purchase 100% of the outstanding capital stock of the company from Mr.Sunday and Mr.Calvin

● Purchase price would be paid 100% in cash at closing

Option 2

Accept the proposed offer from Treasure Everywhere

● Satisfies qualitative requirements set by current owners

● Fair Value● Great increase to company value over the 6

year window● Allows Mr. Calvin to maintain his position

and salary as well as increase his equity value over 6 year window

● Overall more beneficial to the industry

Our Recommendation

Comparable transactions● Took median amount of EV/EBITDA for all

comparable transactions in the last 24 months

● Multiplied this number by WSP’s EBITDA○ 8,840,900*8.5= $75,147,650 (Enterprise Value) ○ Equity Value of $65,681,650

Comparable Transaction Valuation

● Found Cash Flows using EBIT + Depreciation - Taxes -Capital Expenditures

● Used WACC as a discount rate● Estimated growth to continue at a 2%

decrease each year for the next 6 years

DCF Valuation

● Converted public company average beta into a projected private beta

● Found cost of equity using 3 mo. T-bill rate, industry average Market Risk Premium, and the Beta

● Utilized industry average cost of debt● Found debt/equity ratio utilizing balance

sheet● WACC ended up being 6.89%

WACC

● Utilized a 6.89% Discount Rate (WACC)

● Used inputs from a 6 year outlook

● Results in WSP being valued at $64,471,790.97

DCF Results

● Using both the DCF and the Comparable Transaction valuations we arrived at a range of approximately:○ $64 million to $75 million dollars

● This valuation shows that the Treasure Everywhere offer is definitely fair market value if not even slightly overvaluing WSP.

Final Current Valuation

● Following acquisition Cost of Goods sold drops 1% annually, and Operating Expenses drop 3% annually.

● Through DCF Valuation, this results in a value jump of $32,013,759.03 over the course of 6 years.

● This yields a WSI valuation of $96,485,550.00 after 6 years under ownership of TE

Valuation Post-Acquisition by TE Synergies

(in thousands) 2015 2016 2017 2018 2019 2020Revenue $198,038.7 $217,842.6 $235,270$249,386.2 $259,361.7 $264,548.9% Growth 12% 10% 8% 6% 4%2%Cost of Goods Sold $156,846.7 $170,806 $182,625.8 $191,647.5

$197320.3$199,254.1Operation Expenses $28,814.6 $30,745.2 $32,208.7 $33,116.9 $33,408.4$33,054.3Gross Profit $5,916.5 $9451.9 $13,333 $17,389 $21,413.6$25,180.3Gross Profit w/o TE $3,441.0 $3,792.1 $4,105.9 $4,352.3 $4,526.3 $4,626.9

● Sell 100% of Mr. Sunday’s share, and 30% of Mr Calvins share of WSP.

● Keep Mr. Calvin as President and CEO● Reap immediate benefits provided by TE● Participate in full sale of the corporation in

6 years to achieve utmost profitability for Mr. Calvin

Next Steps

Questions?

Appendix

Comparable Transactions

EBITDA*(8.5x)=Enterprise Value 8,840,900*8.5= $75,147,650