william blair & co. 2014 case competition

Kevin Moore | Wes Sorrell | Robbie Buckley | Leon Seserman

William Blair & Co. 2014 Case Competition

Skipper’s Sporting Goods

2

Agenda

Moore | Sorrell | Buckley | Seserman

Executive Summary

Company & Industry Overview

Strategic Options

Valuation

Recommendation

3

5

11

17

21

3Moore | Sorrell | Buckley | Seserman

Executive Summary


Executive Summary

Company Overview

Industry Overview

Valuation

Potential Buyers

As a leading investment banker in the sector, we have been selected by Skipper’s Sporting Goods management team to share valuation prospects and potential investors in order for the Company to continue and sustain growth.

Number one brand in the football space, with top three rankings in baseball, soccer, and lacrosse.

The goal is to maximize shareholder value and the Board of directors believes that an acquirer will drive the best potential

Innovation and proven brand management positions Skippers Sporting Goods to be able to have the potential to be a super growth company


Company & Industry Overview

6

Company Overview Skipper’s Sporting Goods operates in the sporting goods manufacturing industry, specializing

in performance goods and defensive gear

Skippers has a strong brand with a proven track as the #1 brand for athletes by National Sporting Goods association for design, durability, and build

Benefits from a wide customer base with leading and loyal retailers

Has a knowledgeable management team with over 50 years experience in the industry

Manufactures in both the U.S as well as China

U.S. China

Performance Goods Products Manufactured Defensive Gear

40% % of Current Production

60%

100% Plants Owned 0% (Leases all plants)


7

Recognized as market leader in design, durability, and build of performance and defensive sporting goods

Long standing growing relationship with deep customer base highlighted by significant penetration with major retailers

Top tier management team demonstrated through a strong ability to innovate and retain talented staff, specifically in Sales and R&D groups

Poor growth prospects in core segments seen through negative growth in Football segment and declining growth in Baseball segment

High supplier and customer concentration Liquidity issues demonstrated through

inability to accept projects that would significantly increase firm value

Promising growth in established soccer and lacrosse markets

Potential for expansion into untapped Hockey and Water Sports markets

Rise of e-commerce’s potential to increase margins through partial elimination of retailers

Declining athlete participation in Core markets

High industry concentration Increasing Competitor capitalization of

untapped segments

SWOT Analysis

Strengths Weaknesses

Opportunities Threats


8

Skipper’s Operating Segments


Football

• Helmets• Cleats• Shoulder Pads• Receiver/

Defensive Gloves• Compression

Gear

Baseball

• Batting Helmets• Batting Helmets• Cleats• Batting Gloves• Bats• Cleats• Batting Gloves• Bats

Soccer

• Protective Headgear

• Shin Guards• Goalkeeper

Gloves

Lacrosse

• Helmets• Sticks & Heads• Elbow Pads

35.3%

28.4%

21.8%

14.6%

Football

Baseball

Soccer

Lacrosse

CustomersIndividual Athletes and Teams (High School, Universities, Athletic Clubs & National Teams)

2014E Total Revenue as a Percentage

9

Industry Overview High Concentration within Industry with major companies taking majority of market revenues

Nike 28.8 Billion Adidas- 19.5 Billion Puma- 3.9 Billion Amer Sports- 2.9 Billion

Industry growth has high correlation with changes in disposable income. With per capita disposable income growing over the past 5 years, the industry has seen congruent growth

Industry revenue is strongly interwoven with retail market, with 42% of revenue coming from retailers. Manufacturers use retail level trends to predict consumer preferences

Retailers42%

Wholesalers29%

Exports17%

Schools8%

Sporting Associations4%

Globalization in this industry is high with the trend increasing

Companies want to take advantage of low labor costs and favorable environmental regulations


Market Segmentation

Source(s): IBIS World, SFIA

10

Industry Overview The Sporting Goods Industry is strongly correlated with individuals sport participation in

sporting events According to the latest Sports, Fitness and Leisure Activities Topline Participation Report:

Lacrosse is showing the largest increase in participation, while baseball and softball are showing the largest decrease in sports participation

Generation Z (individuals born after 2000) show the highest participation rates in team, individual, and outdoor sports

Demand for sporting goods is expected to decline in the coming decade, due to the aging of the baby boomer generation

2008 2009 2010 2011 2012 2013

-15.00%

-10.00%

-5.00%

0.00%

5.00%

10.00%

15.00%

20.00%

25.00%

30.00%

FootballBaseballLacrosseSoccerHockeySoftball

Moore | Sorrell | Buckley | Seserman Source(s): IBIS World, SFIA


Valuation

12

Comparable Companies Analysis


Precedent Trans-actions

Comparable Com-panies

DCF

LBO

500 600 700 800 900 1000 1100 1200 1300 1400 1500

$1,187.54

$1,262.78

$588.17

$1,220.00

$1,319.21

$1,385.67

$1,201.10

$1,265.00

Skipper's Sporting Goods Valuation Range

Analysis of comparable companies, precedent transactions, Leveraged Buyouts, and Discounted Cash Flows presented a valuation of $1,187.54-$1,385.67

9.47-11.05x 2014E EBITDA

13

Comparable Companies Analysis


Unit: Millions Company Name Ticker Current Share Price % of 52 Week High Enterprise Value Market Cap EBIT EBITDA Revenue LTM EBITDA LTM Revenue LTM EBIT LTM Revenue Growth

Nike NKE 89.86 98.18% 74,183.20$ 77,415.20$ 3,853.00$ 4,396.00$ 28,810.00$ 16.88x 2.57x 19.25 11.6%Adidas ADS 72.91 61.12% 15,841.00$ 15,253.50$ 1,398.90$ 1,985.10$ 19,479.00$ 7.98x 0.81x 11.32 2.60%Under Armour UA 66.05 89.96% 13,983.20$ 14,087.00$ 306.10$ 342.12$ 2,657.20$ 40.87x 5.26x 45.68 32.40%

Asics corp 7936 JP 22.63 97.51% 4,744.30$ 4,526.10$ 377.30$ 462.90$ 4,103.30$ 10.25x 1.16x 12.57 31.70%Amer Sports AMEAS 19.22 91.56% 2,898.20$ 2,278.40$ 210.70$ 262.30$ 2,909.00$ 11.05x 1.00x 13.76 7.60%Jarden Corp JAH 61.8 96.55% 12,314.90$ 7,925.00$ 625.90$ 816.80$ 8,064.70$ 15.08x 1.53x 19.68 15.90%Puma PUM 215.44 70.15% 2,890.60$ 3,249.30$ 207.10$ 275.60$ 3,920.40$ 10.49x 0.74x 13.96 -4.40%

Performance Sports Group Ltd PSG 16.73 92.79% 1,147.90$ 735.70$ 23.10$ 36.40$ 489.33$ 31.54x 2.35x 49.69 20.70%Callaway Golf Co. ELY 7.07 68.31% 630.10$ 550.90$ 10.10$ 33.40$ 889.20$ 18.87x 0.71x 62.39 10.40%Mizuno Corp MIZUF 5.18 87.42% 851.70$ 688.80$ 51.40$ 82.30$ 1,822.20$ 10.35x 0.47x 16.57 -4.80%Quicksilver ZQK 1.92 20.67% 1,087.40$ 321.70$ (61.70)$ (8.60)$ 1,672.40$ -126.44x 0.65x (17.62) -11.30%

Under Armour UA 66.05 89.96% 13,983.20$ 14,087.00$ 306.10$ 342.12$ 2,657.20$ 40.87x 5.26x 45.68 32.40%Amer Sports AMEAS 19.22 91.56% 2,898.20$ 2,278.40$ 210.70$ 262.30$ 2,909.00$ 11.05x 1.00x 13.76 7.60%Mizuno Corp MIZUF 5.18 87.42% 851.70$ 688.80$ 51.40$ 82.30$ 1,822.20$ 10.35x 0.47x 16.57 -4.80%

30.15 89.65% 5,911.03$ 5,684.73$ 189.40$ 228.91$ 2,462.80$ 20.76 2.24 25.34 11.73%19.22 89.96% 2,898.20$ 2,278.40$ 210.70$ 262.30$ 2,657.20$ 11.05 1.00 16.57 7.60%66.05 91.56% 13,983.20$ 14,087.00$ 306.10$ 342.12$ 2,909.00$ 40.87 5.26 45.68 32.40%

5.18 87.42% 851.70$ 688.80$ 51.40$ 82.30$ 1,822.20$ 10.35 0.47 13.76 -4.80%

MeanMedianHighLow

LTM EV/

Large Cap > 10 Billion

Mid Cap <10 Billion, > 1 Billion

Small Cap < 1 Billion

Most Fitting Comps

Valuation Overview Our three most fitting comparables were

chosen for their: Business Model EBITDA Capital Structure

We noticed market premiums with Nike, Under Armour, and Adidas likely due to brand prestige

Led to an implied Enterprise Value range of: 10.07-11.05x EBITDA $1,262.78-1,385.67 Enterprise Value

Source(s): Bloomberg

14

Precedent Transaction Analysis


Valuation Overview Our transaction comparables were

chosen primarily because of: The target’s business strategy The target’s financial well being Opportunities for growth within

international and emerging markets

Unit: Mil l ions Enterprise Value / Date Transaction Purchase Equity Transaction LTM LTM LTM LTMAnnounced Acquirer Target Type Consideration Value Value LTM EBITDA LTM Sales LTM EBIT Sales EBITDA EBIT Net Income

11/13/2006 Dicks Sporting Goods Golf Galaxy Strategic Cash 216.06 206.21 19.15 251.48 12.48 0.82x 10.77x 16.52x 26.78x8/3/2005 Adidas Reebok Strategic Cash 3,603.21 3,671.71 349.02 3,948.08 305.21 0.93x 10.52x 12.03x 17.49x

4/25/2007 Jarden Corp K2 Inc Strategic Cash/Stock 778.99 1,155.70 122.04 1,426.79 85.48 0.81x 9.47x 13.52x 29.79x3/22/2005 Quicksilver Skis Rossignol Strategic Cash 312.10 468.29 61.29 632.82 32.05 0.74x 7.64x 14.61x 55.09x

10/23/2007 Nike Umbro Strategic Cash 571.94 618.97 59.63 306.42 56.12 2.02x 10.38x 11.03x 17.00x6/2/2005 Stride Rite Corp Saucony Inc Strategic Cash 159.83 131.28 19.74 162.07 18.11 0.81x 6.65x 7.25x 13.97x

6/28/2007 Sports Direct International PLC Everlast Strategic Cash 138.42 169.11 10.20 54.38 8.85 3.11x 16.58x 19.11x 56.37x12/16/2002 K2 Inc Rawlings Sporting Goods Strategic Cash 80.32 114.37 9.51 170.70 7.69 0.67x 12.02x 14.87x 32.68x

3/19/2012 Adidas Adams Golf Strategic Cash 90.14 71.92 7.33 95.89 6.72 0.75x 9.81x 10.70x 4.96x3/31/2004 Adidas Taylor Made Strategic Cash 37.21 37.21 4.84 54.72 4.49 0.68x 7.69x 8.29x 3.65x

Mean 598.82 664.48 66.28 710.34 53.72 1.13x 10.15x 12.79x 25.78xMedian 187.95 187.66 19.44 211.09 15.30 0.81x 10.10x 12.78x 22.14xHigh 3,603.21 3,671.71 349.02 3,948.08 305.21 3.11x 16.58x 19.11x 56.37xLow 37.21 37.21 4.84 54.38 4.49 0.67x 6.65x 7.25x 3.65x

Enterprise Value /

M&A activity within this industry has been trending toward PE buyers over the past decade

This analysis led to an implied enterprise value range of:

9.47-10.52x EBITDA $1,187.54-1,319.21 Enterprise Value

Source(s): Bloomberg

15

Discounted Cash Flow Analysis


Estimated2014 2015 2016 2017 2018 2019 2020 2021

EBIT 103.70$ 116.30$ 133.30$ 134.22$ 141.46$ 146.58$ 148.84$ 152.90$ Taxes 38.96$ 43.69$ 50.08$ 50.43$ 53.15$ 55.07$ 55.92$ 57.44$

NOPAT 64.74$ 72.61$ 83.22$ 83.79$ 88.31$ 91.51$ 92.92$ 95.45$ Add: D&A 21.70$ 24.00$ 26.80$ 19.20$ 20.24$ 20.97$ 21.29$ 21.87$ Less: CapEx (18.80)$ (18.00)$ (18.00)$ (19.20)$ (20.24)$ (20.97)$ (21.29)$ (21.87)$ Less: Change in NWC -$ 0.40$ (10.56)$ (4.97)$ (7.67)$ (7.00)$ (3.62)$ (10.78)$

FCF 67.64$ 79.01$ 81.46$ 78.83$ 80.64$ 84.51$ 89.30$ 84.68$ Time Adjusted FCF 67.64$ 71.19$ 66.14$ 57.68$ 53.17$ 50.21$ 47.81$ 40.85$

Analyst ProjectedManagement Projected

2017 2018 2019 2020 2021 PerpetualFootball 2.5% 2.5% 2.8% 2.8% 2.8% 2.8%Baseball -1.0% 3.0% 2.5% 2.5% 2.5% 2.5%Soccer 0.5% 10.0% 6.0% -2.0% 2.5% 2.5%Lacrosse 8.0% 7.0% 3.5% 3.5% 3.5% 3.5%

Projected Growth Rates

Valuation Overview Due to difficulties with cash flow projections, this valuation is the most volatile Projected growth rates were based off the 2014 Sports, Fitness and Leisure Activities Topline

Participation Report conducted by Sports Marketing Surveys Other events causing abnormal participation rates, such as the world cup, were also taken into

account Our projections led to an implied enterprise value of:

4.65-9.58x EBITDA $588.17-1,201.15 Enterprise Value

16

Leveraged Buyout Evaluation


Purchase Price IRR1,220.00$ 30%1,230.00$ 29%1,240.00$ 28%1,250.00$ 27%1,260.00$ 25%

AssumptionsBase Year 2014Sponsor Target IRR 25%Exit Multiple 10.56 Tax Rate 37.57%Cost of Subordinate Debt 0.10Cost of Senior Debt 0.08

x 2014E EBITDA Value Percent of Total FinancingSubordinated Debt 3.50 438.90 34%Senior Debt 5.50 689.70 53%Sponsor Equity 1.35 169.46 13%Purchase Price 1,253.37$

Leverage 6.23

Terminal EBITDA 174.77Exit Multiple 10.50Enterprise Value 1,835.09Less: Net Debt 918.53Equity Value at Exit 916.56Sponsor Ownership at Exit 95%Sponsor Equity Value at Exit 870.73Sponsor Equity Value at Closing 169.46IRR % 26%

Returns Analysis

Implied Valuation $1,220-$1,265 Based on 6.3 leverage ratio and

25-30% IRR Good PE fits must understand

Skippers strength derives from ability to innovate

Cannot Curtail R&D expenditure by over-leverage

Valuation Overview


Strategic Options

18

Potential Strategic Buyers


• Broad industry player with competency in the sporting goods industry• Relevant Acquisitions: None which makes Skippers a great opportunity to join

Under Armour

• Leading manufacturer of ice hockey equipment, as well as other defensive gear similar to Skippers

• Relevant Acquisitions: Maverick Lacrosse

Performance Sports Ltd.

• Finish sporting goods conglomerate that would allow Skippers to gain larger global market share

• Relevant Acquisitions: Wilson, Salomon, Arc’teryx, SuuntoAmer Sports

• American consumer goods company with a portfolio of companies including Rawlings and Marmot

• Relevant Acquisitions; Rawlings, Marmot

Jarden Corporation

• Japanese based sports equipment and sportswear company. Comparable to Skippers financial structure as well as product offerings

• Relevant Acquisitions: NoneMizuno

• Largest company in industry with global reach and previous acquisition history• Relevant Acquisitions: Converse, Umbro

Nike

• 2nd Largest company in industry with recent successful M&A activity• Relevant Acquisitions: Reebok, Adams Golf, Taylor Made Golf Adidas

19

Private Equity Industry Analysis


PE is now emerging from the post-crisis period and is in good shape After the difficult period of 2007/2008, exits are coming through more steadily The sporting goods industry has seen more an more PE activity over the past

several years, with financial firms outweighing strategic firms in regards to the amount of deals

Sources:Bain & Company Global Private Equity Report 2014, PGEC.com

20

Potential Financial Buyers


• Private equity firm specializing in consumer retail• Relevant Portfolio Companies: Shock Doctor Inc, OmniForce, Surf City

MarathonBregal Partners

• Leading private equity firm focused exclusively on investments in consumer driven product, service and retail business that benefit from health and wellness.

• Relevant Portfolio Companies: Octane Fitness, Curves International. Performance Bicycle

North Castle Partners

• Private equity firm which focuses on consumer product companies with leading market positions

• Relevant Portfolio Companies: Answer Products, Bravo Sports, Skateboard World Industries, Switch Manufacturing

Swander Pace Capital

• American private equity firm with over $2 Billion in total assets. Has made several acquisitions of sporting goods manufacturers in recent years.

• Relevant Portfolio Companies: Riddell Sports, Bell Sports, Easton Sports Inc.

Fenway Partners

• Private equity firm focusing on leveraged buyout investments of established companies in the U.S. and Europe

• Relevant Portfolio Companies: Schutt Sports, Palace Sports & Entertainment

Platinum Equity


Recommendation

22

Recommendation


1. Management1. Aging management team highlighted by co-founders Richard C Dresdale, 57, and

Peter D Lamm, 622. Benefits for Skippers

1. Hannah Steinkeller granted opportunity for larger role2. Mac N. Joes allowed to grow into top CFO in Familiar PE setting3. Small size grants tremendous opportunities for exposure to Cameron

Steinkeller2. Synergy Opportunities

1. Riddell and East have similar product lines to Skippers3. Penetration Promising Industries

1. Fenway Partners is strong in hockey and sports recovery businesses, both of which are markets Skippers has expressed desire to enter in to

Source(s): fenwaypartners.com


Appendix

24

Weighted Average Cost of Capital


D/E 0.331Cost of Debt 4.00%Beta Unlevered 0.83 Beta Levered 1.172 Weight Debt 0.248780488Weight Equity 0.751219512Tax Rate 37.57%Cost of Equity 11%Risk Free 0.025Market Risk Premium 0.075WAAC 10.98%

Skippers Sporting GoodsCost of Debt

Derived from comparable companies in terms of size and leverage

Cost of Equity Calculated by unlevering and

relevering betas of the three closest comparables

william blair & co. 2014 case competition

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