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  1. 1. Kona Adventures Hicks | Hicks | Ballard | Rice
  2. 2. Table of Contents Executive Summary Valuation Methodologies Potential Buyers Potential Target Recommendation 3 10 16 20 22 Section Table of Contents 2
  3. 3. Executive Summary
  4. 4. Executive Summary 4 13,678.23 0 2000 4000 6000 8000 10000 12000 14000 16000 1980 1984 1988 1992 1996 2000 2004 2008 2012 2016 2020 Macro Environment Summary Consumer Confidence Unemployment 91.4 50 55 60 65 70 75 80 85 90 95 100 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Sources: U.S. Census Bureau, IBIS World Consumer Spending $ in Billions Dip in consumer confidence as a result of global economic concerns related to Brexit, as well as uncertainty surrounding the strength of the American economy and the upcoming election However, consumer spending continues to increase and is forecasted to grow at 2.6 percent through mid-2017 amid low interest rates Unemployment projected to remain largely stagnant through 2020 as jobs increase moderately 5.10% 0 2 4 6 8 10 12 1980 1984 1988 1992 1996 2000 2004 2008 2012 2016 2020
  5. 5. Executive Summary 5 Life Cycle Stage Regulation Level Revenue Volatility Technology Change Capital Intensity Barriers to Entry Industry Assistance Industry Globalization Concentration Level Competition Level CarRental 3% Tourand Package Travel Bookings 32% Cruise Bookings 26% Internationaland Domestic Airline Bookings 23% Accomodation Bookings 11% Other 5% Travel Industry Overview Select Drivers 2016 Products and Services Segmentation Industry State Sources: IBIS World $34.4bn Mature International Trips by U.S. Residents Percentage of Services Conducted Online Consumer Spending Consumer Confidence Index Domestic Trips by U.S. Residents International trips from the United States expected to rise by an annualized rate of 3.8% through 2022 Depreciation of the Euro encourages travel abroad Low crude prices trigger higher margins and the potential for cheaper ticket prices Technological advancements in aircraft technology have made air travel more safely and more cheaply Low unemployment and rising disposable income spurs leisure travel Revenue projected to grow at CAGR of 1.9% through 2022 Increased demand for and implementation of online capabilities has driven online sales growth Automated systems reduce agent headcount and payroll expense Moderate job creation in a strengthening economy will translate into additional money in consumer wallets, fueling purchases Economic turmoil in Europe and downward revision to Chinas growth prospects make predictions in the index unpredictable
  6. 6. Executive Summary 6 Corporate Social Events 43% Weddings 28% Birthday Parties 16% Other 13% Life Cycle Stage Regulation Level Revenue Volatility Technology Change Capital Intensity Barriers to Entry Industry Assistance Industry Globalization Concentration Level Competition Level Event Planning Industry Overview Select Drivers 2016 Products and Services Segmentation Industry State Sources: IBIS World $4.9bn Mature Corporate Profit Industry clients are largely corporate Industry revenue is increasing despite stagnating corporate profit levels Marriage Rate Declining marriage rates are pushing industry focus into other service segments Industry Revenue v. Corporate Profit 0 1,000 2,000 3,000 4,000 5,000 6,000 7,000 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 Revenue ($m) Corporate Profit ($b) Time Spent on Leisure and Sports Low unemployment leaves the average American with less leisure time, resulting in increased outsourcing to professionals
  7. 7. Executive Summary 7 Company Overview Service Mix Competitive strategy Sources: Case Materials Airfare Hotels Transport Event Planning Serve wide variety and scale of customer Use cutting edge technology and superior customer service to enhance customer experience and earn return business Pursue acquisitive growth strategy to enter new markets and gain market share Enhance online presence to reduce agent headcount and payroll expenses Continue to grow core competencies Airfare Accomodation 43% Hotel Booking 27% Transportation Services 8% Entertainment Planning 23% Revenue Breakdown by Service Revenue and EBITDA Margin Trend 0% 10% 20% 30% 40% 50% 2013 2014 2015 2016 2017 2018 2019 2020 2021 $0 $50 $100 $150 $200 $250 $300 $350 Sales/Revenue EBITDA Margin $ in Millions
  8. 8. Executive Summary 8 SWOT Analysis Sources: IBIS World Strengths Weaknesses Opportunities Threats Proven acquisition platform Exceptional service leading to 85% customer retention Leader in travel and entertainment market with strong core end markets Strong vendor relationships Comprehensive product portfolio allows for increased customer penetration Enter international markets through use of fully integrated digital platform Growth in per capita income and steady unemployment will lead to growth in domestic and international travel Reliance on US market Intense competition from other service providers means limited margins and slow market share growth External pressure on travel industry Competition level of industry is high Customers will go to agency with the best price deal Digital platform cannot replace the expertise, guidance, and personal service of an experienced travel agent Business travel reliant on steady economic growth, business confidence, and profitability
  9. 9. Executive Summary 9 Exclusive Access Ability to access events and reservations not available to the public Strong vendor relations deliver better prices to the end consumer Personalized customer service with real-time analysis simplifies the travel process International reach Tech-enabled digital solutions provide the same services with greater convenience Removal of Administrative Travel Burden Value Proposition Sources: Case Materials Arr w 2 Specialty meetings and large corporate events Group travel coordination and events Facilitation of Corporate and Personal Events
  10. 10. Valuation Methodologies
  11. 11. Valuation Methodologies 11 Investment Highlight Commentary / Key Considerations Growth Opportunities Significant whitespace to grow and expand customer relationships Opportunity to strengthen expansion of entertainment planning service segment both organically and inorganically Rapidly increasing scale and breadth of online service Platform Attributes Experienced management with financial and technical expertise in the travel and entertainment and tech industries consistently delivers strong financial performance Expansive customer base with loyal blue chip customers Strong relationships with key vendors in the industry, including recognized airlines, hotels, transportation providers, and event venues Industry Environment 60% of market share controlled by regional and local agencies offers attractive opportunity to gain market share through acquisition High valuations , elevated M&A activity, ample private equity dry powder available o 9.0% increase in dry powder from 2014, totaling $755bn as of June 2015 Scarcity Value Few practices of scale and caliber are available in the market Ample consolidation opportunities exist in surrounding markets Investment Highlights Sources: Case Materials, Preqin Global
  12. 12. Valuation Methodologies 12 Public Comparables Analysis Valuation Sources: Case Materials, Bloomberg Focus on travel agencies, especially technology-enabled platforms, to reflect Konas high potential in that space Inclusion of event planning and online reviewing platforms are meant to reflect Konas growing presence in that space 2016 EBITDA EV/EBITDA Range Kona Adventures 52.7 13.2x - 15.4x $695mm $811mm Implied Valuation Range Kona Adventures ($ in millions, except per share data) TTM Price as Market Enterprise Gross EBITDA EBITDA EBITDA-Capex Enterprise Value / TTM Company of 10/24/16 Cap. Value Revenue Gross Profit EBITDA Margin Margin Less Capex / Revenue Revenue EBITDA Tier I: Mkt Cap > $5,000 bn Priceline Group $ 1,468.91 $ 72,604 $ 75,472 $ 10,592 $ 10,121 $ 4,227 95.6% 39.9% $ 4,007 37.8% 7.1x 17.9x Expedia 124.79 18,704 20,614 8,720 7,131 1,625 81.8% 18.6% 855 9.8% 2.4x 12.7x TripAdvisor 63.99 9,321 8,522 1,524 1,452 390 95.2% 25.6% 311 20.4% 5.6x 21.8x Live Nation Entertainment 27.74 5,634 6,671 7,747 2,161 585 27.9% 7.6% 431 5.6% 0.9x 11.4x Tier II: Mkt Cap < 5,000 bn Makemytrip Ltd 25.37 1,179 1,164 354 180 (76) 50.8% -21.4% (86) nm 3.3x nm Libterty TripAdvisor 21.70 1,627 5,949 1,536 - 216 0.0% 14.1% 123 8.0% 3.9x 27.5x Travelzoo Inc. 12.25 170 143 133 117 11 87.7% 8.1% 10 7.2% 1.1x 13.2x Groupon 5.03 2,887 2,279 3,119 1,374 51 44.0% 1.6% (29) nm 0.7x 45.0x Yelp 35.15 2,750 2,346 629 570 (0) 90.6% 0.0% (38) nm 3.7x nm Median $ 2,887 $ 5,949 $ 1,536 $ 1,374 $ 216 81.8% 8.1% $ 123 8.9% 3.3x 13.2x Mean $ 12,764 $ 13,684 $ 3,817 $ 2,567 $ 781 63.7% 10.5% $ 620 14.8% 3.2x 15.4x
  13. 13. Valuation Methodologies 13 2016 EBITDA EV/EBITDA Range Kona Adventures 52.7 10.0x - 14.4x $527mm $758mm Implied Valuation Range Precedent Transactions Analysis Valuation Timing of precedent transactions lowers the implied multiples, mitigating the positive effects of synergies and premiums We focus on the upper end of this valuation range Includes range of travel coordinators, as well as entertainment planners Enterprise Value / Date Transaction Purchase Equity Enterprise LTM Announced Acquirer Target Type Consideration Value Value EBITDA 1/23/2015 Priceline Group Inc. OpenTable Inc Public/Public Cash 2,496 2,378 44.80x 2/12/2015 Expedia Inc Orbitz Worldwide Inc Public/Public Cash 1,336 1,596 11.43x 11/8/2012 Priceline Group Inc. Kayak Software Corp Puiblic/Public Cash and Stock 1,725 1,660 30.17x 4/27/2006 Carlson Wagonlit Travel BV Navigant International Inc. Public/Public Cash 278 478 8.25x 7/26/2011 Cox & Kings Ltd Holidaybreak Ltd Public/Public Cash 305 4