Lincoln International Stormcat Deck 5-27-2016

May 27, 2016

Lincoln InternationalInvestment Banking Boot Camp

Aviato CapitalPresenting on Stormcat Manufacturing Co., Inc.

2

The Aviato Capital TeamSuman Patel

•Sophomore

•Graduation: May 2018

•Materials Engineering

Grant Shorin

•Junior


•Economics

James Perry

•Junior


•PLS

•Economics

Justin Kim

•Sophomore


•Finance

•Accountancy

Emily Bridges

•Junior


•Politics

•Economics

Max Macey

•Junior


•Economics

•Accountancy

3

Table of Contents

Executive Summary 4

Industry Overview 5

Strategic Positioning 7

Potential Buyers 10

Valuation 13

Final Recommendations 15

4

Executive Summary

Situation Overview

Industry Overview

Analysis of Potential Acquirers

Strategic Company Positioning

Recommendations

• Stormcat Manufacturing is a leading agricultural equipment manufacturer with a diverse product line• The Chairwoman of Stormcat Manufacturing is interested in exploring a sale of the company• Key priorities for the sale are to sell the company, ensure current location, maximize value, and maintain confidentiality

Executive Summary

IndustryOverview

StrategicPositioning

Potential Buyers Valuation Final

Analysis

• The agricultural equipment industry is characterized by marginal market growth, leaving the top three companies with roughly 70% of the market share

• There has been a movement towards healthier diets and the average farm size in the industry has been increasing

• Industry leader in the agricultural equipment space, including a top three ranking in market share• Key selling points for the company include the loyal customer base, specialized implements, brand recognition, strong

management team and most importantly the growth opportunities

• Based on industry research and a weighted analysis of selling priorities, financial sponsor acquisition appears to be the best fit for Stormcat

• Financial sponsors will likely utilize the value of current management and keep the headquarters in Jasper, Indiana

• We propose a valuation range of $76mm to $85mm based on current market trends and expected future performance• We recommend Stormcat Manufacturing considers the sale of the company to the suggested potential acquirers

14%

25%

30%

8%

7%

6%

10%Stormcat

Case

Deere

Great Plains

Kuhn Krause

Landoll

Others

20052006

20072008

20092010

20112012

20132014

20152016

0

20,000

40,000

60,000

-30-20-1001020

$ million % GrowthYear

$ m

m

% C

hang

e Yo

Y

5

Industry OverviewAgricultural equipment is a highly competitive $175 billion industry globally with just a few key players controlling over half of the market share

Executive Summary

IndustryOverview



Analysis

Competitive Landscape

Key Trends Industry Revenue in the United States

Agricultural Equipment Market Share (2015)Stormcat’s Key Success Factors•Broad product offering with specialty in implements•Strong dealer network with aligned incentives•Uphold reputable brand through word of mouth advertising •Timely new product introductions •Continue to tap into rapidly growing e-commerce market•Set the industry standard for impeccable customer service

•Movements towards people consuming a healthier diet•Rapid growth of human population

• Food demand will double by 2050•Growing farm size across the industry

• Mean farm size has doubled in the last 30 years•Consolidation amongst equipment manufacturers

65%

20%

4%11%

Tillage Equipment

Seeding Equipment

Specialty Harvesting Equipment

Parts & Attachments

6

Company AnalysisStormcat Manufacturing is an industry leader in agricultural equipment, ranking third in market share

Executive Summary

IndustryOverview



Analysis

Product Overview Sales by Product Line (2016E)

• Market-leader in agricultural equipment manufacturing− Known for high quality products and post-sale service

• Exceptionally strong, premium brand that is heavily respected in the industry

• Maintained strong expansion of current manufacturing facilities in each decade since 1964

• Revenue has grown 27% since 2013 and EBITDA has tripled in the same time frame

Head Quarters Jasper, IN

Management 150+ years of combined industry experience

Market Sector Agricultural Equipment Manufacturing

Product Offerings Diverse agricultural equipment product offerings along with after-market services

Revenue Sources Strong distribution channels to large customer base

Company Overview Established, High Quality Equipment Manufacturer

• Disc Harrows – Regarded as #1 in the US• Deep Tillage Tools – Considerate of conservation and

erosion • Field Cultivators – Create optimal seedbeds and soil-finish• Land Finishers – Available in two and three-section models• Fallow Tillage Tools – Built for wide range of soil conditions• Soil Conditioners – Break up surface clods and ridges• Chisel Plows – Renowned for ability to break up soil• Grain Drill – Contain many diverse, popular features• Air Drill – Combines air seeding with all purpose opener

• Ranks #1 among competitors in service experience

• Personable and accessible service workers with comprehensive understanding of product

• Specialized in high quality implements

• 70 + year history with reputable brand

7

Key Investment ConsiderationsIn order to find the right acquirer fit and highest valuation, Stormcat Manufacturing can capitalize on its strongest components and unique differentiators

Executive Summary

IndustryOverview



Analysis

Key Selling Points

Management Team

Attractive Financials

Customer ServiceExceptional Dealer Network

Lucrative Market Niche

• High demand for Stormcat products leading to increased revenue

• Established dealer relationships through first class support

• Manufactures premium products with add-on features for large farmers

• Consistently profitable company for 40+ years

• Generates strong free cash flow driven by robust operating margins

• Passionate and knowledgeable management team and personnel

• Close-knit culture and strong reputation in local community

Solutions Provider

Strong relationship with dealer personnel

Market niche in producing Cadillac

products

Unparalleled quality of customer service

Consistently profitable company for 40+

years

High performing product provides more features and benefits

to the customer

Close knit employees and invested

management team

8

Growth Opportunities

Executive Summary

IndustryOverview



Analysis

Aviato will thoughtfully and persuasively convey Stormcat’s compelling growth opportunities to achieve a premium valuation

Future

Expand Geographic Footprint

Improve Lean Manufacturing Efficiency

2015

Enhance Online Presence

Introduce New Product Lines

Make Strategic Acquisitions

• Utilize internet and e-commerce effectively for market penetration and growth

• Introduce new spray machinery for chemical applications and new ripper lines

• Introduce products targeted for larger farmers

• Continue to invest in lean manufacturing processes which will improve inventory turnover and reduce working capital needs

• Boost capital investments in additional robotic welders

• Expand international dealer network in countries with established presence

• Convert representation in some territories from independent to direct dealers

• Platform for growth in Australia, Europe and/or Asia

• Expand product portfolio and manufacturing capabilities with focus on higher margin, differentiated offerings

9Executive Summary

IndustryOverview



Analysis

Aviato will proactively anticipate and mitigate potential buyer concerns associated with Stormcat Manufacturing

Potential Buyer Concerns

Economic/Environmental Factors Financial Factors

Challenges: Economic downturn, drought

Key Messaging:• Economic Downturn

• Stormcat targets larger, more successful farmers

• Large farms have more steady purchasing patterns throughout all economic environments

• Drought• Stormcat has strong

domestic geographic diversity

Challenges: Financing rates, exchange rate fluctuations

Key Messaging:• Customer Financing Rates

• Rise in prime rate is expected, but magnitude and frequency are expected to be minimal

• Exchange Rate Fluctuations• Over 90% of revenues

are from domestic buyers

Challenges: Industry opposition to Stormcat dealers handling other companies’ equipment

Key Messaging:• Established a strong niche, via:

• Superior product quality and performance

• Unparalleled customer service and product knowledge

• Unmatched delivery time

Fortified position in major line dealerships

Marginal increase in financing rates, minimal exposure to foreign

exchange fluctuations

Revenue streams resistant to economic downturns and environmental conditions

Major Line Opposition

Overview of Potential BuyersStormcat Manufacturing would be a strong acquisition for both strategic and financial investors

Executive Summary

IndustryOverview



Analysis

Strategic Buyers Financial Buyers

Return on Investment

Growth Opportunities

Economies of Scale

Culture & Management

Transaction Speed

Portfolio Integration

• Acquirer will realize a higher return on investment due to synergies associated with acquisition

• By becoming part of a larger whole, Stormcat will likely be able to access new markets, locations and products

• Larger companies will likely have met scale and can pass this benefit off to Stormcat in order to decrease costs

• Employees will likely be kept with the company, along with most management

• Financial firms are experienced in M&A transactions and will likely streamline the sales process

• Stormcat would benefit if the financial sponsor’s portfolio contains companies with which it could realize synergies

Buyer UniverseStrategic Financial

Strategic Financial

Geographic Fit

Clientele Similarity

Management Fit

Industry Focus

Average Total

10

Strategic BuyersStormcat Manufacturing is primed to be compatible for both horizontal and vertical integration acquisitions

Horizontal Integration

Vertical Integration

Company Company Overview Financial Statistics M&A Activity Strategic Rationale

Company Company Overview Financial Statistics M&A Activity Strategic Rationale

Executive Summary

IndustryOverview



Analysis

Develops, manufactures, and markets construction and mining equipment; headquartered in Tokyo, Japan

• Total Revenue: $16,889.4mm • EBITDA: $2,950.7mm• Leverage:$4,165.6mm

• Increasing dealer network• Accessing new markets

and customers

• Announced acquisition of Lehnhoff Hartstahl GmbH & Co. on November 9, 2015

Engages in the automotive and farm equipment industry; headquartered in Mumbai, India

• Total Revenue: $10,685.3mm• EBITDA: $1,345.4mm• Leverage: $5,714.1mm

• Acquired Mitsubishi Agricultural Machinery Company on October 1, 2015

• Acquire customer for steel manufacturing component of the business

• Build customer base in US

Operates as a construction and industrial equipment rental company; headquartered in Stamford, Connecticut


• Acquired Blue-Stream Services on May 6, 2014

• Expand product offering to agricultural equipment

• Access to new customers

11

Manufactures and distributes portable grain handling, storage, and conditioning equipment; headquartered in Winnipeg, Canada

• Total Revenue: $369.79mm• EBITDA: $38.60mm• Leverage: $265.55mm

• Acquired Entringer Industrial on March 9, 2016

• Complementary product line

• Leverage sales and distribution network

Manufactures and distributes agriculture, construction, and forestry equipment worldwide; headquartered in Moline, Illinois


• Acquired Hagie Manufacturing Company on March 29, 2016

• Acquired Monosem on February 3, 2016

• Inorganic growth, greater market share

• Integration of operations• Integration of Stormcat’s

customer service reputation

Financial BuyersStormcat Manufacturing is positioned to grow significantly under the expertise of a financial buyerFinancial SponsorsCompany Assets Under Management Investment Criteria Strategic Rationale Current Holdings

Executive Summary

IndustryOverview



Analysis

Not disclosed

• Enterprise value between $50mm and $750mm

• EBITDA between $10mm and $150mm

• Seeks companies with growth potential due to consumption trends

• Focuses on late-stage growth and ownership transitions

12

$1.1bn

• Seeks to invest between $25mm and $100mm

• Revenues between $50mm and $1bn

• EBITDA ranging from $10mm to $40mm

• Focuses on investing in middle market industrial business-to-business companies

• Recent purchase of Salford, an agricultural machinery company

• Revenues between $10mm and $150mm

• Prefers family owned businesses with succession concerns

• Recent acquisitions of grain processing plants with substantial cross-selling opportunities

• Previous experience with a dealer network

Not disclosed

$0.8bn

• Enterprise value between $38mm and $377mm

• Seeks to invest between $15mm and $94mm

• Operating profits of at least $3.8mm

• Recent acquisition of Ingersoll Tillage Group

• Seeks partnership with talented management teams in businesses throughout North America

($ in millions, except per share)

($ in millions)

Stock 52-week Prices % of High Market Enterprise EV / LTM EV / FY2016E Price High Low 52-week 3-Year Cap Value Revenue EBITDA Revenue EBITDAAg Growth International Inc. $ 30.15 $ 41.61 $ 19.03 72% 52% $ 441 $ 681 1.8x 17.6x 1.6x 9.8xAGCO Corporation 51.51 57.90 41.85 89% 80% 4,248 5,652 0.8x 9.3x 0.8x 10.4xAlamo Group, Inc. 60.40 61.82 43.98 98% 94% 696 819 0.9x 7.8x 0.9x 8.5xArt's-Way Manufacturing Co. Inc. 3.02 5.94 2.46 51% 39% 12 20 0.7x nmf nmf nmfBucher Industries AG 235.53 260.07 195.63 91% 69% 2,381 2,430 1.0x 8.3x 1.0x 8.1xCNH Industrial N.V. 7.14 9.72 5.67 73% 54% 9,716 31,993 1.2x 14.2x 1.3x 15.1xDeere & Company 80.27 98.23 70.16 82% 82% 25,381 60,341 2.2x 17.3x 2.6x 19.9xExel Industries Société Anonyme 81.78 89.47 48.09 91% 87% 555 760 0.9x 8.7x 0.9x 8.9xKubota Corporation 14.73 19.98 11.57 74% 1% 18,337 24,761 1.7x 10.2x 1.6x nmfMETISA Metalúrgica Timboense S.A. 2.93 3.20 1.96 92% 17% 26 18 0.3x 5.7x nmf nmfTakakita Co., Ltd. 4.75 7.83 2.92 61% 1% 55 0 0.0x 0.0x nmf nmfThinker Agricultural Machinery Co., Ltd. 4.20 16.46 3.54 26% 4% 840 733 8.2x nmf nmf nmfMaruyama Mfg. Co., Inc. 1.59 2.23 1.37 71% 1% 78 126 0.4x 6.5x nmf nmfVST Tillers Tractors Limited 27.22 28.69 18.99 95% 1% 235 214 2.3x 12.7x 2.3x 12.9xMean 76% 41% 1.6x 9.9x 1.4x 11.7xMedian 78% 45% 1.0x 9.0x 1.3x 10.1x

1-Yr Rev Total Cash & LTM EBITDA Gross FY2016E Growth Debt Equivalents Revenue EBITDA Margin Margin Revenue EBITDAAg Growth International Inc. 16.3% $ 266 $ 27 $ 370 $ 39 10.4% 27.2% $ 437 $ 70 AGCO Corporation (19.5%) 1,586 248 7,324 609 8.3% 20.9% 6,928 543 Alamo Group, Inc. 1.0% 173 50 883 104 11.8% 23.6% 893 96 Art's-Way Manufacturing Co. Inc. (27.4%) 8 1 27 0 1.2% 24.5% nmf nmf Bucher Industries AG (11.9%) 385 346 2,487 292 11.7% 49.9% 2,490 300 CNH Industrial N.V. (17.8%) 26,037 3,622 25,786 2,255 8.7% 17.5% 23,998 2,124 Deere & Company (16.2%) 37,866 2,791 27,627 3,478 12.6% 22.5% 23,354 3,036 Exel Industries Société Anonyme (1.5%) 265 66 809 87 10.7% 32.6% 882 86 Kubota Corporation 9.3% 6,715 1,057 14,429 2,421 16.8% 31.8% 15,657 2,468 METISA Metalúrgica Timboense S.A. (19.9%) 39 46 60 3 5.4% 23.0% nmf nmf Takakita Co., Ltd. (5.6%) 20 3 68 5 7.7% 29.6% nmf nmf Thinker Agricultural Machinery Co., Ltd. (6.6%) 2 58 89 11 12.6% 23.8% nmf nmf Maruyama Mfg. Co., Inc. 12.2% 65 18 314 19 6.2% 26.4% nmf nmf VST Tillers Tractors Limited 1.8% n/a n/a 92 17 18.4% 32.9% 94 17 Mean (6.1%) 10.2% 27.6% Median (6.1%) 10.6% 25.5%

Executive Summary

IndustryOverview



Analysis 13

Comparable Public Companies AnalysisThe agricultural equipment companies with the most similar valuation metrics to Stormcat are currently trading at a median TEV/EBITDA multiple of 9.0x

Precedent M&A Transaction Analysis

Executive Summary

IndustryOverview



Analysis 14

Announced Enterprise EV / LTM EBITDA

Date Target Company Business Description Acquiring Company Value Revenue EBITDA MarginApr-16 Kukje Machinery Co. Manufactures agriculture machinery Tong Yang Moolsan Co. 430 2.25x 26.7x 8.4%

Dec-15 Saf-Holland Canada Limited Manufactures soil loosening and cultivation equipment. Located in Canada. Salford Group - - - -

Dec-15 Blount International Manufactures equipment and component parts used in forestry, farm, ranch, agriculture, garden, and construction applications.

American Securities; P2 Capital Partners

857 1.00x 8.2x 12.1%

Jun-15 North American Tillage Tools Operating as Ingersoll Tillage Group Inc., manufactures agricultural disc blades and related products ONCAP

140 - - -

May-15 Mitsubishi Agricultural Machinery Co. Manufactures and sells agriculture machines and facility plants Mahindra & Mahindra - - - -

Apr-14 Agmech Engages in the manufacture of farm machinery and equipment in New Zealand Clough Agriculture - - - -

Nov-13 Salford Farm Machinery Ltd. Manufactures farm machinery for the global agricultural marketplace GenNx360 Capital - - - -

Aug-13 Soil Care Systems International Pty Manufactures agriculture machinery for improved ad sustainable agriculture for farmers and agricultural researchers Davimac Pty.

- - - -

Jul-13 Kukje Machinery Co. Manufactures agriculture machinery Union Steel Co. 27 0.16x - -

Aug-11 Woods Equipment Co. Engages in the manufacture and distribution of attachments and replacement parts for agricultural, grounds maintenance and construction markets Blount International

185 1.15x 8.7x 13.2%

Mean 137 1.14x 14.55x 11.2%

Median 1.07x 8.7x 12.1%

The agricultural equipment companies that mostly resemble Stormcat recently sold for a median TEV/EBITDA multiple of 8.7x

Market EntranceGiven the current conditions, Stormcat Manufacturing is in a good position to go to market as soon as possible

Executive Summary

IndustryOverview



Analysis

Assess the Need & Urgency for M&A

FavorableUnfavorable

• Encroachment by existing and new competitors

• Supplier consolidation• Unfavorable regulatory

outcomes over sustained periods

• Expansion by non-traditional entrants

• Supplier consolidation• Stable regulatory conditions

in U.S. market

Suppliers/retailers seek collaboration to grow in international markets

Moderate regulatory conditions in the U.S. market; improving operational conditions in international markets

Weeks 1-4 Weeks 4-8 Weeks 8-12 Weeks 12-14 Weeks 14-16 Post-Acquisition

Phase 1 – Prepare the Company for Sale• Company due diligence• Create price validations• Finalize buyer list

Phase 3 – Conduct Formal Marketing• Gather list of interested companies• Schedule management meetings• Analyze information requests

Phase 5 – Final Negotiations• Evaluate final bids• Negotiate with final buyers• Assist in closing of transaction

Phase 2 – Market the Company for Sale• Initiate buyer contract• Distribute investment overview• Gather data room materials

Phase 4 – Due Diligence and Final Bids• Request final bids• Distribute draft of sale agreement• Review final offers and sale agreements

Transition Period• Turnover assistance

Transaction Timeline

Drivers for M&A•Differentiation

− Innovation, scale, unique alignment with channels

•Industry Globalization− Cross-boarder activity increase

•Industry Disruption− Shifts such as product

expansion and consolidations•Growth in Financial Buyers

− PE acquisitions becoming more common to create scale and enhance value

15

Final RecommendationsWe recommend Stormcat Manufacturing to go to market with an expected valuation of $76 million to $85 million

Executive Summary

IndustryOverview



Analysis

Sale Information Why Aviato Capital?

Company Positioning Valuation• Stormcat is currently positioned as a leading

agricultural equipment manufacturer primed for future growth

• Growth can be realized through new product introduction and expanding platform to new markets

• Management, dealership network and brand development will be key factors in determining future success

• Aviato Capital recommends acquisition by financial sponsor

Financial Buyer

EBITDA Multiple: 9.0x – 10.0x

Enterprise Value:

$76mm-$85mm

• Investment Criteria: Enterprise value between $25mm and $100mm

• Experience in agricultural equipment

• Stormcat is a middle market agricultural equipment manufacturer based in Jasper, Indiana

• Median EV/EBITDA multiple calculated through comparable company and precedent transaction analysis for the industry is 9.0x-10.0x

• Median multiple provides the valuation of Stormcat Manufacturing to be between $76mm and $85mm

Lincoln International Stormcat Deck 5-27-2016

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Transcript of Lincoln International Stormcat Deck 5-27-2016