2. Executive Summary
Barkley Enterprises
Family-owned private consumer good company consisting of
two separate business lines:
Snacks and Personal Hygiene
Management team has decided to sell each division separately
to maximize proceeds due to higher synergies obtainable
This analysis will mostly focus on selling Personal Hygiene
Personal Hygiene Division
Market Comparables Valuation indicates enterprise value range
of $431,982-$547,246 thousands, but valuations through
discounted cash flows model and synergies consideration show
an increase in value
Recommend the sale of this division to a large industry such as
Procter & Gamble
Possible realizable transaction between $544,365MM to $761,025MM
3. Company Overview
Barkley is a private consumer goods company
that is family-owned and operated since 1935
Headquartered in Atlanta, GA with a work force of
3,500 employees
Manufactures its own products and sells them in
North and South America
Contains two separate business lines:
Snacks (2013 Revenue: $759MM, 2013 EBITDA: $140MM)
Personal Hygiene (2013 Revenue: $243MM, 2013 EBITDA:
$360MM)
4. Economy and Outlook
Personal care products are less sensitive to economic
conditions
Recovering U.S. economy has increased
competitiveness due to lack of consumer spending
Positive growth in employment and real wages have
given consumers extra spending power
S&P Economics forecast that real personal
consumption would grow by 2.5% in 2013
Reference:
http://www.netadvantage.standardandpoors.com.mutex.gmu.edu/NASApp/NetAdvantage/showIn
dustrySurvey.do?code=hnd
5. Economy and Outlook (cont.)
•Disposable income determines the amount of money consumers can
spend on goods
•Historical data shows that quantity of household products consumed
remains steady even through different levels of disposable income
Reference:
http://www.netadvantage.standardandpoors.com.mutex.gmu.edu/NASApp/NetAdvantage/showIndustrySurvey.do?code
=hnd
6. Industry and Outlook
Projected 2013 industry revenue: $49B
Annual Growth: -2.4%
Although negative annual growth, economic
recovery will push industry to further growth
Increase in disposable income will increase
consumption of essentials and non-essentials
Higher growth potential in emerging markets
U.S. and Western Europe have reached a mature point and
a slower growth phase
Reference:
Cosmetic & Beauty Products Manufacturing Market Research Report | NAICS 32562 | Nov 2013
http://www.netadvantage.standardandpoors.com.mutex.gmu.edu/NASApp/NetAdvantage/showIndustry
Survey.do?code=hnd
7. Industry and Outlook
Private labels are an important factor in this
industry
Increased demand in private labels from retail
companies in order to develop loyal customers
Private label products becoming popular because of
similar quality but lower cost
On average priced 29% lower than branded products
Reference:
http://www.netadvantage.standardandpoors.com.mutex.gmu.edu/NASApp/NetAdvantage/showIndustrySurvey.do?code
=hnd
8. Market Comparables Valuation
•Market Comparables contains publicly traded companies in the
Personal Hygiene industry
• Comparables may be larger companies compared to Barkley
enterprises, but generally produce similar products
•EV/EBITDA multiples implies a valuation range of $432MM to
$547MM
9. Financial Projections
2014-2017 Assumptions
Net Working Capital remains constant at 8% of
revenue
Branded products’ growth in revenue remains
constant at 2%
Private label products’ growth in revenue increases
annually by 10 bps starting 2016; due to increase in
demand of private label products
Expenses change by the average change in
historical data
COGS increases by average of 20 bps
S&M decreases by average of 40 bps
G&A decreases by average 20 bps
Depreciation decreases by average 6 bps
CAPEX decreases by average 1 bps
12. Discounted Cash Flow
•Using calculated WACC of 9.28
•Assuming Terminal Growth of 5% calculated from 2-stage growth model
•-From DCF model, a valuation range of $468MM to $654MM is obtained
13. Synergies Assumptions
Barkley can expect a higher valuation than the
intrinsic valuation due to the following revenue
and cost synergy opportunities:
Revenues of Branded Product and Private Label
Revenue will increase by 1%
Annual reductions to G&A by 2% (as percentage of
revenue)
Procurement Savings increase Gross Margin by
1.5%
14. DCF with Potential Synergies
•Use calculated WACC of 9.28% and Terminal Growth rate of 5%
•Valuation of DCF with synergies range between $544MM to
$761MM
15. Potential Buyer – Unilever
Unilever is an Anglo-Dutch multinational consumer
goods company based in London, UK
Market Cap: $119.48B
Unilever’s categories of operations include:
Personal care, foods, home care, and refreshments
Unilever’s popular products include:
Dove, Axe, TRESemme, Sunsilk
Reference: Unilever Annual Reports and Accounts 2013
16. Potential Buyer – Procter &
Gamble
P&G is multinational consumer goods company
based in Cincinnati, Ohio
Market Cap: $228.93B
P&G’s operating segments include:
Beauty, Grooming, Health Care, Home Care, and
Family Care
P&G’s popular products include:
Gillette, Pantene, Head & Shoulders
Reference: Procter & Gamble 2013 Annual Report 10K
17. Recommendation
Ideal Buyer – Unilever
A company with popular personal hygiene products
like axe, dove, and TRESemme
42% of Unilever’s operating profit comes from
personal care, so will gain more benefits from
synergy opportunities
Great opportunity for Unilever to develop more
private label products in the U.S.
Demand for private label products is on the rise according
to industry reports
18. Recommendation (cont.)
Division Valuation Range
Market Comparables: $432MM to $547MM
Discounted Cash Flows: $468MM to $654MM
DCF + Synergies: $544MM to $761MM
Recommendation
Consider Market Comparables value of $432MM as minimum
Discounted Cash Flows with synergies consists of ideal value range
of $544MM to $761MM