Page 1

M&Anufacturing Associates

Goldman Sachs Case Competition – BruinCo Case Study Valuation & Strategic Alternatives Presentation April 9, 2018 Angela Hong, Deborah Lim, Jennifer Ma, Neel Mishra


Table of Contents

Section I:

Situation and Industry Overview

Section II:

Projected Financial Forecast

Section III:

Valuation

Section IV:

Strategic Alternatives

Section V:

Appendix

2


Table of Contents

I. Situation and Industry Overview

3


Situation and Industry Overview Situation Overview ▪ BruinCo is a toy manufacturer that sells to retailers, and business has been performing well over the past 20 years ▪ Recent weakness in the retail sector and strong interest from financial and strategic buyers has led BruinCo to explore strategic alternatives ▪ As the exclusive financial advisor, we will provide a projected financial forecast, assess the value of BruinCo, and suggest strategic options

US Toy Industry Snapshot Toy Manufacturing ▪ $1.5 billion FY17 revenue ▪ -0.6% expected CAGR from 2017-2022 ▪ -3.1% historical CAGR from 2012-2017

Increasing Online Toy Sales

Supply Chain Overview 1

2

3

4

Product design

Vendor/supplier

Conduct market research and design toy products prior to sending final design to manufacturers Provide manufacturers with materials and supplies needed for production

Manufacturing

Produce products according to design and order demand

Distribution

Transport products from manufacturing facility to retail stores or storage centers

5

Source: IBIS World

Retail

Online Toy Sales ▪ $13.3 billion FY17 revenue ▪ 8.2% expected CAGR from 2017-2022 ▪ 15.2% historical CAGR from 2012-2017

Toy Retail ▪ $30.6 billion FY17 revenue ▪ 0.1% expected CAGR from 2017-2022 ▪ -4.4% historical CAGR from 2012-2017 ▪ Decline in growth due to weakness in sales in traditional brick-and-mortar stores as online retailers increase market share

Sell final product to end customers via in-store or online channels

Online Toy Sales Growth

25,000

($ in millions)

20,000 15,000 10,000

14,579 10.0%

16,158

2018

18,522

21,134

10.8%

5,000 0

17,294

19,751

2019

7.0%

7.1%

6.6%

7.0%

2020

2021

2022

2023

Online Toy Sales

19% 17% 15% 13% 11% 9% 7% 5%

Growth Rate

▪ The US market for online toy sales is expected to grow upwards of 6% annually over the next 5 years ▪ This is largely driven by shifting consumer preferences from purchasing in brick-and-mortar stores to online platforms 4


Table of Contents

II. Projected Financial Forecast

5


Projected Financial Forecast Income Statement For the fiscal year ended December 31st,

$ in millions

Year

Cash Flow Statement

Revenue

2019E

2018E

2017A 520.0

636.5

714.1

2020E 743.0

For the fiscal year ended December 31st,

$ in millions

2021E 773.0

2022E 804.2

Year

2017A

2018E

2019E

2020E

2021E

2022E

Cash flow from operating activities

-

22.4%

12.2%

4.0%

4.0%

4.0%

Net income

52.7

89.7

114.7

108.6

118.7

129.5

COGS

312.0

378.7

421.3

434.6

448.3

462.4

Add: D&A

21.3

24.3

27.6

30.9

34.3

37.9

Gross profit

208.0

257.8

292.8

308.3

324.7

341.8

Less: (Increase) in working capital

-

(3.5)

(2.3)

(0.9)

(0.9)

% growth

-

23.9%

13.6%

5.3%

5.3%

5.3%

% margin

40.0%

40.5%

41.0%

41.5%

42.0%

42.5%

Operating Expenses

120.0

120.0

120.0

140.0

140.0

140.0

EBITDA

% growth

88.0

137.8

172.8

168.3

184.7

201.8

% growth

-

56.6%

25.4%

-2.6%

9.7%

9.3%

% margin

16.9%

21.6%

24.2%

22.7%

23.9%

25.1%

D&A

21.3

24.3

27.6

30.9

34.3

37.9

EBIT

66.8

113.5

145.2

137.4

150.3

163.9

-

70.1%

27.9%

-5.4%

9.4%

9.1%

% growth % margin

12.8%

Income taxes

14.0

Net income

17.8%

20.3%

18.5%

19.4%

20.4%

23.8

30.5

28.9

31.6

34.4

52.7

89.7

114.7

108.6

118.7

129.5

% growth

-

70.1%

27.9%

-5.4%

9.4%

9.1%

% margin

10.1%

14.1%

16.1%

14.6%

15.4%

16.1%

8.0

9.6

10.6

10.8

11.0

11.2

-

20.0%

10.0%

2.0%

2.0%

2.0%

65.0

66.3

67.6

69.0

70.4

71.8

Cash from operations

Unit Growth Average Selling Price

-

2.0%

2.0%

2.0%

2.0%

2.0%

COGS % revenue

60.0%

59.5%

59.0%

58.5%

58.0%

57.5%

Income tax rate

21.0%

21.0%

21.0%

21.0%

21.0%

21.0%

Price Growth

117.4

144.6

140.3

154.0

(0.9) 168.3

Cash flow from investing activities Less: Capital expenditures

(20.0)

Free cash flow

54.0

Free cash flow growth rate Capex as % of cash from operations Capex as % of revenue

(24.0)

(26.4)

(26.9)

(27.5)

(28.0)

93.4

118.2

113.4

126.5

73.1%

26.5%

-4.1%

11.6%

10.9%

-27.0%

-20.4%

-18.3%

-19.2%

-17.8%

-16.6%

-3.8%

-3.8%

-3.7%

-3.6%

-3.6%

-3.5%

-

140.3

Projection metrics Working Cap chg. % of yearly Rev chg.

-3.0%

-3.0%

-3.0%

-3.0%

-3.0%

Capex growth

-

20.0%

10.0%

2.0%

2.0%

2.0%

Annual change in revenue

-

116.5

77.7

28.9

30.0

31.2

-3.0%

Strong Free Cash Flows ▪ Free cash flows are positive and growing, able to cover company’s capital expenditure growth, reflecting overall financial health

Projection metrics Units Sold

74.0

Financial Summary ($ in millions)

Relatively Strong Financials for BruinCo ▪ Projected 9.1% CAGR in revenue, higher than that of industry estimates, driven by increase in units sold and average selling price per unit

Source: Case Competition Prompt

6


Table of Contents

III.Valuation

7


Relative Valuation Public Comparables $ in millions

LTM Performance

Company Name

Market Cap

Cash

Debt

Hasbro, Inc. (NASDAQ: HAS)

10,420.0

1,581.0

1,849.0

Mattel (NASDAQ: MAT)

4,520.0

1,079.0

Build-A-Bear Workshop (NYSE: BBW)

143.2

Funko Inc. (NASDAQ: FNKO) Gaming Partners Int. Corp. (NASDAQ: GPIC) JAKKS Pacific, Inc. (NASDAQ: JAKK)

BruinCo

Trading Multiples

EBITDA

EBIT

Operating

EV/Revenue

EV/EBITDA

EV/EBIT

5,210.0

984.8

812.8

Margin 15.6%

2.1x

10.9x

13.2x

3,123.0

4,880.0

(66.6)

(341.6)

(7.0%)

1.3x

NM

NM

30.5

-

357.9

30.1

14.0

3.9%

0.3x

3.7x

8.1x

190.0

8.0

234.0

516.1

69.1

37.2

7.2%

0.8x

6.0x

11.2x

79.0

14.1

6.7

83.0

10.1

5.5

6.7%

0.9x

7.1x

13.0x

58.5

65.0

159.6

613.1

(51.3)

(72.3)

(11.8%)

0.2x

-3.0x

-2.1x

Mean

2.4%

0.9x

6.9x

11.3x

25th

(8.2%)

0.3x

0.4x

3.0x

Median

5.3%

0.8x

6.0x

11.2x

75th

9.3%

1.5x

9.0x

13.1x

66.8

12.8%

N/A

N/A

N/A

N/A

100.0

Revenue

-

520.0

88.0

The major toy manufacturers in the US are privately-owned companies – Cartamundi Group (20.3% market share) and K’NEX Brands LP (6.9% market share). Smaller pure play competitors such as Green Toys Inc. (1.2% market share) and Alivan’s Inc. (1% market share) are also private

Precedent Transactions

▪ ▪

Date

Target

Buyer

Transaction Size (mm)

EV/Revenue

12/18/17

Sassy 14

Hamco / Crown Crafts

$6.5

0.6x

12/01/17

Perplexus

Spin Master

$9.0

09/18/17

ThinkFun

Ravensburger North America

08/07/17

Carousel Designs

Crown Crafts

$9.7

1.3x

02/23/17

Skip Hop

Carter's

$150.0

1.7x

02/10/17

Mead Johnson Nutrition

Reckitt Benckiser Group

$17,872.2

4.8x

Mean

2.1x

25th

1.3x

Median

1.5x

75th

2.5x

-

EV/EBITDA -

-

-

-

17.7x

Majority of the transactions in the toy manufacturing space involve private companies whose multiples are undisclosed There is significant variance in the transaction sizes of the companies in the industry, since the space is dominated by several key players and a significant number of smaller manufacturers

Source: CapIQ

8


DCF Analysis DCF – Gordon Growth & Sensitivity Analysis $ in millions

DCF – Exit Multiple & Sensitivity Analysis

For the fiscal year ended December 31st,

Year

2018E

EBIT

2019E

2020E

$ in millions

2021E

2022E

113.5

145.2

137.4

150.3

163.9

Less: Taxes

(23.8)

(30.5)

(28.9)

(31.6)

(34.4)

Plus: D&A

21.3

24.3

27.6

30.9

Less: Changes in working capital

(3.5)

(2.3)

(0.9)

Less: Capital expenditures

(20.0)

(24.0)

(26.4)

Unlevered Free Cash Flow

87.4

112.7

108.8

163.9

(23.8)

(30.5)

(28.9)

(31.6)

(34.4)

34.3

Plus: D&A

21.3

24.3

27.6

30.9

34.3

(0.9)

(0.9)

Less: Changes in working capital

(3.5)

(2.3)

(0.9)

(0.9)

(0.9)

(26.9)

(27.5)

Less: Capital expenditures

(20.0)

(24.0)

(26.4)

(26.9)

(27.5)

Unlevered Free Cash Flow

87.4

135.5 2,576.64

Terminal Value

163.95

2022E EBITDA

2.00% 8.49%

WACC

COE

8.49%

COE

2

Risk Free Rate

2.74%

Beta

1.0

3

Market Risk Premium 108.50

5.75% 109.08

8.49%

Risk Free Rate

2

2.74%

3

5.75%

Beta

1.00

Market Risk Premium Discounted CFs

104.64

2,267.61

Implied Enterprise Value

123.40

107.62

108.50

109.08 805.59 1,358.83

Cash

100.00

Implied Equity Value

1,458.83

Notes on DCF Calculation 1. Exit Multiple – Taken from the median of the public comps set from relative valuation, chosen instead of mean to reflect a more conservative multiple 2. Risk Free Rate – 10 year treasury yield 3. Market Risk Premium – KPMG’s retail sector estimates

WACC

WACC

2,267.61

6.49%

7.49%

8.49%

9.49%

10.49%

1,358.83

6.49%

7.49%

8.49%

9.49%

10.49%

1.00%

2,787.52

2,346.83

2,024.16

1,777.80

1,583.61

4.00x

1,174.51

1,131.33

1,090.30

1,051.30

1,014.20

1.50%

3,020.20

2,504.78

2,137.18

1,861.88

1,648.07

5.00x

1,321.86

1,271.96

1,224.57

1,179.54

1,136.74

2.00%

3,304.70

2,691.50

2,267.61

1,957.19

1,720.14

6.00x

1,469.22

1,412.59

1,358.83

1,307.79

1,259.29

2.50%

3,660.51

2,915.65

2,419.82

2,066.14

1,801.22

7.00x

1,616.58

1,553.21

1,493.10

1,436.03

1,381.83

3.00%

4,118.27

3,189.71

2,599.76

2,191.87

1,893.13

8.00x

1,763.93

1,693.84

1,627.37

1,564.28

1,504.38

Sources: Case Competition Prompt, KPMG, US Treasury

Exit Multiple

Terminal Growth Rate

6.00x 8.49%

Implied Enterprise Value

Notes on DCF Calculation 1. Terminal Growth Rate – Assumed 2% growth rate in line with prospective growth in units sold, conservative given projected US GDP growth rate of 2.65% and inflation rate of 2.3% 2. Risk Free Rate – 10 year treasury yield 3. Market Risk Premium – KPMG’s retail sector estimates

135.5

201.80

Discounted TV

2,367.61

121.8

1

1,714.37

Implied Equity Value

108.8

1,210.78

Discounted TV

100.0

112.7

EV/EBITDA Multiple

WACC

Cash

2022E

Less: Taxes

1

107.62

2021E 150.3

Terminal Growth Rate

123.40

2020E 137.4

121.8

EBIT

2019E 145.2

2022E CF

104.64

2018E 113.5

Terminal Value

Discounted CFs

For the fiscal year ended December 31st,

Year

9


Valuation Summary Football Field Analysis

25th percentile : $741mm

75th percentile: $1,549mm

Discounted Cash Flow

Public Comparables

Precedent Transactions

200

700

1,200

1,700

2,200

10


Table of Contents

IV. Strategic Alternatives

11


Strategic Alternative I: Raising Equity Potential IPO ▪ BruinCo could pursue an exit strategy through the equity markets in an IPO ▪ In a rising interest rate environment, the equity markets are performing strong and have resulted in numerous IPOs during 2018 ▪ Through a strong forecast for BruinCo’s growth, equity investors can capitalize on the declining industry by investing in BruinCo ▪ Access to the Equity Markets will allow BruinCo to raise capital and pursue strategic alternatives that would improve operations ▪ Ability to invest in an e-commerce platform and “Smart Toys” development using proceeds from the IPO ▪ As a public company, it will be easier to raise debt from banks as they find confidence in BruinCo’s obligation to improve operations ▪ However, the retail industry overall has been declining as many companies go bankrupt and is a roadblock for raising equity in an industry where a decline in revenue growth is forecasted ▪ Analysts expect consumer retail IPO activity to decrease in 2018, highlighting lack of interest in the retail industry IPO sector ▪ Most of the attention in the equity markets is being focus on high growth Tech companies ▪ Return on IPOs is relatively low for companies in the consumer market, making BruinCo a less attractive candidate ▪ Potential dilution in equity stake for BruinCo, contingent on Joe Bruin’s willingness to reduce ownership stake in company he has run for 20 years

Decline in IPOs

Return on IPOs

Number Of US IPOs 2013 - 2017

Average Year-End Return On US IPOs 2017

276

Energy, Utilities & Mining

10%

229 Industrial Products

33%

181

169

Consumer Markets 102

Financial Services

17% 12%

TMT Pharma & Life Sciences 2013

2014

2015

2016

35%

2017

▪ IPO activity in the US market has experienced a decline, particularly in the retail sector due to weakness in the broader industry Source: PWC Capital Markets

39%

▪ Return on IPOs in consumer markets has been relatively low compared to other industries 12


Strategic Alternative II: Capital Structure Optimization Debt Comparable Analysis Interest Rate

Total Debt / EBITDA

Total Debt to Capital

Total Debt / Market Cap

LTM EBITDA / Interest Exp.

Total Debt / (EBITDA - CAPEX)

Hasbro, Inc.

Company Name

5.3%

1.9x

0.5x

1.0x

10.0x

2.2x

Mattel

3.4%

58.2x

0.7x

2.5x

0.5x

NM

Build-A-Bear Workshop

NM

NM

0.0x

0.0x

0.0x

0.0x

Funko Inc.

13.1%

2.8x

0.5x

0.8x

2.7x

4.8x

Gaming Partners Int. Corp.

3.0%

0.6x

0.1x

0.1x

44.1x

1.0x

JAKKS Pacific, Inc.

6.1%

NM

0.6x

1.7x

NM

NM

Mean

6.2%

15.9x

0.4x

1.0x

11.5x

2.0x

25th percentile

3.4%

1.6x

0.2x

0.3x

0.5x

0.8x

Median

5.3%

2.4x

0.5x

0.9x

2.7x

1.6x

75th percentile

6.1%

16.7x

0.6x

1.5x

10.0x

2.9x

▪ BruinCo has room to lever the company ▪ Currently operates with no debt ▪ Ability to raise 2.4x Total Debt/EBITDA in line with debt comparable analysis of BruinCo’s competitors ▪ BruinCo could raise leverage through a debt private placement or a tradition bank loan ▪ Sustainable growth prospects and strong asset-base

Impact of Debt on WACC ▪ An estimate for the amount of debt BruinCo can take on can be determined from the debt comparables as outlined above ▪ Increasing the amount of debt up to a certain threshold can improve the WACC for the company, since it presently holds 0 debt ▪ After assuming debt, a WACC curve can also be plotted to determine the ideal amount of debt BruinCo can assume to achieve a minimum WACC value ▪ The imputed minimum WACC value will consequently lower the discount rate for the DCF calculation, thereby increasing BruinCo’s overall implied enterprise value ▪ Overall, as long as BruinCo is able to generate sufficient revenue to service its debt principal and interest payments, taking on debt will be largely beneficial for shareholders

Sources: IBIS World, CapIQ, Statista

Possible Investments With Debt Raised Smart Toys Sales ($ in millions)

▪ Given that the market for smart toys is expected to grow, BruinCo can use the debt raised for R&D to develop a range of smart toys ▪ Alternatively, BruinCo can also seek to acquire a smart toy manufacturer or pursue investments in high-growth toy retail companies

13


Strategic Alternative III: Diversification Of Sales Channels Shift Towards Online Toy Retail Sales Online Versus Physical Retail Toy Sales Growth 10.8%

10.0%

7.0%

7.1%

6.6%

7.0%

0.3%

0.3%

-0.1%

0.3%

-0.3%

-0.2%

2017

2018

2019

2020

2021

2022

Physical Retail Growth Rate

Online Retail Growth Rate

▪ Online toy sales are expected to increase at an 8.2% CAGR over the next 5 years while sales through physical retailers are expected to remain fairly flat at a 0.1% CAGR over the next 5 years ▪ BruinCo should adapt its business model in response to such industry headwinds by diversifying its sales towards online platforms ▪ Toy manufacturer case studies: ▪ Mattel: Recently partnered with Chinese e-commerce retailer Alibaba Group to sell toys via Chinese online platform; Struck partnership with Amazon to produce accompanying digital content for toys ▪ Hasbro: Invested $535mm in digital content since 2010, driving an estimated $1bn in incremental online sales

Establishment Of DTC Online Channels

Partnerships With Online Toy Retailers ▪ Cross-collaboration with dominant online toy retailers with strong toy sales growth – Amazon and Walmart ▪ Allows for broader consumer reach beyond US markets Market Share In Online Toy Sales Retail Industry Walmart Stores Inc., 5.7%

Others, 46.1%

Amazon.com Inc, 23.9%

▪ ▪ ▪

Implementing a Direct-to-Consumer (DTC) online sales channel for manufactured toys for vertical consolidation of supply chain Acquisition of toy retail business with existing e-commerce platform Potential impacts: ▪ Move down supply chain – ability to directly access customer by eliminating 3rd party retailer, possible expansion in margins ▪ Necessity for capital expenditure spending to duel such growth, affecting cash flows in the short term ▪ Realize potential synergies through potential acquisition of toy retail business

Physical Stores To Online Platforms Toys “R” Us Inc., 24.3% Source: IBIS World

14


Strategic Alternative IV: Potential Sale – Financial Buyer Financial Buyers Company Name

Type

Acquition Rationale

Headquarters

Industry Focus

Bain Capital, LP

Private Equity Firm

Platform Acquisition

MA, United States

Consumer Retail, TMT, Healthcare, Energy, Business Services

KarpReilly, LLC

Private Equity Firm

Platform Acquisition

CT, United States

Retail, e-commerce, Restaurants, Apparel, Natural Products

KIRKBI A/S

Holding Company

Add-on Acquisition

Billund, Denmark

Owns 75% of the LEGO Group and additional consumer retail investments

KKR & Co., L.P. (NYSE: KKR)

Private Equity Firm

Platform Acquisition

NY, United States

Consumer Retail, Industrials, Financial Services, TMT

Leonard Green and Partners

Private Equity Firm

Platform Acquisition

CA, United States

Retail, Consumer Services, Business Services, Health Services

Roark Capital Group

Private Equity Firm

Platform Acquisition

GA, United States

Consumer, Business Services, Franchised Business Models

Sycamore Partners

Private Equity Firm

Platform Acquisition

NY, United States

Retail, Supply-Chain, Home Décor, Music and Entertainment

Commentary on Financial Buyers ▪ Selected potential financial buyers have a history of investing in the discretionary consumer industry or in manufacturing businesses ▪ Via leveraged buyouts or growth equity investments ▪ Most have not specifically invested in a toy manufacturing company ▪ Potential purchase would be a platform acquisition which would broaden the financial buyer’s portfolio ▪ Majority of buyers are located in the United States and are familiar with the US Retail Industry ▪ An international buyer could be effective in expanding BruinCo’s presence overseas if it has experience in the toy market

Cash Flow Projections

Acquisition Rationale 1

Cash flows

($ in millions)

▪ Strong, positive, and growing cash flow ensure regular interest payments are made while positive annual returns are realized

2

No debt

▪ Current lack of debt indicates that company is not levered, limiting financial buyer’s possible downside risk

3

168.3 154.0

144.6 117.4 87.4

140.3

118.2

108.8 113.4

2019E

2020E

112.7

121.8

126.5

140.3 135.5

2021E

2022E

93.4

Management

▪ Experienced management with industry expertise to assist in transition and post-transaction business operations ▪ With these factors, financial buyers are likely to see a high internal rate of return upon later sale Source: CapIQ

2018E

Unlevered FCF

Levered FCF

CFO 15


Strategic Alternative V: Potential Sale – Strategic Buyer Strategic Buyers Company Name

Acquisition Type

Amazon.com, Inc. (NASDAQ: AMZN)

Vertical

Revenue ($M)

Bandai Namco Holdings Inc. (TYO: 7832)

Horizontal

5,722.1

Cartamundi Group

Horizontal

476.0

Hasbro, Inc. (NASDAQ: HAS)

Horizontal

Jakks Pacific, Inc.

Horizontal

Mattel (NASDAQ: MAT)

177,870.5

Headquarters

Business Description

Strategic Rationale

WA, United States

Global e-commerce retailer

Supply chain consolidation of manufacturing, distribution, and retail

Tokyo, Japan

Toy manufacturer and master toy licensee

Grow Bandai America's customer base and infrastructure

Turnhout, Belgium

Toy and game manufacturer

Strengthen US customer reach and enhance manufacturing capabilities

5,210.0

RI, United States

Toy and game manufacturer

Expand client base and utilize BruinCo's infrastructure to reduce costs

706.4

CA, United States

Toy designer and marketer

Expand product and service capabilities from design through sale

Horizontal

4,882.4

CA, United States

Multinational toy manufacturer

Combine manufacturing and corporate operations to cut costs

MGA Entertainment, Inc.

Horizontal

545.6

CA, United States

Children's toys manufacturer

Enhace product portfolio and combine customer bases

Sears Holding Corporation (NASDAQ: SHLD)

Vertical

22,138.0

IL, United States

Diversified retail store holding company

Enhance Kmart's supply chain capabilities

Spin Master (TSX: TOY)

Horizontal

1,551.3

ON, Canada

Toy and entertainment manufacturer

Strengthen US customer reach and enhance manufacturing capabilities

Target Corporation (NYSE: TGT)

Vertical

69,485.8

MN, United States

Discount store retailer

Expand in-house manufacturing capabilities

Tomy Company, Ltd. (TYO: 7867)

Horizontal

1,547.2

Tokyo, Japan

Children's toys and merchandise maker

Expand US operations and infrastructure without additional capex

VTech (HKG: 0303)

Vertical

2,079.3

Hong Kong

Children's electronics designer and retailer

Complement US manufacturing and retail operations after acquisition of LeapFrog

Walmart Inc. (NYSE: WMT)

Vertical

485,873.1

AR, United States

Department store retail chain

Exclusive access to BruinCo's products and brand name recognition

Acquisition Rationale ▪ ▪ ▪ ▪

Horizontal acquisition enhances the new company’s manufacturing capabilities and consolidates market power within the subfield Vertical acquisition provides the new company with exclusive distribution rights and manufacturing through retail capabilities As a market leader, the combined company would be more resistant to shifts and volatility in the retail market Target strategic buyer has established distribution networks, larger or diversified client base, and international presence

($ in millions)

Horizontal Acquirers by Market Capitalization

Synergies

10,588.0

7,257.6 4,510.0

3,939.6

936.2

Sources: IBIS World, CapIQ

▪ Strategic buyers may be interested in BruinCo due to its complementary business and potential to realize revenue and cost synergies ▪ Potential revenue synergies may result from: ▪ Broader product portfolio ▪ Increased, complementary client bases ▪ Larger geographic footprint ▪ Potential cost synergies may include: ▪ Lower overhead costs due to combined manufacturing, corporate, and back office facilities and personnel ▪ Decreased supplier costs due to increased market share 16


Final Recommendation Next Steps

Conclusion: Sale of BruinCo ▪ Due to declining sales in traditional stores, an accelerating shift towards e-commerce, and BruinCo’s strong financial performance, we are advising Joe to sell BruinCo and begin discussions with interested financial and strategic buyers ▪ Target buyer would either: ▪ Have established manufacturing, distribution, and/or retail infrastructure, extensive customer base, and international experience, or ▪ Be a financial sponsor looking to enter or expand its presence in the toy manufacturing industry ▪ As the sole financial advisor to BruinCo, we recommend a starting purchase price within the range of $741 million - $1,549 million, pending buyer discussion

Strategic Buyer

Acquisition

Current Shareholder Considerations

Financial Buyer

Leveraged Buyout

Merger

▪ Depending on BruinCo’s shareholders and Joe Bruin, negotiation will take place to determine the percentage stake that shareholders will retain and if Joe Bruin continues to run the business

Sale Timeline Plan Process & Create Marketing Materials (~ 1 month)

Source & Contact Initial Set of Potential Buyers (~ 1 month)

Management Meetings & Presentations (~ 1 month)

Initial Bids & Negotiations with Interested Buyers (~ 1-2 months)

End Negotiations, Financing, & Deal Closing (~ 1-2 months)

Leveraged Buyout Timeline Execution of NonDisclosure Agreements with Interested Buyers

Conduct Due Diligence, Initial Bids & Negotiations

Execute Acquisition & Change of Management

Management focuses on optimizing margins

Begin IPO/Sale/Exit Process

(~ 1 month)

(~ 2-6 months)

(~ 1-2 months)

(~ 3-7 years)

(~ 1 year)

17


Table of Contents

V. Appendix

18


Appendix A: Depreciation Schedule

Purchase Year

Value

2017A

2018P

2019P

2020P

2021P

2022P

Existing PP&E

2017

150.0

18.8

18.8

18.8

18.8

18.8

18.8

Capex

2017

20.0

2.5

2.5

2.5

2.5

2.5

2.5

Capex

2018

24.0

-

3.0

3.0

3.0

3.0

3.0

Capex

2019

26.4

-

-

3.3

3.3

3.3

3.3

Capex

2020

26.9

-

-

-

3.4

3.4

3.4

Capex

2021

27.5

-

-

-

-

3.4

3.4

Capex

2022

28.0

-

-

-

-

-

3.5

Depreciation Expense Accumulated Depreciation

21.3

24.3

27.6

30.9

34.3

37.9

21.3

45.5

73.1

104.0

138.3

176.2

20.0%

10.0%

2.0%

2.0%

2.0%

Projection metrics Useful Life Capex growth

8 years

▪ Existing PP&E of $150mm, assumed at start of 2017 ▪ Capex of $20mm, assumed purchased at start of 2017 ▪ Capex growth mirrors unit volume % growth from 2018 onwards (20%, 10%, 2%, 2%, 2%)

19

Goldman Sachs case competition (1st place) 2018  
Goldman Sachs case competition (1st place) 2018  
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