Spyder Sports

Ashutosh Dash
 Spyder – Ownership Structure

Owner % Equity
CHB Capital Partners 37.9%
David Jacobs 25.4%
Tsunehisa Shimokubo 25.4%
Jake Jacobs and other Employees 11.3%
Total 100 %
Exit Options……
Valuation with
Market
Multiples
 EV – Based on Trading Multiples
Equity LTM LTM Sales EDIDA Spyder Spyder EV EV
Value Debt EV Sales EBIDA Multipe Multiple Sales EBIDA 2004 2004

Adidas-Salomon AG 4302 1459 5761 6221 586 0.93 9.83 61.37 9.58 56.83 94.18

Columbia Sportswear
Co 2239 20 2259 990 220 2.28 10.27 61.37 9.58 140.04 98.37

K2 Inc 559 209 768 839 63 0.92 12.19 61.37 9.58 56.18 116.78

Nike Inc 20558 866 21424 11751 1736 1.82 12.34 61.37 9.58 111.89 118.23

Quiksilver Inc 1217 138 1355 1039 130 1.30 10.42 61.37 9.58 80.03 99.85

Skis Rossignol SA 174 118 292 479 25 0.61 11.68 61.37 9.58 37.41 111.89

VF Corp 5113 994 6107 5390 725 1.13 8.42 61.37 9.58 69.53 80.70
 Value of Spider
2004 2005
Sales Multiples 79 110
(Average)

EBITDA Multiples 103 148

(Average)

* Value in Million Dollars

 EV – Based on Transaction Multiples
Strategic Acquirors

Sales EDIDA Spyder Spyder EV EV

Multipe Multiple Sales EBIDA 2004 2004
VF Corp. The North Face Inc. 0.5 -2.9 61.37 9.58 30.69
Adidas-Salomon AG Arc’Teryx Inc. 1.1 15.5 61.37 9.58 67.51 148.5
Deckers Outdoor Corp. Teva Sandals 1.1 10.3 61.37 9.58 67.51 98.7
Columbia Sportswear
Co. Mountain Hardwear Inc. 1.2 11.1 61.37 9.58 73.64 106.3
VF Corp. Nautica Enterprises Inc. 0.9 9.1 61.37 9.58 55.23 87.2
Nike Inc. Converse Inc. 1.6 9.4 61.37 9.58 98.19 90.1
Financial Acquirors
Investcorp Int’l Inc. Helly Hansen ASA 1.1 8.9 61.37 9.58 67.51 85.3
Bain Capital Inc. Jack Wolfskin GmbH 1.2 9.3 61.37 9.58 73.64 89.1
Cerberus Partners LP Fila Holding SpA 0.6 13.3 61.37 9.58 36.82 127.4
Bear Stearns Camelbak Inc 2.8 8.2 61.37 9.58 171.84 78.6
 Value of Spider
2004 2005
Sales Multiples 74 103
(Average)

EBITDA Multiples 101 145

(Average)

* Value in Million Dollars

 Valuation – DCF Approach
2005 2006 2007 2008Terminal
Op Income Before Dep 13988 16983 21777 27895
Dep 1078 2097 3260 3098
12910 14886 18517 24797
Tax rate 0.201 0.215 0.223 0.239
Taxes 2593.7 3197.9 4122.9 5937.9
EBIAT 10316.3 11688.1 14394.1 18859.1
Dep 1078 2097 3260 3098
Capex 2619 3000 3500 4250
Net WC investment 1590 929 1292 1459
Free Cash Flow 7185.3 9856.1 12862.1 16248.1 159386.1
Cost of Equity - Models
 Size Premium
• 1) Market value of common equity
• 2) Book value of common equity
• 3) 5-year average net income
• 4) Market value of invested capital (MVIC)
• 5) Total assets
• 6) 5-year average EBITDA
• 7) Sales
• 8) Number of employees
CAPM – COE Inputs 2012
 Calculation of WACC
On 31/3/2004 RFR 0.0477
Market Premium 0.05
Beta D/V Asset Beta WACC
Adidas-Salomon AG 0.81 0.39 0.49 7.24
Columbia Sportswear Co 1.48 0.06 1.39 11.73
K2 Inc 1.36 0.41 0.80 8.78
Nike Inc 0.7 0.08 0.64 7.99
Quiksilver Inc 1.01 0.17 0.84 8.96
Skis Rossignol SA 0.55 0.44 0.31 6.31
VF Corp 0.59 0.2 0.47 7.13
Average 0.93 0.25 0.71 8.31
Premium for small & unlisted 5.19
DF for Spyder 13.50
 Valuation of Spyder

Free Cash Flow 7185.3 9856.1 12862.1 16248.1 159386.1

Year 1 2 3 4 4

Disc Factor 0.135 0.135 0.135 0.135 0.135

PV 6330.62 7650.92 8796.81 9790.82 96043.30

EV 128612.48

Growth 3%

Discount 13.50%
 Which Value to consider???
• Different methods imply different valuation bases:
– DCF analysis is typically on a marketable, control basis

– Value obtained from the analysis of trading multiples is

on a marketable, minority basis

– Transaction multiples analysis bases on the

characteristics of the comparable transactions
considered
 Adjustments in Valuation
• Lack of marketability
(since Spyder is a private company)
• Value of control, or lack thereof
(depending on whether the stake to be sold is a
controlling or minority stake)
• Value of potential synergies
(depending on whether the buyer is strategic or
financial)
 Valuation Approach
    DCF Trading Multiples Trasanction Multiples
Discount for Lack of Discount for Lack Multiples paid by strategic
Marketability of Marketability majority buyers of private targets

1 Sell Controlling Block

to Strategic Buyer Multiples paid by strategic
 +Synergy premium +Synergy premium majority buyers of public targets
– Discount for Marketability
    +Control Premium

Discount for Lack of Discount for Lack Multiples paid by financial

2 Sell Controlling Block Marketability of Marketability majority buyers, or
to financial buyers
Multiples paid by financial
 +Control Premium minority buyers
      + Control premium
Multiples paid by financial
Discount for Lack of Discount for Lack minority buyers
Sell Minority Interest
3 (CHB’s) to financial Marketability of Marketability
buyers - Minority Discount Multiples paid by financial
      majority buyers – Minority Disc
Levels of value &ownership characteristics
Control Premium - Mergerstat
Control Premium - Mergerstat
Overall Premium
 Quantification of VP

In Dual class Shares

Quantification of MD
Example from Mergerstat
 Illiquid Disc - Empirical Evidences
• Restricted Stock

• Private Placements

• Bid Ask Spread

• Pre-IPO studies
Studies on Restricted Stock
 Johnson Study 1999
Total Sale Average Discount

$00 – 10 M 23.5%

$10 – 50 M 19.4%

$50 – 200 M 17.7%

Over $200 M 13.0%

Total Net Income Average Discount

Negative 22.5%

$0-1M 26.0%

$1-10 M 18.1%

Over $10M 06.3%

 Johnson Study 1999
Transaction Size Average Discount
0-5 $M 26.7%
5-10 $M 20.9%
10-25 $M 17.0%
Over 25 $M 10.8%
Net Income Margin Average Discount
Negative 22.5%
0-5 % 23.7%
5-10 % 15.2%
10-25 % 11.6%
Private Placements

Bajaj et al,
 Bid Ask Spread
• Damodaran (2000) regressed the bid-ask spread against annual
revenues, with a dummy variable for positive earnings (DERN: 0 if
negative and 1 if positive), cash as a percent of firm value and
trading volume.

• Spread = 0.145 – 0.0022 ln (Annual Revenues) -0.015 (DERN) – 0.016

(Cash/Firm Value) – 0.11 ($ Monthly trading volume/ Firm Value)

• Plugging in the corresponding values – with a trading volume of zero

– for a private firm should yield an estimate of the synthetic bid-ask
spread for the firm.

• This synthetic spread can be used as a measure of the illiquidity

discount on the firm.
 What if to apply both discounts????

• Application of the discounts is

multiplicative, not additive

• Discount for control is applied first

 What happened????
• 80% of the equity sold to Apax Partners
• At about $100 million
• Slightly higher offer from a strategic buyer
• CHB Capital Partners was paid out
• David and Shimokubo retained some equity
• Employees exercised their option (not all)
• David continued till 2007 and Jake took over