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2018 Global Case Competition at Harvard, 2nd in World, Top Undergraduate Team

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2018 Global Case Competition at Harvard, 2nd in World, Top Undergraduate Team

  1. 1. Joe Braun | Garret Markey | Morgan Rice | Noah Slade | JacobWhite Miami University: Farmer’s Five Forces HARVARD GLO B AL CAS E COMPETITIONAT 2018 CASE M&A–LVMH
  2. 2. 2Global Case Competition at Harvard – LVMH M&A Industry Overview FinalThoughts Company Overviews Hermes Due Diligence Alternative Investments Appendix Setting the Scene 3 5 10 14 23 38 41 Table of Contents
  3. 3. Setting the Scene
  4. 4. 4Global Case Competition at Harvard – LVMH M&A Brief History of Case LVMH Grows Stake Hermes Pushes Back • Moët Hennessy LouisVuitton began buying shares in 2008 and has grown its position to 23.1% by July 2014 • Total cost of minority stake was €1.45 Billion • Position was built through the use of equity swaps, allowing LVMH to continuously grow their influence without declaring their share purchases • LVMH is currently being investigated by French authorities for violation of disclosure laws • Hermes Chairman Bernard Puech called for the 23% stake to be halved • A limited partnership holding company has been set up, controlling roughly 50% of Hermes, to make it impossible for any outside influence to gain control against their wishes • The bylaws allow Hermes to issue new shares to existing shareholders in case of a hostile bid, and also give shareholders who have owned shares for more than four years a double vote LVMH Responds What’s Next? • Bernard Arnault, CEO of LVMH, has repeatedly stated that he wishes only to be a long term shareholder and his actions are not malicious • He stated that he hoped the acquisition of Bulgari, an Italian watchmaker, would show strength of potential partnership • Believes he can greatly boost Hermes’s profitability under his roof • Size of stake has executives at Hermes concerned, despite talks of peaceful intentions • Hermes CEO PatrickThomas said that the push against control is a cultural fight, not a financial one • Luca Solco, Bernstein Research – “Hermes is afraid LVMH would trivialize the brand and introduce cheaper products” • Arnault is said to admire Hermes and wants to acquire them so that a competitor doesn't • Has a history of takeovers with companies in turmoil, like Chateau d’Yquem (dessert wines) and Boussac (furnishings) Sources: Bloomberg, Harvard Case Packet
  5. 5. Industry Dynamics
  6. 6. 6Global Case Competition at Harvard – LVMH M&A Luxury Goods Industry Highlights Business Segments Industry Overview • Highly concentrated industry with 48.1% of the market controlled by the top 10 companies • Historically outperforms the market as a whole, but saw single digit growth for the first time in 3 years in 2013 at 2.4% down from 10.4% in 2012 • GenerationY individuals and Millennials increasing luxury goods purchases • Reporting revenues largely dependent on currency fluctuations and discretionary income Luxury Goods Companies by Sales Rank Company Country of Origin Sales (US$m) Profit Margin ROA Sales CAGR 1 LMVH France $23,297 19.90% 11.40% 3.50% 2 CF Richemont SA Switzerland 13,217 12.80% 6.50% 4.00% 3 Estee Lauder Inc. United States 10,780 10.10% 13.30% 2.90% 4 Luxottica Group SpA Italy 10,172 8.40% 6.70% 3.90% 5 The Swatch Group Switzerland 9,223 16.30% 11.10% 5.90% 6 Kering SA France 8,984 5.50% 2.30% 4.30% 7 Chow Tai Fook Hong Kong 8,285 8.60% 9.10% 5.70% 8 L'Oreal Luxe France 8,239 15.00% 19.10% 5.50% 9 Ralph Lauren United States 7,620 9.20% 11.50% 4.70% 10 PVH Corp. United States 6,441 5.30% 4.00% 21.40% CAGR 5.7% Fashion & Leather Goods Wine & Spirits Perfumes & Cosmetics Selective Retail CAGR 0.8% CAGR 11.3% CAGR 5.0% Watches & Jewelry *New Segment Sources: Bain, Bloomberg, Deloitte, EY
  7. 7. 7Global Case Competition at Harvard – LVMH M&A 6.50% 7.00% 7.50% 8.00% 8.50% 9.00% 9.50% 10.00% 10.50% 11.00% 11.50% 12.00% 0.00% 2.00% 4.00% 6.00% WACC LTGR Tumi Chow Tai Fook Salvatore Ferragamo Kering LVMH Hermes Moncler Luxottica Luxury Goods IndustryTrends and Drivers NotableTrends and Influences • Ubiquity v. Exclusivity – Luxury brand reluctance to sell products online conflict with need to deliver efficient shopping experience • Omnichannel – Internet is radically altering customer purchase path • Tourism’s Boost on Sales – Industry depends on tourism for nearly half of sales • Custom Product Initiatives – Customization allows companies opportunity to retain exclusivity while still broadening client base M&A Drivers WACC & LTGR by Luxury Company • Globalization – Growing population of wealthy and upper middle class in emerging markets pushes companies to increase international presence • Value Chain Integration – Successful value chains are desirable targets to help ensure brand-appropriate quality control • Consolidation as a Growth Strategy – Mature brands like LVMH too to use expertise and large scale to build smaller brands, leveraging production facilities and operating systems to achieve greater market share and cost efficiencies Luxury Companies Market Capitalization (in Euro) WACC Beta LTGR LVMH €65,304 9.00% 1.01 2.30% Richemont 39,688 9.00% 1.21 3.10% Hermes 24,528 8.30% 0.72 3.60% Luxottica 18,865 7.60% 0.5 3.10% Kering 18,000 9.60% 0.96 2.60% Prada 13,657 8.70% 0.83 2.70% Chow Tai Fook 12,268 10.50% 1.17 3.60% Salvatore Ferragamo 3,657 9.50% 0.66 3.10% Moncler 3,217 8.30% 1.01 3.20% Tumi 1,139 10.40% 1.64 5.4%* Average 9.15% 0.96 3.05% Median 9.20% 1.01 3.10% Richemont Prada Sources: Bloomberg, Deloitte, EY
  8. 8. 8Global Case Competition at Harvard – LVMH M&A Luxury Goods Industry Macroeconomic Trends Travel Retail Sales Growth • MarketValue $63.5B in 2014 and estimated to grow to $85B by 2020 with a CAGR of 8.4% • Asia-Pacific region represents largest share of the travel retail market at 38.6%, followed by Europe at 32.2% • 58% of purchases are made in airports, 5 of 7 airports boasting sales greater than $1B are located within APAC Asia-Pacific Market Potential Compound Annual Growth by Region • Market potential in emerging markets in Asia and the Middle East due to tourism and growing middle class in China • Japan among top most appealing markets due to increased local and touristic consumption of luxury goods • Increase in travel to and from APAC due to democratization of travel and budget airline booms Shanghai (PVG) Hong Kong (HKG) London (LHR) Dubai (DXB) Singapore (SIN) Bangkok (BKK) 1 2 Seoul (ICN) 4 5 6 3 7 London (LHR) Dubai (DXB) Singapore (SIN) Bangkok (BKK) 0.0% 1.0% 2.0% 3.0% 4.0% 5.0% 6.0% 7.0% Middle East & Africa Asia Latin America North America Eastern Europe Australia Western Europe CAGR Sources: Coresight Research, Deloitte, Generation Research
  9. 9. 9Global Case Competition at Harvard – LVMH M&A Luxury Goods Historical Industry EV/EBITDA - - 2.0x 4.0x 6.0x 8.0x 10.0x 12.0x 14.0x 16.0x 2006 2007 2008 2009 2010 2011 2012 2013 2014 Commentary Average: 10.2x • Industry average EV/EBITDA multiples are composed of the luxury goods peer set, included in the peer set are Hermes, LVMH, Moncler, Christian Dior, Burberry, Prada, Richemont, Luxottica, Kering, Salvatore Ferragamo andTumi • The luxury goods industry multiples have seen multiple expansion since the 2008 financial crisis • Industry average EV/EBITDA multiples have continued to rise at a steady state since 2012 Sources: Bloomberg
  10. 10. Company Overview
  11. 11. 11Global Case Competition at Harvard – LVMH M&A LVMH Company Analysis 5Year Price Movements Strategic Focus • Major player in all five industry segments: • Wine & Spirits (Dom Pérignon) • Fashion & Leather Goods (Givenchy) • Perfumes & Cosmetics (Dior) • Watches & Jewellery (Hublot) • Selective Retailing (Sephora) • LVMH drives growth in new and emerging markets primarily through acquisitions • Main core of consumers reside in the high income segment (higher level of purchasing power) History Synergistic Impact • Founded in 1987 through a merger between Moët Hennessy and LouisVuitton • Combined legacy of both brands stretches as far back as 1593 • Mission is to drive innovation in the luxury goods space through elegance and creativity • Managed since 1989 by Bernard Arnault • Stock value has increased over 1000% since the genesis of his work with LVMH • Diversified portfolio of luxury goods allows for significant technology transfer between companies • Implementation of historically effective operational strategies • Major marketing power and widespread branding influence through three main avenues: • Press and television advertisement • Catwalk • Presence in events Sources: Bloomberg, LVMH 10-K €40 €50 €60 €70 €80 €90 €100 €110 €120 €130 €140 Link to financial statements
  12. 12. 12Global Case Competition at Harvard – LVMH M&A LVMHValuation Implied EnterpriseValue of $94,213 M Sources: Bloomberg, LVMH 10-K, Team Projections $70,000.00 $95,000.00 $120,000.00 DCF EBITDA Exit Multiple DCF Perpetuity Growth 2014 EV/EBITDA Comparables 2014 EV/Revenue Comparables 2013 EV/EBITDA Prescedents Link to valuation methodologies
  13. 13. 13Global Case Competition at Harvard – LVMH M&A S W O T LVMH SWOT Analysis Strengths Opportunities Weaknesses Threats • Expansion of holdings to cover new regions and markets • Consistent sourcing of creative and visionary talent • Cross branding between holdings • Increased presence in online retailing • Specific geographic trends • Too much focus on powerhouse brands • Global currency fluctuation • Brand deterioration • Over focus on a specific consumer markets • Prestigious brand known worldwide • Diverse brand portfolio stretching across multiple industries • Ability to share operational resources across brands and companies • Celebrity marketing and approval • Low cost imitations • Intense competition among other luxury brands • Global economic and political climates • Acquisitions among major competitors Sources: Bloomberg, LVMH 10-K, Team ProjectionsLink to acquisition success
  14. 14. Hermes Due Diligence
  15. 15. 15Global Case Competition at Harvard – LVMH M&A Hermes Company Analysis 5Year Price Movements Strategic Focus • Hermes has been a dominant player in the luxury goods space, choosing time and time again to emphasize quality of product over mass production • Stuck to core businesses while repulsing attempts to stuff additional brands under the same label • Willing to sacrifice potential growth for the sustained legacy of their offerings • Core pillars for FY14 are continued operational expertise, expansions in distribution towards new markets, and realistic increases in production capacity History Serious Resistance • Hermes began in 1837 as a harness maker, evolved into saddles, and then in 1920 introduced accessories and wider range of leather goods • 85% of products sold in stores are made by the 3,500 craftworkers under employ • Products are sold in 313 exclusive stores and 21 worldwide outlets • Beginning a pronounced shift into home furnishings - new Paris store built as a destination to experience luxury, not just shop • Hermes family shareholders (Puechs, Guerrands, and Dumases) hold about 73.4% of shares • Hermes shareholders at large have indicated interest in selling their positions, given significant interest and suitable compensation • Many indexes have dropped their Hermes shares due to a lack of liquidity – could spur selloffs in remaining shares • Fear of destabilization from LVMH stake may tip the scales for many investors Sources: Bloomberg, RMS 10-K €50 €100 €150 €200 €250 €300 Link to financial statements
  16. 16. 16Global Case Competition at Harvard – LVMH M&A Hermes Strategy Impactful Synergies LVMH ROI • Pricing power would be highly beneficial to this merger - as two of the largest players in the luxury goods market, they will be able to create more brand awareness • Expansion in the emerging markets is very important to the future of luxury goods • With a combined company, research and analysis will be much simpler and less expensive • The combined entity will have more bargaining power and more experience with streamlining costs and improving production and distribution • This is an opportune time for LVMH to sell their stake in Hermes and earn a significant return that they can put to use in acquiring a smaller company that will offer them ideal synergies Overvalued Bad Blood • Hermes is overvalued compared to their peers as of 06/30/2014 • 2014E P/E: RMS 33.7x vs. Peers 22.9x • 2014E EV/EBITDA: RMS 19.6x vs. Peers 13.3x • This merger would not make sense at this point in time because Hermes is overvalued • We recommend LVMH selling their shares and looking into different acquisitions that are fairly priced and will add value for LVMH shareholders in the years to come • From the beginning there has been noticeable hostility between the two parties over LVMH’s acquisition methods • This will only continue to get worse as Hermes continues to launch lawsuits against LVMH • Emotions from both sides could cause skewed judgement in the takeover process and lead to serious gridlock • Mr. Arnault has continue to acquire smaller brands and build them into well known brands under the LVMH umbrella while maintaining stellar profit margins Sources: Bloomberg, RMS 10-K 2010 2014 ROI $2,019 $6,238 209.0% 2014 2018 IRR $27,383 $38,054 9% Hostile Takeover Sell Stake Equity Value Equity Value Link to investor returns
  17. 17. 17Global Case Competition at Harvard – LVMH M&A Hermes Valuation Implied EquityValue of $27,383 M $15,000 $20,000 $25,000 $30,000 $35,000 2014 Revenue Comparables 2014 EBITDA Comparables 2014 Net Earnings 2013 EBITDA Precedents EBITDA Exit Multiple Method Sources: Bloomberg, RMS 10-K, Team Projections
  18. 18. 18Global Case Competition at Harvard – LVMH M&A Hermes Discounted Cash Flow Analysis Unlevered Free Cash Flow Calculation WACC Calculation DCF Implied EquityValue DCF Sensitivity Analysis $32,316$29,536$27,280 $31,258$30,490$29,722 Perpetuity Growth Implied EquityValue EBITDA Exit Multiple Implied EquityValue Bear Base Bull Capital Structure Debt 0.09% Equity 99.91% Beta 0.70 Equity Risk Premium 6.27% Risk Free Rate 2.89% Cost of Equity 7.28% Pre-Tax Cost of Debt 1.23% Corporate Tax Rate 33.27% Cost of Debt 0.82% WACC 7.27% WACC Calculation *Dollars in Millions Sources: Bloomberg, RMS 10-K, Team Projections Discounted Cash Flow Analysis 2014E 2015E 2016E 2017E 2018E Revenue $5,547 $6,154 $6,776 $7,352 $7,889 Less: Operating Expenses 3,772 4,185 4,607 5,000 5,364 Operating Income $1,775 $1,969 $2,168 $2,353 $2,524 Tax Effect 591 655 721 783 840 NOPAT $1,185 $1,314 $1,447 $1,570 $1,685 Plus: D&A 144 160 176 191 205 Change in Working Capital 53 (42) (43) (40) (37) Less: CapEx (233) (258) (285) (309) (331) Unlevered Free Cash Flow $1,149 $1,174 $1,296 $1,413 $1,521 30,490.0 12.0x 12.2x 12.4x 12.6x 12.8x 6.3% $30,977 $31,380 $31,782 $32,184 $32,586 6.8% $30,341 $30,734 $31,127 $31,520 $31,913 7.3% $29,722 $30,106 $30,490 $30,874 $31,258 7.8% $29,120 $29,495 $29,870 $30,245 $30,620 8.3% $28,534 $28,900 $29,267 $29,633 $30,000 Exit Multiple WACC 29,535.5 2.0% 2.3% 2.5% 2.8% 3.0% 6.3% $33,434 $35,145 $37,081 $39,289 $41,832 6.8% $30,036 $31,375 $32,869 $34,547 $36,447 7.3% $27,280 $28,352 $29,536 $30,849 $32,316 7.8% $25,000 $25,875 $26,832 $27,884 $29,046 8.3% $23,083 $23,808 $24,596 $25,455 $26,395 Perpetuity Growth WACC
  19. 19. 19Global Case Competition at Harvard – LVMH M&A Hermes PrecedentTransactions EBITDA Margin TV/LTM EBITDA Valuation Commentary Implied EquityValue • Based off recent M&A activity we derived an implied equity value for Hermes between $27,369 - $30,175 M • The averageTV/EBITDA multiple was used to generate the bull case for the equity value of Hermes • Equity value was calculated by finding enterprise value and then subtracting net debt • The average transaction value is $1,612 million • The average LTM EDITDA is $99 million • The average LTM revenue is $567 million - - 5.0x 10.0x 15.0x 20.0x 25.0x 30.0x Loro Piana SpA Handsome Co. Volcom HUGO BOSS Heilan Home Garmet Camaieu International RMS 2013 EBITDA $1,753 EV/ EBITDA Multiple 14.1x ---------------- 16.1x Enterprise Value $24,723 ---------------- $28,230 Implied Equity Value $26,142 ---------------- $27,895 - - 5.0% 10.0% 15.0% 20.0% 25.0% Heilan Home Garmet Camaieu International Loro Piana SpA Handsome Co. HUGO BOSS Volcom Average: 16.1xAverage: 18.1% Sources: Bloomberg, RMS 10-K, Team Projections
  20. 20. 20Global Case Competition at Harvard – LVMH M&A Hermes Comparable Companies Analysis 2014E EnterpriseValue/Revenue 2014 E EnterpriseValue/EBITDA 2014 E Price/Earnings Valuation Commentary • Hermes is overvalued compared to their peers based on relative industry multiples • LVMH would be poorly advised to purchase Hermes at this point in time due to their overvaluation compared to their peers • The majority of Hermes equity is owned by family members and is currently in a holding company • This would cause the acquisition of Hermes to be quite pricey as LVMH would have to pay a premium for each share Average: 3.5x Average: 13.3x Average: 22.9x Sources: Bloomberg, RMS 10-K, Team Projections - - 1.0x 2.0x 3.0x 4.0x 5.0x 6.0x 7.0x 8.0x Hermes Michael Kors Prada Tiffany & Co. Hugo Boss Salvatore Ferragamo Burberry Kerig - - 5.0x 10.0x 15.0x 20.0x 25.0x Hermes Michael Kors Tiffany & Co. Salvatore Ferragamo Hugo Boss Kerig Prada Burberry - - 5.0x 10.0x 15.0x 20.0x 25.0x 30.0x 35.0x 40.0x Hermes Michael Kors Tiffany & Co. Salvatore Ferragamo Burberry Prada Hugo Boss Kerig
  21. 21. 21Global Case Competition at Harvard – LVMH M&A S W O T Hermes SWOT Analysis Strengths Opportunities Weaknesses Threats • Strong brand name and global presence • Markets their products across the world in 315 exclusive stores, 200+ of which are directly operated • Large portfolio of products allows for quick pivots alongside emerging trends • Long term relationships with suppliers allow for expedited distribution processes • Limited ecommerce presence with high up-front costs • Replenishment of quality raw materials can be costly • High exposure to Asian currency fluctuations • Utilize LVMH’s extensive resources to build a burgeoning ecommerce platform to compete with direct competitors • Expand brand presence in emerging countries • Growing distribution network into new locations and markets • Intense competition in the luxury goods industry • Widespread online sales due to ecommerce that could harm retailer stores • Sensitive to large-scale economic shifts outside of company control Sources: Bloomberg, RMS 10-K, Team Projections
  22. 22. 22Global Case Competition at Harvard – LVMH M&A LVMH would have to pay a hefty premium to acquire shares from the family Management ego would cause discrepancies in acquisition talks LVMH would be overpaying for Hermes at their current valuation Hermes KeyTakeaways Why Hermes is not the Answer Sources: Bloomberg, RMS 10-K, Team Projections
  23. 23. Alternative Investments
  24. 24. 24Global Case Competition at Harvard – LVMH M&A Moncler as a Potential Target 1. Moncler offers long term value to the LVMH brand with strong revenue growths ❖ Moncler has enjoyed solid revenue growth (CAGR 2007-12) of 35% ❖ Double-digit growth performance was recorded in all international markets for 2013 providing strong evidence for international sales in the future ❖ 31.3% of Sales from Asia and other emerging markets 2. Moncler shows promise for new market and product line expansion ❖ During 2013 there were 24 directly operated stores opened in diverse market places such as Paris, Milan, Shanghai and Hong Kong, allowing for increased global market share ❖ Expansion into new product markets such as knitwear and handbags provides confidence for brand growth in the specialty apparel industry 3. Commitment to sustainability in line with LVMH goals and values ❖ Moncler directly purchases the sustainable high quality raw materials used in its garments, and uses independent third parties to audit sustainability measures pursuant to a corporate Sustainability Plan 4. Synergistic Benefits: Cost Reduction and Brand Outreach ❖ Combined fur, leather, and down supply chains for overall reduced costs ❖ Moncler US-based marketing initiatives would increase brand awareness for LVMH in the United States 5. Brand alliance and LVMH mentorship ❖ Moncler is looking to increase retail sales to become more in line with top luxury goods companies, something LVMH could help achieve Sources: Bloomberg, MONC 10-K, Team Projections
  25. 25. 25Global Case Competition at Harvard – LVMH M&A €0 €200 €400 €600 €800 €1,000 2010 2011 2012 2013 2014 2015 2016 Retail Wholesale About Moncler Company Overview Sales Breakdown by Distribution Brand: Moncler’s brand merges high fashion and high performance using top quality sustainable materials Business Segment Focus: Apparel & Accessories Products: High-end down outerwear, shoes, bags and suitcases, hats, scarves, gloves, eyewear, and other specialty goods Highlights: Excellent Operating Margin (28.7%) and EBITDA Margin (32.0%), High CAGR 2007-12 of 35% Est. 1952 in France. Began by producing quilted sleeping bags, a single model of a lined hooded cape and tents In 1954 Moncler developed the first down jackets protecting wearers, including those on the Italian expedition to K2, from the harshest of climates By 1968 Moncler was chosen as the official supplier for the French down hill ski team in the Winter Olympics allowing the company to gain a worldwide following The 1980’s brought heightened change in the duvet jacket industry including fur trim, satin and reversible fabrics. In 2003 Moncler was acquired by Italian entrepreneur and fashion visionary Remo Ruffini By 2009 Ruffini transforms Moncler into a staple of French fashion staple with the launch of the Gamme Rouge and Gamme Blue collections In 2010 Moncler revitalized its down jacket beginnings with an urban contemporary take On December 16th 2013 Moncler went public on the Borsa Italiana at $13. 85 per share Sources: Bloomberg, MONC 10-K, Team ProjectionsLink to financial statements
  26. 26. 26Global Case Competition at Harvard – LVMH M&A Moncler Valuation Implied EnterpriseValue of $2,991 M $2,000 $2,500 $3,000 $3,500 DCF EBITDA Exit Multiple DCF Perpetuity Growth 2014 EBITDA Comparables 2013 EBITDA Prescedents Sources: Bloomberg, MONC 10-K, Team ProjectionsLink to valuation methodologies
  27. 27. 27Global Case Competition at Harvard – LVMH M&A - - 5.0x 10.0x 15.0x 20.0x Volcom HUGO BOSS Jones Group Inc J Crew Group True Religion Apparel The Gymboree Pacific Brands Fiberweb Moncler Market Based Multiples Analyses TransactionValue/TTM EBITDA 2014 E EnterpriseValue/EBITDA - - 2.0x 4.0x 6.0x 8.0x 10.0x 12.0x 14.0x 16.0x LLP Ted Baker Hugo Boss CCC Sports Direct International Moncler Next Plc Superdry JD Sports Fashion 2014 E EBITDA Margin KeyTakeaways • Moncler is fairly valued in terms of Enterprise Value/EBITDA and is twice as efficient compared to their peers in terms of deriving earnings • Moncler is comparable to Hermes is terms of their high EBITDA margins and would be an excellent addition to LVMH’s portfolio • From a transaction value perspective Moncler could be acquired for 11.8x to 13.8xTTM EBITDA Average: 9.6x Average: 10.6x Sources: Bloomberg, MONC 10-K, Team Projections - - 5.0% 10.0% 15.0% 20.0% 25.0% 30.0% 35.0% Moncler Hugo Boss Next Plc Superdry LLP Ted Baker CCC Sports Direct International JD Sports Fashion Average: 17.0%
  28. 28. 28Global Case Competition at Harvard – LVMH M&A S W O T Moncler SWOT Analysis Strengths Opportunities Weaknesses Threats • Iconic down jackets with strong heritage • High margins, solid returns and robust FCF generation • Experienced management team led by Remo Ruffini • Increasing control on product offerings and distribution • High degree of seasonality • High exposure to mature markets in Italy and Japan • Outsourced production to third party limits control on manufacturing • Inherent forecasting risk • Further expansion of directly operated retail stores • Tapping into neighboring product categories such as knitwear, scarves, gloves and casual shoe wear • Strengthening of global reach • Low barriers to entry in the apparel & outerwear product category • Competition for access to good storefront real estate • New entrants at competitive pricing and quality offer Sources: Bloomberg, MONC 10-K, Team Projections
  29. 29. 29Global Case Competition at Harvard – LVMH M&A Moncler KeyTakeaways Sources: Bloomberg, MONC 10-K, Team Projections Why invest in Moncler Strong revenue growth in international markets provides LVMH with an opportunity to capitalize on emerging markets LVMH’s years of experience in the luxury goods market will provide Moncler with attentive navigation necessary to complete product line expansion Integrated fur, leather, and down supply chains resulting in cost reduction and higher quality controls
  30. 30. Alternative Investments
  31. 31. 31Global Case Competition at Harvard – LVMH M&A Tumi as a Potential Target 1. Dominant travel retail presence with planned expansion into airports ❖ Tumi has over 1,000 international distribution points and plans to expand retail locations into 50 airports worldwide allowing it to increase sales growth among global travelers 2. Omnichannel distribution and product customization reinforce customer satisfaction ❖ Tumi’s omnichannel distribution combines e-commerce and brick and mortar retail to allow customers the ability to personalize their shopping experience as well as their products ❖ ATumi acquisition could provide LVMH with an opportunity to utilize ecommerce and online shopping platforms while maintaining brand exclusivity with customization possibilities 3. Tumi consistently shows strong revenue growths, CAGR, and economic resilience ❖ From 2005 to 2013 Tumi has achieved a healthy CAGR of 14% in net sales and 17% in operating income ❖ Growth rates remained consistent despite negative headwinds from an economic downturn 4. Product quality and customer satisfaction drivesTumi above its competitors ❖ Extensive product testing and innovation allows Tumi to stay at the forefront of the luxury travel space ❖ Tumi ranks #1 among its peers for customer advocacy – nearly every customer said they would recommend the brand 5. LVMH mentorship allowsTumi to proceed with confidence ❖ With nearly 30 years of experience in the luxury goods market LVMH has the knowledge to and resources to support product line expansion for Tumi ❖ LVMH’s mentorship would allow Tumi to focus on quarterly earnings instead of a full year focus as it currently does Sources: Bloomberg, TUMI 10-K, Team Projections, Reuters
  32. 32. 32Global Case Competition at Harvard – LVMH M&A Sources: Bloomberg, Generation Research, Tumi 10-K AboutTumi Company Overview Omnichannel Innovation Brand:Tumi offers global lifestyle products comprising both travel and business accessories Business Segment Focus: Luggage & Accessories Products: Luggage, backpacks, briefcases, handbags, wallets, and travel accessories Highlights: Strong compound annual growth of 14% in Net Sales and 17% in Operating Income, Ranked #1 among peers for customer advocacy, Pioneer in ecommerce sales 5 Core Principles: excellence in design, functional superiority, technical innovation, unparalleled quality and world-class customer service Travel Retail HistoricalTravel Retail Sales • Over 1,000 international distribution locations • Looking to expand square footage domestically and internationally – slated to grow to 200 stores in the US and 100 in Europe over the next several years • Plans to open stores in at least 50 airports in the U.S. alone in the coming years Online In-Store Customer Service • Tumi utilizes multiple resources to allow each customer to develop their own unique purchase experience • An omnichannel increases brand accessibility without diminishing brand image $0 $10,000 $20,000 $30,000 $40,000 $50,000 $60,000 $70,000 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 ($inMillions) Link to financial statements
  33. 33. 33Global Case Competition at Harvard – LVMH M&A Tumi Acquisition Highlights Synergistic Benefits & Opportunities Strategic Focus • Tumi has established brand-loyal individuals and repeat purchasers. LVMH could take advantage of already established brand loyalty and further increase brand awareness. • Management has focused almost exclusively on hitting yearly earnings – leaving quarterly breakdowns particularly lumpy and unattractive to investors.With LVMH guidanceTumi could produce more consistent results driving up their share price • LVMH could utilizeTumi’s dominance in ecommerce and omnichannel distribution to stay at the front of innovation in the luxury goods industry • Diversification of brand offerings is key – 77% of current retail products are not luggage • Mid single digit growth numbers in adjacent products leaves significant room for explosive expansion in the next 4-6 quarters • Gaining relevance in differentiated product offerings – women’s, accessories, outerwear • Extensive product testing and innovation allowsTumi to stay at the forefront of the luxury travel space • Share price is down 23.8% over the past 12 months, making available shares particularly liquid • Lower Price/Earnings multiple does not account for impressive long term growth expectations • Scheduled product launches remaining during FY14 - Tegra Max, Sinclair totes, and Alpha 2 relaunch - are projected to drive consumer interest • AUR from these new releases expected to propel Average Unit Retail levels up 4-5% Future Potential Currently Undervalued • Needs to continue to improve brand awareness – currently at 55% vs. 80% for leading comparable companies • Penetration into new markets could be considerably eased by the immense resources and marketing platforms held by LVMH • Currently facing serious margin dilution from ecommerce sales that can be mitigated by bringing those operations in-house • Eliminates 20% operator fee currently being paid to GSI Commerce • LVMH could help fosterTumi’s desired product line expansions into women’s, accessories, outerwear Sources: Bloomberg, TUMI 10-K, Team Projections
  34. 34. 34Global Case Competition at Harvard – LVMH M&A Tumi Valuation Implied EnterpriseValue of $1,372 M $750 $1,000 $1,250 $1,500 $1,750 $2,000 2014 Revenue Comparables 2014 EBITDA Comparables 2014 Net Earnings Comparables 2013 Revenue Precedents 2013 EBITDA Precedents EBITDA Exit Multiple Method Sources: Bloomberg, TUMI 10-K, Team ProjectionsLink to valuation methodologies
  35. 35. 35Global Case Competition at Harvard – LVMH M&A Tumi Market Based Multiples Analyses 2014 E EnterpriseValue/Revenue 2014 E EnterpriseValue/EBITDA TransactionValue/TTM EBITDA KeyTakeaways - - 1.0x 2.0x 3.0x 4.0x 5.0x 6.0x 7.0x 8.0x Hermes International Micahel Kors Hugo Boss Salvatore Ferragamo Tumi Kerig Samsonite International - - 5.0x 10.0x 15.0x 20.0x 25.0x Hermes International Micahel Kors Salvatore Ferragamo Tumi Hugo Boss Kerig Samsonite International Average: 3.8x Average: 14.5x Sources: Bloomberg, TUMI 10-K, Team Projections • Tumi is undervalued relative to peers in terms of Enterprise Value/EBITDA and Enterprise Value/Revenue • LVMH can acquireTumi for a discount and assist them in growing to peer group averages • From a transaction value perspectiveTumi could be acquired for 14.1x to 16.1x TTM EBITDA - - 5.0x 10.0x 15.0x 20.0x 25.0x 30.0x Loro Piana SpA Handsome Co. Volcom HUGO BOSS Heilan Home Garmet Camaieu International Average: 16.1x
  36. 36. 36Global Case Competition at Harvard – LVMH M&A S W O T Tumi SWOT Analysis Strengths Opportunities Weaknesses Threats • Premium quality construction and materials drive lasting customer brand loyalty • Product innovation keeps luxury goods products firmly grounded in future trends • Diverse distribution network enables rapid global expansion • Currently paying high operational fees to GSI Commerce for ecommerce infrastructure • Smaller scale and meager resources putsTumi on an uneven playing field with its larger competitors • Business is sensitive to consumer spending patterns and cyclical macroeconomic conditions • Growing the number of physical locations Tumi owns and operates allows for deeper market penetration • Burgeoning ecommerce operations could be significant bolstered by developing an in-house solution • New product releases, in conjunction with continual improvement of existing brands, offers dynamic top line growth • Stifling competitive landscape, especially within new markets • Continued growth relies will rely heavily on strength of ecommerce to avoid recent volatility with brick-and-mortar sales • Customer retention greatly relies on the strength of the brand – deterioration of quality or service would severely damage bottom line potential Sources: Bloomberg, TUMI 10-K, Team Projections
  37. 37. 37Global Case Competition at Harvard – LVMH M&A Long term growth opportunities currently trading at a discount Travel Retail foothold allows LVMH to take advantage of fastest growing luxury goods market Omnichannel distribution provides opportunity for innovation while preserving brand exclusivity Tumi KeyTakeaways Why Tumi is a valuable target Sources: Bloomberg, TUMI 10-K, Team Projections
  38. 38. Final Thoughts
  39. 39. 39Global Case Competition at Harvard – LVMH M&A FinalThoughts Make Peace with Hermes Alternate Acquisitions • Hermes is overvalued compared to their peers as of 06/30/2014 • 2014E P/E: RMS 33.7x vs. Peers 22.9x • 2014E EV/EBITDA: RMS 19.6x vs. Peers 13.3x • From the beginning there has been bad blood in the way that LVMH acquired stake in Hermes • This can only continue to get worse as Hermes continues to launch lawsuits against LVMH • Emotions from both sides could cause skewed judgement in the takeover process • LVMH is at a crossroads: they have two stellar acquisition targets with stark differences in forthcoming strategy • Reasons for acquiring Moncler: • New customer segments and product line expansion • Expanded brand alliance and brand outreach • Reasons for acquiringTumi: • Allows LVMH to build out emerging selective retailing segment • Significant discount compared to more mature peers despite unprecedented growth rates and customer loyalty $2,000 $2,500 $3,000 $3,500 DCF EBITDA Exit Multiple DCF Perpetuity Growth 2014 EBITDA Comparables 2013 EBITDA Prescedents Sources: Bloomberg, Team Projections MonclerValuation: $2.99 Billion $750 $1,000 $1,250 $1,500 $1,750 $2,000 2014 Revenue Comparables 2014 EBITDA Comparables 2014 Net Earnings Comparables 2013 Revenue Precedents 2013 EBITDA Precedents EBITDA Exit Multiple Method TumiValuation: $1.37 Billion
  40. 40. 40Global Case Competition at Harvard – LVMH M&A LVMH would have to pay a hefty premium to acquire shares from the family Management ego would cause disruption in acquisition talks LVMH would be overpaying for Hermes at their current valuation Why Hermes is not the Answer Diverging Paths with Lucrative Endings Moncler’s global strength Long term expansion goals Proven marketing power Need for more diverse offerings Tumi’s strategic storefronts Interior design experience Burgeoning selective retailing segment Need for transitional products Sources: Bloomberg, Team Projections
  41. 41. Appendix
  42. 42. 42Global Case Competition at Harvard – LVMH M&A 12% 19% 20% 75% 0% 10% 20% 30% 40% 50% 60% 70% 80% Glenmorangie Bulgari Tag Heuer Loro Piana EnterpriseValueCAGR Successful Growth in Acquisitions Commentary Average: 31% • LVMH has been successful in growing the enterprise value of companies they have acquired in the past • One can believe that LVMH will have similar success with companies acquired in the future such as Moncler and/orTumi Sources: Bloomberg
  43. 43. LVMH Valuation
  44. 44. 44Global Case Competition at Harvard – LVMH M&A LVMH Comparable Companies Analysis Valuation Commentary Implied EnterpriseValue • Lower quartile EV/EBITDA multiple was used to generate the bull case • Lower quartile EV/Revenue multiple was used to generate the bull case • LVMH is undervalued relative to peer group averages • This undervaluation can be a result of a large enterprise value and stable future growth Sources: Bloomberg, MONC 10-K, Team Projections LVMH 2014E Revenue $41,240 EV/Revenue Multiple 2.1x ---------------- 2.3x Enterprise Value $88,467 ----------------$96,115 LVMH 2014E EBITDA $10,558 EV/EBITDA Multiple 8.8x ---------------- 9.8x Enterprise Value $92,906 ----------------$103,551 Market Enterprise Cap. Value 2014E 2015E 2014E 2015E 2014E 2015E 2014E 2015E Christian Dior $31,486 $42,416 24.9% 24.0% 4.1x 4.2x 1.0x 1.0x 15.1x 10.0x Kering 27,591 33,174 19.8% 17.8% 12.5x 14.5x 2.5x 2.6x 18.0x 25.7x Hermes International 39,025 37,331 35.7% 36.0% 19.1x 19.3x 6.8x 6.9x 33.2x 35.3x Prada 18,125 17,722 31.9% 26.9% 11.6x 14.2x 3.7x 3.8x 21.5x 30.8x Salvatore Ferragamo 5,041 5,096 22.1% 22.8% 13.0x 14.1x 2.9x 3.2x 24.1x 26.3x Compagnie Financiere Richemont 58,098 51,676 28.6% 28.4% 13.4x 13.8x 3.8x 3.9x 21.1x 40.6x Hugo Boss 10,210 10,235 24.1% 21.8% 12.4x 15.1x 3.0x 3.3x 20.9x 27.5x Burberry 11,465 10,794 25.5% 23.2% 11.4x 11.4x 2.9x 2.7x 22.0x 21.3x Tapestry 9,664 8,935 37.2% 23.4% 5.0x 9.1x 1.9x 2.1x 11.1x 17.9x Luxottica Group 26,783 28,009 20.3% 21.5% 13.5x 13.0x 2.7x 2.8x 30.1x 28.6x Average $23,749 $24,539 27.0% 24.6% 11.6x 12.9x 3.1x 3.2x 21.7x 26.4x Median 22,454 22,865 25.2% 23.3% 12.5x 13.9x 2.9x 3.0x 21.3x 26.9x LVMH $87,430 $88,467 25.6% 25.6% 8.4x 7.8x 2.1x 2.0x 17.7x 16.5x Company Name EBITDA Margin Price/EarningsEnterprise Value/EBITDA Enterprise Value/Revenue
  45. 45. 45Global Case Competition at Harvard – LVMH M&A LVMH PrecedentTransactions Analysis Valuation Commentary Implied EnterpriseValue • The averageTV/EBITDA multiple was used to generate the bull case for the enterprise value of LVMH • LVMH is difficult to value by looking at recent M&A activity because many of the companies acquired are significantly smaller in terms of enterprise value to LVMH Transaction EBITDA Value Margin EBITDA Revenue EBITDA Revenue Jones Group Inc Sycamore Partners 19-Dec-13 $2,199 6.5% $245 $3,765 9.0x 0.6x Pacific Brands Hanesbrands 13-Jan-12 365 13.5% 58 430 6.3x 0.8x Camaieu International Cinven Ltd 29-Mar-11 546 21.5% 69 323 7.9x 1.7x True Religion Apparel TowerBrook Capital Partners 10-May-13 635 16.1% 78 481 8.2x 1.3x Volcom Kering 24-Jun-11 512 9.9% 33 332 15.6x 1.5x Maidenform Brands Hanesbrands 1-Oct-13 572 7.4% 42 561 13.7x 1.0x Handsome Co. Hyundai Home Shopping Network 16-Feb-12 365 19.1% 22 117 16.4x 3.1x Fiberweb AVINTIV Specialty Materials 18-Nov-13 278 9.5% 45 470 6.2x 0.6x HUGO BOSS Permira Holdings 7-Sep-07 3,695 15.3% 239 1,566 15.5x 2.4x Heilan Home Garmet Heilan Home 17-Mar-14 1,980 23.3% 136 582 14.6x 3.4x The Gymboree Bain Capital 24-Nov-10 1,673 20.7% 216 1,046 7.7x 1.6x Jos A Bank Clothiers Tailored Brands 26-Nov-13 1,486 12.9% 133 1,032 11.2x 1.4x rue21 Apax Partners 11-Oct-13 934 11.0% 102 925 9.2x 1.0x Link Theory Holdings Fast Retailing 12-Mar-09 364 7.5% 38 513 9.5x 0.7x J Crew Group Leonard Green & Partners 7-Mar-11 2,637 18.4% 316 1,712 8.4x 1.5x Average $1,216 14.2% $118 $924 10.6x 1.5x Median 635 13.5% 78 561 9.2x 1.4x LVMH 25.6% $9,888 $38,542 Target Company LTM Transaction Value Acquirer Date LVMH 2013E EBITDA $9,888 EV/EBITDA Multiple 9.6x ---------------- 10.6x Enterprise Value $94,925 ----------------$105,014 Sources: Bloomberg, MONC 10-K, Team Projections
  46. 46. 46Global Case Competition at Harvard – LVMH M&A LVMH Discounted Cash Flow Analysis Unlevered Free Cash Flow Calculation WACC Calculation DCF Implied EnterpriseValue DCF Sensitivity Analysis $90,269$87,650$85,216 $97,208$92,832$88,457 Perpetuity Growth Implied Enterprise Value EBITDA Exit Multiple Implied Enterprise Value Bear Base Bull *Dollars in Millions Sources: Bloomberg, MONC 10-K, Team Projections Discounted Cash Flow Analysis 2014 E 2015 E 2016 E 2017 E 2018 E Revenue $41,240 $44,127 $47,216 $50,521 $54,058 Less: Operating Expenses 32,827 35,125 37,584 40,215 43,030 Operating Income $8,413 $9,002 $9,632 $10,306 $11,028 Tax Effect 2,587 2,768 2,962 3,170 3,391 NOPAT $5,826 $6,234 $6,670 $7,137 $7,636 Plus: D&A 2,144 2,295 2,455 2,627 2,811 Change in Working Capital (584) (333) (606) (648) (693) Less: CapEx (2,227) (2,383) (2,550) (2,728) (2,919) Unlevered Free Cash Flow $5,159 $5,812 $5,970 $6,388 $6,835 Capital Structure Debt 12.22% Equity 87.78% Beta 0.99 Equity Risk Premium 10.12% Risk Free Rate 0.83% Cost of Equity 10.85% Pre-Tax Cost of Debt 0.91% Corporate Tax Rate 30.75% Cost of Debt 0.63% WACC 9.60% WACC Calculation 87,650.7 2.5% 2.6% 2.8% 2.9% 3.0% 8.6% $99,485 $101,170 $102,927 $104,761 $106,677 9.1% $91,812 $93,224 $94,690 $96,216 $97,804 9.6% $85,216 $86,411 $87,650 $88,935 $90,269 10.1% $79,503 $80,526 $81,584 $82,679 $83,813 10.6% $74,491 $75,374 $76,286 $77,228 $78,201 Perpetuity Growth WACC 92,832.7 7.5x 7.8x 8.0x 8.3x 8.5x 8.6% $92,162 $94,452 $96,743 $99,033 $101,323 9.1% $90,285 $92,523 $94,762 $97,000 $99,238 9.6% $88,457 $90,645 $92,832 $95,020 $97,208 10.1% $86,677 $88,815 $90,953 $93,092 $95,230 10.6% $84,942 $87,033 $89,123 $91,214 $93,304 Exit Multiple WACC
  47. 47. Hermes Investor Returns
  48. 48. 48Global Case Competition at Harvard – LVMH M&A Hermes Investor Returns 2014 2015 2016 2017 2018 Years of Investment 1.0 2.0 3.0 4.0 5.0 EBITDA $1,919 $2,129 $2,344 $2,544 $2,729 x EBITDA Multiple 16.1x 16.1x 16.1x 16.1x 16.1x Enterprise Value $30,901 $34,281 $37,745 $40,957 $43,945 Net Debt ($2,151) ($2,908) ($3,787) ($4,784) ($5,890) Equity Value $28,750 $31,374 $33,958 $36,173 $38,054 Investor Returns
  49. 49. Moncler Valuation
  50. 50. 50Global Case Competition at Harvard – LVMH M&A Moncler Comparable Companies Analysis Valuation Commentary Implied EnterpriseValue • Industry average EV/EBITDA multiple was used to generate the bull case • Moncler is fairly valued compared to industry peers in terms of Enterprise Value/EBITDA • Moncler has significantly better EBITDA margins than industry peers Sources: Bloomberg, MONC 10-K, Team Projections Market Enterprise Cap. Value 2014E 2015E 2014E 2015E 2014E 2015E 2014E 2015E Superdry $1,094 $950 20.1% 18.3% 6.9x 6.7x 1.4x 1.2x 15.8x 14.3x Hugo Boss 10,210 10,235 24.1% 21.8% 12.4x 15.1x 3.0x 3.3x 20.9x 27.5x CCC 1,022 1,140 14.9% 15.7% 12.0x 11.8x 1.8x 1.9x 7.6x 12.9x JD Sports Fashion 1,005 931 9.7% 9.7% 5.1x 3.9x 0.5x 0.4x 10.3x 7.9x Ted Baker 992 1,006 16.1% 16.4% 12.4x 9.7x 2.0x 1.6x 21.3x 16.9x Next Plc 12,694 13,568 23.0% 23.2% 10.1x 8.9x 2.3x 2.1x 14.4x 12.2x LLP 3,565 3,678 16.4% 14.1% 14.8x 19.1x 2.4x 2.7x 23.4x 38.2x Sports Direct International 5,459 5,619 11.7% 11.5% 11.1x 10.8x 1.3x 1.2x 18.6x 15.7x Average $4,505 $4,641 17.0% 16.3% 10.6x 10.7x 1.8x 1.8x 16.5x 18.2x Median 2,330 2,409 16.2% 16.0% 11.5x 10.3x 1.9x 1.7x 17.2x 15.0x Moncler $3,013 $3,189 33.1% 33.1% 10.7x 9.8x 3.5x 3.2x 20.3x 18.2x Price/EarningsEnterprise Value/RevenueEnterprise Value/EBITDAEBITDA Margin Company Name MONC 2014E EBITDA $299 EV/EBITDA Multiple 9.6x ---------------- 10.6x Enterprise Value $2,866 ---------------- $3,160
  51. 51. 51Global Case Competition at Harvard – LVMH M&A Moncler PrecedentTransactions Analysis Valuation Commentary Implied EnterpriseValue • Based off recent M&A activity, we derived an implied enterprise value for Moncler between $2,909 - $3,413 M • The highTV/EBITDA multiple was used to generate the bull case for the enterprise value for Moncler • We felt that the highTV/EBITDA multiple was most accurate as Moncler’s best peers,Volcom and HUGO BOSS, were acquired for much higher multiples than the blended average generated from precedent transactions Sources: Bloomberg, MONC 10-K, Team Projections MONC 2013 EBITDA $247 EV/EBITDA Multiple 11.8x ---------------- 13.8x Enterprise Value $2,909 ---------------- $3,413 Transaction EBITDA Value Margin EBITDA Revenue EBITDA Revenue True Religion Apparel TowerBrook Capital Partners 10-May-13 $635 16.1% $78 $481 8.2x 1.3x Fiberweb AVINTIV Specialty Materials 18-Nov-13 278 9.5% 45 470 6.2x 0.6x Jones Group Inc Sycamore Partners 19-Dec-13 2,199 6.5% 245 3,765 9.0x 0.6x Pacific Brands Hanesbrands 13-Jan-12 365 13.5% 58 430 6.3x 0.8x J Crew Group Leonard Green & Partners 7-Mar-11 2,637 18.4% 316 1,712 8.4x 1.5x Volcom Kering 24-Jun-11 512 9.9% 33 332 15.6x 1.5x The Gymboree Bain Capital 24-Nov-10 1,673 20.7% 216 1,046 7.7x 1.6x HUGO BOSS Permira Holdings 7-Sep-07 3,695 15.3% 239 1,566 15.5x 2.4x Average $1,499 13.7% $154 $1,225 9.6x 1.3x Median 1,154 14.4% 147 763 8.3x 1.4x Moncler 32.0% $247 $771 DateAcquirerTarget Company Transaction ValueLTM
  52. 52. 52Global Case Competition at Harvard – LVMH M&A Capital Structure Debt 6.83% Equity 93.17% Beta 0.82 Equity Risk Premium 10.92% Risk Free Rate 1.57% Cost of Equity 10.52% Pre-Tax Cost of Debt 1.62% Corporate Tax Rate 34.99% Cost of Debt 1.05% WACC 9.88% WACC Calculation Moncler Discounted Cash Flow Analysis Unlevered Free Cash Flow Calculation WACC Calculation DCF Implied EnterpriseValue DCF Sensitivity Analysis $2,772$2,634$2,514 $3,277$3,146$3,014 Perpetuity Growth Implied Enterprise Value EBITDA Exit Multiple Implied Enterprise Value Bear Base Bull *Dollars in Millions Sources: Bloomberg, MONC 10-K, Team Projections Discounted Cash Flow Analysis 2014 E 2015 E 2016 E 2017 E 2018 E Revenue $902 $983 $1,072 $1,168 $1,273 Less: Operating Expenses 642 700 763 832 907 Operating Income $260 $283 $309 $336 $367 Tax Effect 91 99 108 118 128 NOPAT $169 $184 $201 $219 $238 Plus: D&A 39 42 46 50 55 Change in Working Capital (22) (10) (11) (11) (13) Less: CapEx (53) (58) (63) (69) (75) Unlevered Free Cash Flow $133 $159 $173 $189 $206 2,634.3 2.0% 2.3% 2.5% 2.8% 3.0% 8.9% $2,842 $2,922 $3,008 $3,101 $3,201 9.4% $2,666 $2,734 $2,807 $2,885 $2,969 9.9% $2,514 $2,572 $2,634 $2,701 $2,772 10.4% $2,380 $2,431 $2,485 $2,542 $2,603 10.9% $2,263 $2,307 $2,354 $2,403 $2,456 Perpetuity Growth WACC 3,145.8 8.2x 8.5x 8.7x 9.0x 9.2x 8.9% $3,115 $3,184 $3,253 $3,322 $3,390 9.4% $3,064 $3,131 $3,199 $3,266 $3,333 9.9% $3,014 $3,080 $3,146 $3,212 $3,277 10.4% $2,966 $3,030 $3,095 $3,159 $3,223 10.9% $2,919 $2,982 $3,045 $3,107 $3,170 Exit Multiple WACC
  53. 53. Tumi Valuation
  54. 54. 54Global Case Competition at Harvard – LVMH M&A Tumi Comparable Companies Analysis Valuation Commentary Implied EnterpriseValue • The average EV/EBITDA multiple was used for the bull case to arrive at an implied enterprise value • The median EV/Revenue multiple was used to derive the bear • Tumi is undervalued relative to peers in every metric except for price/earnings where they are in line with the peer group averages Sources: Bloomberg, TUMI 10-K, Team Projections TUMI 2014E EBITDA $106 EV/EBITDA Multiple 13.0x ----------------14.5x Enterprise Value $1,375----------------$1,533 TUMI 2014E Revenue $523 EV/Revenue Multiple 3.0x ---------------- 3.3x Enterprise Value $1,570----------------$1,728 TUMI 2014E Earnings $56 P/E Multiple 22.5x ----------------24.0x Enterprise Value $1,238----------------$1,323 Market Enterprise Cap. Value 2014E 2015E 2014E 2015E 2014E 2015E 2014E 2015E Samsonite International $4,639 $4,413 15.5% 15.5% 12.1x 11.7x 1.9x 1.8x 23.5x 22.0x Salvatore Ferragamo 5,021 5,175 22.1% 22.8% 13.2x 14.3x 2.9x 3.3x 24.0x 26.2x Hugo Boss 10,210 10,235 24.1% 21.8% 12.4x 15.1x 3.0x 3.3x 20.9x 27.5x Kerig 27,680 33,028 20.0% 17.8% 12.4x 14.5x 2.5x 2.6x 18.1x 25.7x Micahel Kors 18,114 19,086 33.1% 32.1% 17.4x 13.6x 5.8x 4.4x 27.8x 20.9x Hermes International 39,025 37,331 35.7% 36.0% 19.1x 19.3x 6.8x 6.9x 33.2x 35.3x Average $17,448 $18,211 25.1% 24.3% 14.5x 14.7x 3.8x 3.7x 24.6x 26.3x Median 14,162 14,660 23.1% 22.3% 12.8x 14.4x 3.0x 3.3x 23.8x 25.9x Tumi Holding $1,393 $1,364 20.2% 20.1% 12.9x 12.2x 2.6x 2.5x 24.7x 23.4x Company Name Price/EarningsEnterprise Value/RevenueEnterprise Value/EBITDAEBITDA Margin
  55. 55. 55Global Case Competition at Harvard – LVMH M&A Tumi PrecedentTransactions Analysis Valuation Commentary Implied EnterpriseValue • Based off recent M&A activity, we derived an implied enterprise value forTumi between $1,262 - $1,618 million • The averageTV/EBITDA andTV/Revenue multiples were used to generate the bull case for the enterprise value of Tumi • Significant control premiums have been in play for prior transactions, something LVMH might be wary of should they pursue this acquisition Sources: Bloomberg, TUMI 10-K, Team Projections TUMI 2013 EBITDA $101 EV/EBITDA Multiple 14.1x ----------------16.1x Enterprise Value $1,417----------------$1,618 TUMI 2013 Revenue $467 EV/Revenue Multiple 2.7x ---------------- 2.9x Enterprise Value $1,262----------------$1,355 Transaction EBITDA Value Margin EBITDA Revenue EBITDA Revenue Heilan Home Garmet Heilan Home 17-Mar-14 $1,980 23.3% $136 $582 14.6x 3.4x Loro Piana SpA LVMH 8-Jul-13 2,574 19.8% 96 484 26.9x 5.3x Handsome Co. Hyundai Home Shopping Network 16-Feb-12 365 19.1% 22 117 16.4x 3.1x Camaieu International Cinven Ltd 29-Mar-11 546 21.5% 69 323 7.9x 1.7x Volcom Kering 24-Jun-11 512 9.9% 33 332 15.6x 1.5x HUGO BOSS Permira Holdings 7-Sep-07 3,695 15.3% 239 1,566 15.5x 2.4x Average $1,612 18.1% $99 $567 16.1x 2.9x Median 1,263 19.4% 83 408 15.5x 2.7x Tumi Holding 21.5% $101 $467 AcquirerTarget Company Date LTM Transaction Value
  56. 56. 56Global Case Competition at Harvard – LVMH M&A Tumi Discounted Cash Flow Analysis Unlevered Free Cash Flow Calculation WACC Calculation DCF Implied EnterpriseValue DCF Sensitivity Analysis $553$529$508 $1,062$1,025$988 Perpetuity Growth Implied Enterprise Value EBITDA Exit Multiple Implied Enterprise Value Bear Base Bull *Dollars in Millions Capital Structure Debt 0.57% Equity 99.43% Beta 1.32 Equity Risk Premium 6.27% Risk Free Rate 2.89% Cost of Equity 11.17% Pre-Tax Cost of Debt 2.72% Corporate Tax Rate 36.63% Cost of Debt 1.72% WACC 11.11% WACC Calculation Sources: Bloomberg, TUMI 10-K, Team Projections Discounted Cash Flow Analysis 2014E 2015E 2016E 2017E 2018E Revenue $523 $555 $583 $606 $630 Less: Operating Expenses 434 461 485 504 524 Operating Income $89 $94 $98 $102 $106 Tax Effect 33 34 36 37 39 NOPAT $56 $59 $62 $65 $67 Plus: D&A 17 18 19 19 20 Change in Working Capital (5) (4) (3) (3) (3) Less: CapEx (28) (29) (31) (32) (33) Unlevered Free Cash Flow $40 $44 $47 $49 $51 529.0 2.0% 2.3% 2.5% 2.8% 3.0% 10.1% $571 $585 $600 $615 $632 10.6% $538 $550 $562 $576 $590 11.1% $508 $518 $529 $541 $553 11.6% $481 $490 $499 $510 $521 12.1% $456 $464 $473 $482 $492 Perpetuity Growth WACC 1,025.1 11.0x 11.3x 11.5x 11.8x 12.0x 10.1% $1,030 $1,050 $1,069 $1,089 $1,108 10.6% $1,009 $1,028 $1,047 $1,066 $1,085 11.1% $988 $1,006 $1,025 $1,044 $1,062 11.6% $968 $986 $1,004 $1,022 $1,040 12.1% $948 $965 $983 $1,001 $1,019 Exit Multiple WACC
  57. 57. LVMH Financial Statements
  58. 58. 58Global Case Competition at Harvard – LVMH M&A LVMH Income Statement Sources: Bloomberg, Team Projections 2011 A 2012 A 2013 A 2014 E 2015 E 2016 E 2017 E 2018 E Revenue $32,943 $36,137 $38,542 $41,240 $44,127 $47,216 $50,521 $54,058 Fashion and Leather Goods 12,075 12,694 13,062 14,517 15,533 16,620 17,783 19,028 Selective Retailing 8,931 10,102 11,795 11,795 12,620 13,504 14,449 15,460 Perfumes and Cosmetics 3,970 4,070 4,291 4,743 5,075 5,430 5,810 6,217 Wines and Spirits 4,889 5,293 5,507 6,021 6,443 6,894 7,376 7,892 Watches and Jewelry 2,661 3,572 3,515 3,712 3,971 4,249 4,547 4,865 Holding Companies and Other 418 406 372 454 485 519 556 595 COGS 11,267 12,752 13,279 14,352 15,356 16,431 17,581 18,812 Gross Profit $21,676 $23,385 $25,263 $26,889 $28,771 $30,785 $32,940 $35,246 Operating Expenses $14,499 $16,005 $17,398 $18,476 $19,769 $21,153 $22,633 $24,218 SG&A 14,347 15,771 17,240 18,291 19,571 20,941 22,407 23,976 R&D 88 89 94 111 119 127 136 145 Other Operating Expenses 64 145 64 74 79 85 91 97 Operating Income $7,176 $7,380 $7,865 $8,413 $9,002 $9,632 $10,306 $11,028 Interest Expense $206 $178 $144 $150 $131 $111 $92 $72 Other Investment Loss (Income) (75) (224) (94) (131) (131) (131) (131) (131) Foreign Exchange Loss (Gain) 146 63 211 140 140 140 140 140 Other Expense (Income) 60 1 33 20 20 20 20 20 Total Other Expenses $337 $18 $293 $179 $160 $140 $121 $101 Earnings Before Taxes $6,839 $7,362 $7,572 $8,234 $8,842 $9,492 $10,186 $10,927 Corporate Taxes $2,023 $2,340 $2,329 $2,552 $2,741 $2,942 $3,158 $3,387 Minority Interest 549 619 679 742 794 850 909 973 Net Earnings $4,267 $4,403 $4,564 $4,939 $5,307 $5,700 $6,119 $6,566 Basic Earnings per Share $8.73 $8.82 $9.13 $9.86 $10.57 $11.33 $12.14 $13.00 Metrics & Drivers % Revenue Growth 22.2% 9.7% 6.7% 7.0% 7.0% 7.0% 7.0% 7.0% % Fashion and Leather Goods 36.7% 35.1% 33.9% 35.2% 35.2% 35.2% 35.2% 35.2% % Selective Retailing 27.1% 28.0% 30.6% 28.6% 28.6% 28.6% 28.6% 28.6% % Perfumes and Cosmetics 12.1% 11.3% 11.1% 11.5% 11.5% 11.5% 11.5% 11.5% % Wines and Spirits 14.8% 14.6% 14.3% 14.6% 14.6% 14.6% 14.6% 14.6% % Watches and Jewelry 8.1% 9.9% 9.1% 9.0% 9.0% 9.0% 9.0% 9.0% % Holding Companies and Other 1.3% 1.1% 1.0% 1.1% 1.1% 1.1% 1.1% 1.1% % COGS 34.2% 35.3% 34.5% 34.8% 34.8% 34.8% 34.8% 34.8% % Gross Profit 65.8% 64.7% 65.5% 65.2% 65.2% 65.2% 65.2% 65.2% % Operating Expenses 44.0% 44.3% 45.1% 44.8% 44.8% 44.8% 44.8% 44.8% % Operating Margin 21.8% 20.4% 20.4% 20.4% 20.4% 20.4% 20.4% 20.4% % Minority Interest 1.7% 1.7% 1.8% 1.8% 1.8% 1.8% 1.8% 1.8% % Net Margin 13.0% 12.2% 11.8% 12.0% 12.0% 12.1% 12.1% 12.1% Corporate Tax Rate 29.6% 31.8% 30.8% 31.0% 31.0% 31.0% 31.0% 31.0% ($ in Millions, except per share amount) Income Statement Historical Projected
  59. 59. 59Global Case Competition at Harvard – LVMH M&A LVMH Balance Sheet Sources: Bloomberg, Team Projections 2012 A 2013 A 2014 E 2015 E 2016 E 2017 E 2018 E Cash and Cash Equivalents $2,898 $4,448 $5,804 $7,682 $9,580 $11,751 $14,214 Short-Term Investments 234 236 236 236 236 236 236 Accounts Receivable 2,620 2,998 3,164 3,313 3,544 3,793 4,058 Inventory 10,663 11,710 12,496 13,194 14,118 15,106 16,163 Other Current Assets 2,422 2,631 2,804 3,001 3,211 3,435 3,676 Total Current Assets $18,836 $22,022 $24,503 $27,425 $30,689 $34,320 $38,347 Net Property, Plant & and Equipment $11,572 $13,266 $13,349 $13,437 $13,532 $13,633 $13,741 Long Term Investment & Receivables 7,924 9,763 9,763 9,763 9,763 9,763 9,763 Other Long-Term Assets 27,650 32,410 32,410 32,410 32,410 32,410 32,410 Total Assets $65,982 $77,461 $80,024 $83,034 $86,393 $90,125 $94,260 Accounts Payable $6,540 $7,101 $7,588 $8,119 $8,688 $9,296 $9,947 Short Term Debt 3,927 6,445 6,445 6,445 6,445 6,445 6,445 Deferred Revenue 637 772 825 883 944 1,010 1,081 Other Current Liabilities 1,408 1,730 1,732 1,853 1,983 2,122 2,270 Total Current Liabilities $12,513 $16,049 $16,590 $17,300 $18,060 $18,873 $19,743 Long Term Debt $5,062 $5,721 $5,021 $4,321 $3,621 $2,921 $2,221 Other Long-Term Liabilities 14,744 17,210 17,210 17,210 17,210 17,210 17,210 Total Liabilities $32,319 $38,980 $38,821 $38,831 $38,891 $39,004 $39,174 Shareholders' Equity 33,663 38,481 41,203 44,203 47,501 51,121 55,086 Total Liabilities and Equity $65,982 $77,461 $80,024 $83,034 $86,393 $90,125 $94,260 Check - - - - - - - - - - - - - - Metrics & Drivers Net Earnings $4,403 $4,564 $4,939 $5,307 $5,700 $6,119 $6,566 Cash Ratio 0.25 0.29 0.36 0.46 0.54 0.64 0.73 Return on Equity 13.1% 11.9% 12.0% 12.0% 12.0% 12.0% 11.9% Net Debt $1,930 $1,037 ($1,018) ($3,597) ($6,195) ($9,066) ($12,229) Book Value of Equity per Share 67.5x 77.0x 82.2x 88.1x 94.4x 101.4x 109.1x Balance Sheet ($ in Millions) Historical Projected
  60. 60. 60Global Case Competition at Harvard – LVMH M&A LVMH Statement of Cash Flows Sources: Bloomberg, Team Projections 2014 E 2015 E 2016 E 2017 E 2018 E Net Earnings $4,939 $5,307 $5,700 $6,119 $6,566 Depreciation 2,144 2,295 2,455 2,627 2,811 Change in Working Capital (584) (333) (606) (648) (693) Cash From Operating Activities $6,499 $7,268 $7,549 $8,098 $8,684 Capital Expenditures (2,227) (2,383) (2,550) (2,728) (2,919) Cash From Investing Activities ($2,227) ($2,383) ($2,550) ($2,728) ($2,919) Dividends ($2,147) ($2,237) ($2,331) ($2,429) ($2,531) Share Repurchases (70) (70) (70) (70) (70) Change in Revolver - - - - - - - - - - Change in Long-Term Debt (700) (700) (700) (700) (700) Cash From Financing Activities ($2,917) ($3,007) ($3,101) ($3,199) ($3,301) Change in Cash $1,355 $1,878 $1,898 $2,171 $2,464 Beginning Cash $4,448 $5,804 $7,682 $9,580 $11,751 Ending Cash 5,804 7,682 9,580 11,751 14,214 Metrics & Drivers Free Cash Flow $4,272 $4,885 $4,999 $5,370 $5,765 Free Cash Flow Per Share $8.53 $9.73 $9.94 $10.65 $11.42 Operating Profit 8,413 9,002 9,632 10,306 11,028 EBITDA 10,558 11,297 12,087 12,933 13,839 EBITDA Margin 25.6% 25.6% 25.6% 25.6% 25.6% Statement of Cash Flows ($ in Millions) Projected
  61. 61. 61Global Case Competition at Harvard – LVMH M&A LVMH DuPont Ratios Sources: Bloomberg, Team Projections 2011 A 2012 A 2013 A 2014 E 2015 E 2016 E 2017 E 2018 E Profitability Gross Profit Margin 65.8% 64.7% 65.5% 65.2% 65.2% 65.2% 65.2% 65.2% Operating Profit Margin 21.8% 20.4% 20.4% 20.4% 20.4% 20.4% 20.4% 20.4% Net Profit Margin 13.0% 12.2% 11.8% 12.0% 12.0% 12.1% 12.1% 12.1% Efficiency Accounts Receivable Turnover - - 13.8x 12.9x 13.0x 13.3x 13.3x 13.3x 13.3x Day's Sales Outstanding in Receivables - - 26.5 28.4 28.0 27.4 27.4 27.4 27.4 Accounts Payable Turnover - - 1.7x 1.8x 1.7x 1.8x 1.8x 1.8x 1.8x Day's Sales Outstanding in Payables - - 211.9 203.3 208.6 206.5 206.5 206.5 206.5 Fixed Asset Turnover - - 3.1x 2.9x 3.1x 3.3x 3.5x 3.7x 3.9x Leverage Debt Ratio - - 7.7% 7.4% 6.3% 5.2% 4.2% 3.2% 2.4% Debt-to-Equity Ratio - - 15.0% 14.9% 12.2% 9.8% 7.6% 5.7% 4.0% Times Interest Earned Ratio - - 34.8x 41.6x 54.8x 55.9x 68.8x 86.6x 112.5x Net Debt - - $1,930 $1,037 ($1,018) ($3,597) ($6,195) ($9,066) ($12,229) Liquidity Current Ratio - - 1.5x 1.4x 1.5x 1.6x 1.7x 1.8x 1.9x Quick Ratio - - 0.3x 0.3x 0.4x 0.5x 0.5x 0.6x 0.7x Working Capital - - $7,118 $7,734 $8,319 $8,652 $9,258 $9,906 $10,599 DuPont Ratios ($ in millions) Historical Projected
  62. 62. Hermes Financial Statements
  63. 63. 63Global Case Competition at Harvard – LVMH M&A Hermes Income Statement Sources: Bloomberg, Team Projections 2011A 2012A 2013A 2014E 2015E 2016E 2017E 2018E Revenue $3,956 $4,480 $4,988 $5,547 $6,154 $6,776 $7,352 $7,889 COGS 1,234 1,428 1,555 1,753 1,945 2,141 2,323 2,493 Gross Profit $2,722 $3,052 $3,433 $3,794 $4,209 $4,635 $5,029 $5,396 Operating Expenses 1,489 1,613 1,815 2,019 2,240 2,466 2,676 2,871 Operating Income $1,233 $1,439 $1,618 $1,775 $1,969 $2,168 $2,353 $2,524 Interest Expense $1 $2 $1 $1 $1 $1 $1 $0 Other Expense (Income) (15) (15) (8) (8) (8) (8) (8) (8) Other Non-Op (Income) Loss (3) 37 38 38 38 38 38 38 Total Other Expenses ($17) $24 $31 $31 $31 $31 $30 $30 Earnings Before Taxes $1,250 $1,415 $1,587 $1,744 $1,938 $2,138 $2,322 $2,494 Corporate Taxes 404 449 528 576 640 705 766 823 Minority Interest 13 13 14 14 14 14 14 14 Net Income from Associates 6 1 (3) (3) (3) (3) (3) (3) Net Earnings $827 $953 $1,048 $1,158 $1,288 $1,421 $1,545 $1,660 Basic Earnings per Share $7.91 $9.15 $10.07 $10.96 $12.20 $13.46 $14.63 $15.72 Metrics & Drivers % Revenue Growth 24.2% 13.2% 11.3% 11.2% 10.9% 10.1% 8.5% 7.3% % Gross Margin 68.8% 68.1% 68.8% 68.4% 68.4% 68.4% 68.4% 68.4% % Operating Margin 31.2% 32.1% 32.4% 32.0% 32.0% 32.0% 32.0% 32.0% % Net Margin 20.9% 21.3% 21.0% 20.9% 20.9% 21.0% 21.0% 21.0% Corporate Tax Rate 32.3% 31.7% 33.3% 33.0% 33.0% 33.0% 33.0% 33.0% Historical ProjectedIncome Statement ($ in Millions, except per share amount
  64. 64. 64Global Case Competition at Harvard – LVMH M&A Hermes Historical Revenue Breakdown 2011 S1 A 2011 S2 A 2011 A 2012 S1 A 2012 S2 A 2012 A 2013 S1 A 2013 S2 A 2013 A 2014 S1 A Revenue by Segment Leather Goods & Saddles $885 $990 $1,875 $959 $1,092 $2,052 $1,024 $1,147 $2,171 $1,153 Clothing & Accessories 367 435 802 434 524 958 520 601 1,121 604 Silk & Textiles 212 271 483 237 308 545 265 339 604 296 Perfumes 62 90 152 90 122 212 124 164 288 171 Art of Living &Jewelry 111 111 221 116 121 237 140 138 278 157 Other Products 81 77 157 90 84 174 111 114 225 142 Watches 83 110 193 101 121 222 98 124 222 92 Tableware 34 37 71 36 41 78 38 43 81 - - Total Revenue $1,834 $2,120 $3,954 $2,064 $2,412 $4,477 $2,321 $2,670 $4,990 $2,614 YOY % Growth Leather Goods & Saddles % Growth 21.7% 13.7% - - 8.4% 10.3% 9.4% 6.8% 5.0% 5.8% 12.5% Clothing & Accessories % Growth 37.3% 34.5% - - 18.5% 20.4% 19.5% 19.6% 14.8% 17.0% 16.3% Silk & Textiles % Growth 36.1% 22.5% - - 11.9% 13.9% 13.0% 11.6% 10.0% 10.7% 11.8% Perfumes % Growth (30.4%) (4.8%) - - 45.7% 36.2% 40.1% 37.9% 34.0% 35.7% 37.2% Art of Living &Jewelry % Growth 83.3% 23.8% - - 4.9% 8.9% 6.9% 20.7% 14.7% 17.6% 12.1% Other Products % Growth 74.1% 11.0% - - 11.4% 9.0% 10.2% 23.6% 36.5% 29.8% 27.3% Watches % Growth 49.0% 89.0% - - 21.1% 9.9% 14.7% (2.5%) 2.6% 0.3% (6.4%) Tableware % Growth 32.3% 13.3% - - 8.0% 10.7% 9.4% 4.4% 4.8% 4.6% (100.0%) % of Revenue Leather Goods & Saddles % of Revenue 48.3% 46.7% 47.4% 46.5% 45.3% 45.8% 44.1% 43.0% 43.5% 44.1% Clothing & Accessories % of Revenue 20.0% 20.5% 20.3% 21.0% 21.7% 21.4% 22.4% 22.5% 22.5% 23.1% Silk & Textiles % of Revenue 11.6% 12.8% 12.2% 11.5% 12.8% 12.2% 11.4% 12.7% 12.1% 11.3% Perfumes % of Revenue 3.4% 4.2% 3.8% 4.4% 5.1% 4.7% 5.4% 6.1% 5.8% 6.5% Art of Living &Jewelry % of Revenue 6.0% 5.2% 5.6% 5.6% 5.0% 5.3% 6.0% 5.2% 5.6% 6.0% Other Products % of Revenue 4.4% 3.6% 4.0% 4.4% 3.5% 3.9% 4.8% 4.3% 4.5% 5.4% Watches % of Revenue 4.5% 5.2% 4.9% 4.9% 5.0% 5.0% 4.2% 4.6% 4.5% 3.5% Tableware % of Revenue 1.8% 1.8% 1.8% 1.8% 1.7% 1.7% 1.6% 1.6% 1.6% - - HistoricalRevenue Breakdown ($ in Millions) Sources: Bloomberg, Team Projections
  65. 65. 65Global Case Competition at Harvard – LVMH M&A Hermes Projected Revenue Breakdown 2014 S2 E 2014 E 2015 S1 E 2015 S2 E 2015 E 2016 S1 E 2016 S2 E 2016 E 2017 S1 E 2017 S2 E 2017 E 2018 S1 E 2018 S2 E 2018 E Revenue by Segment Leather Goods & Saddles $1,258 $2,410 $1,233 $1,379 $2,612 $1,319 $1,513 $2,832 $1,399 $1,634 $3,032 $1,483 $1,764 $3,247 Clothing & Accessories 685 1,289 695 788 1,483 778 894 1,672 840 993 1,833 882 1,072 1,954 Silk & Textiles 379 675 329 423 752 365 470 835 405 521 926 450 563 1,012 Perfumes 193 364 195 224 418 218 250 467 240 277 517 259 302 561 Art of Living &Jewelry 160 317 173 178 351 185 192 377 198 207 405 214 222 436 Other Products 130 272 163 149 312 188 172 360 208 191 400 225 207 432 Watches 128 220 96 130 226 99 133 232 103 137 239 106 141 247 Tableware - - - - - - - - - - - - - - - - - - - - - - - - - - - - Total Revenue $2,933 $5,547 $2,882 $3,272 $6,154 $3,152 $3,624 $6,776 $3,392 $3,960 $7,352 $3,618 $4,271 $7,889 YOY % Growth Leather Goods & Saddles % Growth 9.7% 11.0% 7.0% 9.7% 8.4% 7.0% 9.7% 8.4% 6.0% 8.0% 7.1% 6.0% 8.0% 7.1% Clothing & Accessories % Growth 14.0% 15.1% 15.0% 15.0% 15.0% 12.0% 13.5% 12.8% 8.0% 11.0% 9.6% 5.0% 8.0% 6.6% Silk & Textiles % Growth 12.0% 11.9% 11.0% 11.5% 11.3% 11.0% 11.2% 11.1% 11.0% 10.8% 10.9% 11.0% 8.0% 9.3% Perfumes % Growth 18.0% 26.3% 14.0% 16.0% 15.1% 12.0% 11.5% 11.7% 10.0% 11.0% 10.5% 8.0% 9.0% 8.5% Art of Living &Jewelry % Growth 15.8% 14.0% 10.0% 11.0% 10.5% 7.0% 8.0% 7.5% 7.0% 8.0% 7.5% 8.0% 7.0% 7.5% Other Products % Growth 14.0% 20.6% 15.0% 15.0% 15.0% 15.2% 15.2% 15.2% 11.0% 11.2% 11.1% 8.0% 8.0% 8.0% Watches % Growth 3.0% (1.2%) 4.0% 2.0% 2.8% 3.5% 2.0% 2.6% 3.5% 3.0% 3.2% 3.5% 3.0% 3.2% Tableware % Growth - - (100.0%) - - - - - - - - - - - - - - - - - - - - - - - - % of Revenue Leather Goods & Saddles % of Revenue 42.9% 43.5% 42.8% 42.2% 42.5% 41.9% 41.7% 41.8% 41.2% 41.3% 41.2% 41.0% 41.3% 41.2% Clothing & Accessories % of Revenue 23.4% 23.2% 24.1% 24.1% 24.1% 24.7% 24.7% 24.7% 24.8% 25.1% 24.9% 24.4% 25.1% 24.8% Silk & Textiles % of Revenue 12.9% 12.2% 11.4% 12.9% 12.2% 11.6% 13.0% 12.3% 11.9% 13.2% 12.6% 12.4% 13.2% 12.8% Perfumes % of Revenue 6.6% 6.6% 6.8% 6.8% 6.8% 6.9% 6.9% 6.9% 7.1% 7.0% 7.0% 7.2% 7.1% 7.1% Art of Living &Jewelry % of Revenue 5.5% 5.7% 6.0% 5.4% 5.7% 5.9% 5.3% 5.6% 5.8% 5.2% 5.5% 5.9% 5.2% 5.5% Other Products % of Revenue 4.4% 4.9% 5.6% 4.6% 5.1% 6.0% 4.8% 5.3% 6.1% 4.8% 5.4% 6.2% 4.8% 5.5% Watches % of Revenue 4.4% 4.0% 3.3% 4.0% 3.7% 3.1% 3.7% 3.4% 3.0% 3.5% 3.3% 2.9% 3.3% 3.1% Tableware % of Revenue - - - - - - - - - - - - - - - - - - - - - - - - - - - - ProjectedRevenue Breakdown ($ in Millions) Sources: Bloomberg, Team Projections
  66. 66. 66Global Case Competition at Harvard – LVMH M&A Hermes Balance Sheet Sources: Bloomberg, Team Projections 2012A 2013A 2014E 2015E 2016E 2017E 2018E Cash and Cash Equivalents $264 $422 $1,149 $1,901 $2,775 $3,767 $4,868 Short Term Investments 656 1,031 1,031 1,031 1,031 1,031 1,031 Accounts Receivable 273 267 304 337 371 403 432 Inventory 959 1,122 1,193 1,323 1,457 1,581 1,696 Other Current Assets 227 260 288 320 352 382 410 Total Current Assets $2,379 $3,102 $3,965 $4,912 $5,986 $7,164 $8,438 Net Property, Plant & and Equipment $1,459 $1,543 $1,632 $1,731 $1,839 $1,957 $2,083 Other Long-Term Assets 656 785 785 785 785 785 785 Total Assets $4,495 $5,430 $6,382 $7,427 $8,610 $9,905 $11,306 Accounts Payable $398 $433 $488 $542 $596 $647 $694 Accrued Liabilities 221 197 272 302 332 360 387 Other Current Liabilities 521 583 643 714 786 853 915 Total Current Liabilities $1,140 $1,213 $1,403 $1,557 $1,714 $1,860 $1,996 Total Debt $31 $34 $29 $24 $19 $14 $9 Other Long-Term Liabilities 211 265 265 265 265 265 265 Total Liabilities $1,383 $1,512 $1,697 $1,845 $1,998 $2,139 $2,269 Shareholders' Equity 3,112 3,918 4,685 5,582 6,613 7,767 9,036 Total Liabilities and Equity $4,495 $5,430 $6,382 $7,427 $8,610 $9,905 $11,306 check - - - - - - - - - - - - - - Metrics & Drivers Net Earnings $953 $1,048 $1,158 $1,288 $1,421 $1,545 $1,660 Cash Ratio 0.8 1.2 1.6 1.9 2.2 2.6 3.0 Return on Equity 30.6% 26.8% 24.7% 23.1% 21.5% 19.9% 18.4% Net Debt ($889) ($1,419) ($2,151) ($2,908) ($3,787) ($4,784) ($5,890) Book Value of Equity per Share 29.8x 37.6x 45.0x 52.9x 62.6x 73.6x 85.6x ProjectedHistoricalBalance Sheet ($ in Millions)
  67. 67. 67Global Case Competition at Harvard – LVMH M&A Hermes Statement of Cash Flows Sources: Bloomberg, Team Projections 2014E 2015E 2016E 2017E 2018E Net Earnings $1,158 $1,288 $1,421 $1,545 $1,660 Depreciation 144 160 176 191 205 Change in Working Capital 53 (42) (43) (40) (37) Cash From Operating Activities $1,355 $1,406 $1,555 $1,697 $1,828 Capital Expenditures (233) (258) (285) (309) (331) Cash From Investing Activities ($233) ($258) ($285) ($309) ($331) Dividends ($391) ($391) ($391) ($391) ($391) Change in Revolver - - - - - - - - - - Change in Long-Term Debt (5) (5) (5) (5) (5) Cash From Financing Activities ($396) ($396) ($396) ($396) ($396) Change in Cash $727 $752 $874 $992 $1,101 Beginning Cash $422 $1,149 $1,901 $2,775 $3,767 Ending Cash 1,149 1,901 2,775 3,767 4,868 Metrics & Drivers Free Cash Flow $1,122 $1,148 $1,270 $1,388 $1,497 Free Cash Flow Per Share $10.63 $10.87 $12.03 $13.14 $14.18 Operating Profit 1,775 1,969 2,168 2,353 2,524 EBITDA 1,919 2,129 2,344 2,544 2,729 EBITDA Margin 34.6% 34.6% 34.6% 34.6% 34.6% ProjectedStatement of Cash Flows ($ in Millions)
  68. 68. 68Global Case Competition at Harvard – LVMH M&A Hermes DuPont Ratios 2011A 2012A 2013A 2014E 2015E 2016E 2017E 2018E Profitability Gross Profit Margin 68.8% 68.1% 68.8% 68.4% 68.4% 68.4% 68.4% 68.4% Operating Profit Margin 31.2% 32.1% 32.4% 32.0% 32.0% 32.0% 32.0% 32.0% Net Profit Margin 20.9% 21.3% 21.0% 20.9% 20.9% 21.0% 21.0% 21.0% Efficiency Accounts Receivable Turnover - - 16.4x 18.7x 18.3x 18.3x 18.3x 18.3x 18.3x Day's Sales Outstanding in Receivables - - 22.3 19.5 20.0 20.0 20.0 20.0 20.0 Accounts Payable Turnover - - 3.1x 3.3x 3.2x 3.2x 3.3x 3.3x 3.3x Day's Sales Outstanding in Payables - - 117.8 110.6 114.6 112.8 111.9 110.3 109.1 Fixed Asset Turnover - - 3.1x 3.2x 3.4x 3.6x 3.7x 3.8x 3.8x Leverage Debt Ratio - - 0.7% 0.6% 0.5% 0.3% 0.2% 0.1% 0.1% Debt-to-Equity Ratio - - 1.0% 0.9% 0.6% 0.4% 0.3% 0.2% 0.1% Times Interest Earned Ratio - - 2,054.8x 757.3x 1,244.7x 1,487.7x 1,963.0x 2,666.3x 3,775.3x Net Debt - - ($889) ($1,419) ($2,151) ($2,908) ($3,787) ($4,784) ($5,890) Liquidity Current Ratio - - 2.1x 2.6x 2.8x 3.2x 3.5x 3.9x 4.2x Quick Ratio - - 0.8x 1.2x 1.6x 1.9x 2.2x 2.6x 3.0x Working Capital - - $319 $435 $382 $423 $466 $506 $543 ($ in Millions) DuPont Ratios Historical Projected Sources: Bloomberg, Team Projections
  69. 69. Moncler Financial Statements
  70. 70. 70Global Case Competition at Harvard – LVMH M&A Moncler Income Statement 2011 A 2012 A 2013 A 2014 E 2015 E 2016 E 2017 E 2018 E Revenue $506 $629 $771 $902 $983 $1,072 $1,168 $1,273 COGS 167 191 221 277 302 329 359 391 Gross Profit $339 $438 $550 $625 $681 $743 $810 $882 Operating Expenses $198 $251 $329 $365 $398 $434 $473 $516 SG&A 194 251 321 362 394 430 468 511 Other Operating Expenses 4 - - 8 4 4 4 5 5 Operating Income $142 $188 $221 $260 $283 $309 $336 $367 Interest Expense $17 $21 $24 $22 $19 $15 $11 $7 Other Expense (Income) 1 1 5 2 2 2 2 2 Total Other Expenses $18 $22 $28 $24 $21 $17 $13 $9 Earnings Before Taxes $124 $165 $193 $235 $263 $292 $324 $358 Corporate Taxes $43 $57 $68 $82 $92 $102 $113 $125 Extraordinary Losses - - 69 21 - - - - - - - - - - Minority Interest 3 3 3 5 5 5 6 6 Net Earnings $77 $37 $101 $149 $166 $184 $205 $226 Basic Earnings per Share $0.31 $0.15 $0.40 $0.59 $0.66 $0.74 $0.82 $0.90 Metrics & Drivers % Revenue Growth 24.2% 22.6% 17.0% 9.0% 9.0% 9.0% 9.0% % COGS 33.0% 30.3% 28.7% 30.7% 30.7% 30.7% 30.7% 30.7% % Gross Profit 67.0% 69.7% 71.3% 69.3% 69.3% 69.3% 69.3% 69.3% % Operating Expenses 39.0% 39.9% 42.7% 40.5% 40.5% 40.5% 40.5% 40.5% % Operating Margin 28.0% 29.8% 28.7% 28.8% 28.8% 28.8% 28.8% 28.8% % Minority Interest 0.7% 0.5% 0.4% 0.5% 0.5% 0.5% 0.5% 0.5% % Net Margin 15.3% 5.9% 13.1% 16.5% 16.9% 17.2% 17.5% 17.8% Corporate Tax Rate 34.8% 34.2% 35.0% 35.0% 35.0% 35.0% 35.0% 35.0% Historical ProjectedIncome Statement ($ in Millions, except per share amount) Sources: Bloomberg, Team Projections
  71. 71. 71Global Case Competition at Harvard – LVMH M&A Moncler Balance Sheet 2012 A 2013 A 2014 E 2015 E 2016 E 2017 E 2018 E Cash and Cash Equivalents $125 $145 $223 $328 $450 $589 $747 Accounts Receivable 143 106 164 179 195 213 232 Inventories 128 107 153 167 182 199 216 Other Current Assets 39 87 79 87 94 103 112 Total Current Assets $435 $444 $619 $760 $921 $1,103 $1,308 Net Property, Plant & and Equipment $68 $80 $95 $110 $128 $146 $167 Other Long-Term Assets 602 614 614 614 614 614 614 Total Assets $1,105 $1,139 $1,328 $1,485 $1,663 $1,863 $2,088 Accounts Payable $223 $207 $281 $306 $333 $363 $396 Short Term Debt 128 160 160 160 160 160 160 Deferred Revenue - - - - - - - - - - - - - - Other Current Liabilities 7 7 9 10 11 12 13 Total Current Liabilities $358 $374 $450 $476 $504 $535 $569 Total Debt $301 $221 $186 $151 $116 $81 $46 Other Long-Term Liabilities 128 116 116 116 116 116 116 Total Liabilities $787 $710 $751 $742 $736 $732 $731 Shareholders' Equity 318 428 577 743 927 1,132 1,358 Total Liabilities and Equity $1,105 $1,139 $1,328 $1,485 $1,663 $1,863 $2,088 check - - - - - - - - - - - - - - Metrics & Drivers Net Earnings $37 $101 $149 $166 $184 $205 $226 Cash Ratio 0.35 0.39 0.49 0.69 0.89 1.10 1.31 Return on Equity 11.6% 23.6% 25.7% 22.3% 19.9% 18.1% 16.7% Net Debt $176 $76 ($37) ($177) ($334) ($508) ($702) Book Value of Equity per Share 1.3x 1.7x 2.3x 3.0x 3.7x 4.5x 5.4x Historical ProjectedBalance Sheet ($ in Millions) Sources: Bloomberg, Team Projections
  72. 72. 72Global Case Competition at Harvard – LVMH M&A Moncler Statement of Cash Flows 2014 E 2015 E 2016 E 2017 E 2018 E Net Earnings $149 $166 $184 $205 $226 Depreciation 39 42 46 50 55 Change in Working Capital (22) (10) (11) (11) (13) Cash From Operating Activities $166 $198 $220 $243 $268 Capital Expenditures (53) (58) (63) (69) (75) Cash From Investing Activities ($53) ($58) ($63) ($69) ($75) Dividends - - - - - - - - - - Share Repurchases - - - - - - - - - - Scheduled Debt Paydown (35) (35) (35) (35) (35) Change in Revolver - - - - - - - - - - Cash From Financing Activities ($35) ($35) ($35) ($35) ($35) Change in Cash $78 $105 $122 $139 $158 Beginning Cash $145 $223 $328 $450 $589 Ending Cash 223 328 450 589 747 Metrics & Drivers Free Cash Flow $113 $140 $157 $174 $193 Free Cash Flow Per Share $0.45 $0.56 $0.63 $0.70 $0.77 Operating Profit 260 283 309 336 367 EBITDA 299 325 355 387 421 EBITDA Margin 33.1% 33.1% 33.1% 33.1% 33.1% ProjectedStatement of Cash Flows ($ in Millions) Sources: Bloomberg, Team Projections
  73. 73. 73Global Case Competition at Harvard – LVMH M&A Moncler DuPont Ratios 2011 A 2012 A 2013 A 2014 E 2015 E 2016 E 2017 E 2018 E Profitability Gross Profit Margin 67.0% 69.7% 71.3% 69.3% 69.3% 69.3% 69.3% 69.3% Operating Profit Margin 28.0% 29.8% 28.7% 28.8% 28.8% 28.8% 28.8% 28.8% Net Profit Margin 15.3% 5.9% 13.1% 16.5% 16.9% 17.2% 17.5% 17.8% Efficiency Accounts Receivable Turnover - - 4.4x 7.3x 5.5x 5.5x 5.5x 5.5x 5.5x Day's Sales Outstanding in Receivables - - 82.9 49.9 66.4 66.4 66.4 66.4 66.4 Accounts Payable Turnover - - 2.3x 3.0x 2.7x 2.9x 2.9x 2.9x 2.9x Day's Sales Outstanding in Payables - - 160.7 120.0 132.8 123.7 123.7 123.7 123.7 Fixed Asset Turnover - - 9.2x 9.6x 9.5x 8.9x 8.4x 8.0x 7.6x Leverage Debt Ratio - - 27.2% 19.4% 14.0% 10.2% 7.0% 4.3% 2.2% Debt-to-Equity Ratio - - 94.6% 51.6% 32.2% 20.3% 12.5% 7.1% 3.4% Times Interest Earned Ratio - - 1.4x 1.3x 1.5x 1.4x 1.4x 1.4x 1.4x Net Debt - - $176 $76 ($37) ($177) ($334) ($508) ($702) Liquidity Current Ratio - - 1.2x 1.2x 1.4x 1.6x 1.8x 2.1x 2.3x Quick Ratio - - 0.3x 0.4x 0.5x 0.7x 0.9x 1.1x 1.3x Working Capital - - $80 $86 $107 $117 $127 $139 $151 DuPont Ratios ($ in Millions) Historical Projected Sources: Bloomberg, Team Projections
  74. 74. Tumi Financial Statements
  75. 75. 75Global Case Competition at Harvard – LVMH M&A Tumi Income Statement 2011A 2012A 2013A 2014E 2015E 2016E 2017E 2018E Revenue $330 $399 $467 $523 $555 $583 $606 $630 COGS 141 170 199 223 237 251 261 271 Gross Profit $189 $229 $269 $300 $317 $332 $345 $359 Operating Expenses 129 157 183 211 224 234 244 253 Operating Income $60 $72 $86 $89 $94 $98 $102 $106 Interest Expense $25 $9 $1 $1 $1 $0 $0 $0 Other Expense (Income) (1) (1) (0) (0) (0) (0) (0) (0) Total Other Expenses $25 $8 $0 $0 $0 $0 ($0) ($0) Earnings Before Taxes $36 $64 $86 $89 $94 $98 $102 $106 Corporate Taxes 19 27 32 32 34 36 37 39 Net Earnings $17 $37 $55 $56 $59 $62 $65 $67 Basic Earnings per Share $0.31 $0.58 $0.80 $0.83 $0.88 $0.92 $0.95 $0.99 Metrics & Drivers % Revenue Growth 20.8% 17.3% 12.0% 6.0% 5.0% 4.0% 4.0% % Gross Profit 57.3% 57.3% 57.5% 57.4% 57.2% 57.0% 57.0% 57.0% % Operating Margin 18.3% 18.0% 18.5% 17.0% 16.9% 16.8% 16.8% 16.8% % Net Margin 5.0% 9.2% 11.7% 10.8% 10.7% 10.7% 10.7% 10.7% Corporate Tax Rate 54.0% 42.0% 36.6% 36.5% 36.5% 36.5% 36.5% 36.5% Historical ProjectedIncome Statement ($ in Millions, except per share amount) Sources: Bloomberg, Team Projections
  76. 76. 76Global Case Competition at Harvard – LVMH M&A Tumi Balance Sheet 2012A 2013A 2014E 2015E 2016E 2017E 2018E Cash and Cash Equivalents $37 $38 $77 $120 $166 $214 $264 Accounts Receivable 21 29 30 32 34 35 36 Inventories 71 80 91 97 101 105 110 Other Current Assets 9 15 15 16 16 17 18 Total Current Assets $138 $162 $213 $264 $317 $371 $428 Net Property, Plant & and Equipment $47 $61 $72 $84 $96 $109 $122 Other Long-Term Assets 284 284 284 284 284 284 284 Total Assets $469 $507 $569 $632 $697 $764 $833 Accounts Payable 57 71 77 82 86 90 93 Total Current Liabilities $57 $71 $77 $82 $86 $90 $93 Total Debt $45 $8 $7 $6 $4 $3 $2 Other Long-Term Liabilities 56 60 60 60 60 60 60 Total Liabilities $158 $139 $144 $148 $151 $153 $155 Shareholders' Equity 311 368 424 484 546 611 678 Total Liabilities and Equity $469 $507 $569 $632 $697 $764 $833 check - - - - - - - - - - - - - - Metrics & Drivers Net Earnings $37 $55 $56 $59 $62 $65 $67 Cash Ratio 0.64 0.53 1.00 1.46 1.92 2.39 2.83 Return on Equity 11.8% 14.8% 13.3% 12.3% 11.4% 10.6% 9.9% Net Debt $8 ($30) ($70) ($115) ($161) ($211) ($262) Book Value of Equity per Share 5.9x 5.8x 6.2x 7.1x 8.0x 9.0x 10.0x ProjectedHistoricalBalance Sheet ($ in Millions) Sources: Bloomberg, Team Projections
  77. 77. 77Global Case Competition at Harvard – LVMH M&A Tumi Statement of Cash Flows 2014E 2015E 2016E 2017E 2018E Net Earnings $56 $59 $62 $65 $67 Depreciation 17 18 19 19 20 Change in Working Capital (5) (4) (3) (3) (3) Cash From Operating Activities $68 $74 $78 $81 $85 Capital Expenditures (28) (29) (31) (32) (33) Cash From Investing Activities ($28) ($29) ($31) ($32) ($33) Change in Revolver - - - - - - - - - - Change in Long-Term Debt (1) (1) (1) (1) (1) Cash From Financing Activities ($1) ($1) ($1) ($1) ($1) Change in Cash $39 $43 $46 $48 $50 Beginning Cash $38 $77 $120 $166 $214 Ending Cash 77 120 166 214 264 Metrics & Drivers Free Cash Flow $40 $44 $47 $49 $51 Operating Profit 89 94 98 102 106 EBITDA 106 112 117 121 126 EBITDA Margin 20.2% 20.1% 20.0% 20.0% 20.0% ProjectedStatement of Cash Flows ($ in Millions) Sources: Bloomberg, Team Projections
  78. 78. 78Global Case Competition at Harvard – LVMH M&A Tumi DuPont Ratios 2011 A 2012 A 2013 A 2014 E 2015 E 2016 E 2017 E 2018 E Profitability Gross Profit Margin 57.3% 57.3% 57.5% 57.4% 57.2% 57.0% 57.0% 57.0% Operating Profit Margin 18.3% 18.0% 18.5% 17.0% 16.9% 16.8% 16.8% 16.8% Net Profit Margin 5.0% 9.2% 11.7% 10.8% 10.7% 10.7% 10.7% 10.7% Efficiency Accounts Receivable Turnover - - 18.6x 16.1x 17.4x 17.4x 17.4x 17.4x 17.4x Day's Sales Outstanding in Receivables - - 19.6 22.6 21.0 21.0 21.0 21.0 21.0 Accounts Payable Turnover - - 2.5x 2.4x 2.6x 2.7x 2.8x 2.8x 2.8x Day's Sales Outstanding in Payables - - 147.3 151.7 142.4 134.4 132.5 130.7 130.7 Fixed Asset Turnover - - 8.5x 7.7x 7.3x 6.6x 6.1x 5.6x 5.2x Leverage Debt Ratio - - 9.6% 1.6% 1.2% 0.9% 0.6% 0.4% 0.2% Debt-to-Equity Ratio - - 14.5% 2.2% 1.6% 1.2% 0.8% 0.5% 0.3% Times Interest Earned Ratio - - 2.4x 7.7x 123.3x 137.4x 172.9x 223.7x 306.2x Net Debt - - $8 ($30) ($70) ($115) ($161) ($211) ($262) Liquidity Current Ratio - - 2.4x 2.3x 2.7x 3.2x 3.7x 4.1x 4.6x Quick Ratio - - 0.6x 0.5x 1.0x 1.5x 1.9x 2.4x 2.8x Working Capital - - $45 $53 $58 $62 $65 $68 $70 ($ in millions) Historical ProjectedDuPont Ratios Sources: Bloomberg, Team Projections

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