Mango

Question 1

What did you grow Mango revenue at?

Answer 1

6%, 6.7% in the out years (2015-2022)

Question 2

What did you grow Mango EBITDA at?

Answer 2

Mango EBITDA was driven off the EBIT calculation, which grew at 7.5% - 9.0% each year, then we added D&A. EBITDA growth ended up at ~8-9% per year

Question 3

What were the EBITDA margins?

Answer 3

15.3% in 2012 and increased steadily until 2022 where it reached 19.6%

Question 4

What were other important assumptions of the Mango operating model?

Answer 4

• Cap Ex held as a constant percent of sales

- Dividend/share grew at 7.5%

Question 5

What were important DCF assumptions?

Answer 5

8% WACC, 3% perpetuity growth rate

• TV = 72.5% of EV
• midpoint = 40% premium to current

Question 6

What trading multiples did you use for Mango?

Answer 6

P/E: 17.0-19.0x

EBITDA: 10.5-12.5x

Question 7

Walk me through the acquirer operating model?

Answer 7

• first spread brokers revenue/EBIT estimates and took median until 2015
• then analyzed Euronomitor data for each regional category
• adjusted broker growth rates in out years (2015-2022) to more accurately reflect this growth rate
• cap ex = % of sales, D&A = % of cap ex
• dividend/share = plus 5% each year
• repurchase, $3 Bn per year

Question 8

What was Pear revenue and revenue growth?

Answer 8

Revenue =

Growth = 4.5% through ‘15, 4.0% onwards

Question 9

What was Pear EBITDA, EBITDA growth, margin??

Answer 9

EBITDA =
EBITDA growth = 4.8% - 5.0%
EBITDA margin = slight expansion = ~19%-20%

Question 10

Why were the acquisitions more accretive than the RMT?

Answer 10

1) LEVERAGE - used leverage in acquisitions (4.0x PF EBITDA)

2) Higher ownership due to structure –> more synergies

Question 11

Why did each subsequent acquisition become less attractive to the acquirer? (wholeco, regional split, global split)

Answer 11

1) Lower net income because of DIS-SYNERGIES
2) Lower EBITDA because of Dis-Synergies and Multiple Valuation –> lower EBITDA means less leverage –> less PF ownership

Question 12

Other main considerations in analysis?

Answer 12

1) SOCIAL / LEGACY

2) Confidence in acquirer management

Question 13

What was accretion dilution in the second analysis???

Answer 13

GAAP -7.5%, 9%, 11.5% with 4.0x, 4.5x, and 5.0x leverage, respectively

We also analyzed cash, which was 5-6% higher in all cases than GAAP

Question 14

What is the difference between cash and GAAP acc/(dil)?

Answer 14

GAAP - accounted for transaction goodwill
- write-up of assets
- write-up of intangibles
- DTL
Higher depreciation/amortization expense flowed through P&L and lowered net income, making GAAP less accretive

Question 15

What were the actual cost synergies (not quant, explain)

Answer 15

1) G&A: consolidate overhead
2) selling: overlapping selling/customer service
3) distribution: consolidate physical, more leverage with distributors
4) advertising: leverage scale in purchasing media, consumer promos
5) raw materials: pool purchasing of overlapping materials
6) packaging: pool purchasing of overlapping materials
7) corporate unallocated: eliminate 1 corporate center

Question 16

What were the actual revenue synergies (not quant, explain)

Answer 16

1) DSD best practices
2) Increased Reach - leverage joint scale to expand footprint
3) Non-overlapping product markets
4) overall leverage with retailers from higher scale

Question 17

Explain the Cost synergies

Answer 17

Cost = $2.1 Bn annuallly, 6% of target sales
Phased in over 4 years, 15%, 50%, 80% 100%
2022 capitalized at 10x, NPV of cost synegies = $22 Bn

Question 18

Explain the Revenue synergies

Answer 18

Revenue = $1.9 Bn annually, 5.5% of target sales
Phased in slower than cost synergies and over 5 years (0%, 25%, 50%, 75%, 100%)
Operating Income margin eventually 20% (0%, 0%, 10%, 15%, 20%)
also capitalized at 10x, NPV of revenue = $3 Bn

Question 19

Explain the one-time costs

Answer 19

$4.4 Bn of capex/one-time costs phased at 40/40/20
+ transaction cost of ~$1 Bn
* Both tax-effected
NPV = $4 Bn

Question 20

How much were the capitalized synergies?

Answer 20

22 Cost
+ 3 Revenue
-4 implementation/1-time
= 21 Bn net synergies

Question 21

Explain the IRR analysis

Answer 21

Built out cash flows like a DCF to find the IRR. The outflow was the purchase price and one-time transaction costs, while inflows were target unlevered FCF, and the UFCF of cost synergies and revenue synergies

Question 22

What was the IRR?

Answer 22

We analyzed the IRR with and without a spin. At a 30% premium,

Without = 11.6%
With = 11.1%

20%: +1%
40%: (0.8%)

Question 23

Explain the ROIC analysis?

Answer 23

Calcuated the return on invested capital each year where the invested capital was the purchase consideration and the annual return was the additional NOPAT from the acquisition, which was
- target EBIT
+ synergies
- one-time/cap ex synergy costs

Question 24

What were the ROIC results / what did it tell you?

Answer 24

ROIC with synergies was the important anlysis here. Acquirer illustrative cost of capital was 7-8% and ROIC first hit that range in 2017 (3%, 4%, 5.5%, 7.5%)

Without synergies, ROIC started at a higher point but was much flatter (4%, 4.5%, 5%, 5.5%)

Question 25

What is the strategic rationale from both perspectives?

Answer 25

1) Extraordinary synergies
2) Largest global player in the industry with the largest portfolio of iconic brands
3) Highly complementary fit but with limited category overlap or regulatory complexities

Question 26

What is the additional strategic rationale from the acquirer perspective?

Answer 26

1) even with substantial premium, significant value creation for shareholders
2) Strong debt financing environment
3) Increases developing market exposure
4) enhances organic revenue growth trajectory
5) Significant FCF generation will quickly delever the combined company
6) Could serve as the catalyst for radical portfolio changes that could ultimatley add more value
7) Target undervalued with weak structural defenses

Question 27

What are risks associated with this investment?

Answer 27

1) Company does not reach their long-term growth algorithm
2) Large part of growth profile/strategy is acquisitions. Could possibly face roadblocks related to integrating new brands
3) Market share could decline with increased competition
4) very exposed to negative FX headwinds and will be even moreso in the future
5) can’t control commodity costs, could prove higher than expected
6) could definitely overpay for tack-on acquisitions
7) gum turnaround may take longer than expected