Project Aardvark
description
Transcript of Project Aardvark
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Goldman Stanley
Goldman Stanley, Inc.
Confidential Draft
Project Aardvark
Presentation to the Board of DirectorsJanuary 29, 2010
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Goldman Stanley
Table Of Contents
Executive Summary 3
Aardvark Valuation 5
Potential Acquisitions 11
Process Recommendations 16
Appendix 19
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Goldman Stanley
Executive Summary
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Goldman Stanley
Executive Summary
• As of January 29, 2010, Aardvark’s share price and valuation are at all-time highs, having more than doubled since early 2009
• As Aardvark’s stock price has soared in value, it has also generated over $35B in cash & cash-equivalents
• As Aardvark’s cash balance grows, it is likely to face shareholder pressure to re-invest the cash in its business and to make significant acquisitions
• Given Aardvark’s strong currency and cash balance, it could easily make several “tuck-in” acquisitions – or larger-scale acquisitions to acquire customers
• Such a strategy would allow Aardvark to capture more of the smartphone, laptop, and desktop markets, and significantly improve its software offerings
• Given Aardvark’s cash position, such acquisitions could be made with 100% cash – or in the case of a larger deal, stock could also be used
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Goldman Stanley
Aardvark Valuation
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Goldman Stanley
Valuation Summary
• Aardvark’s current share price of $192.61 far exceeds the value implied by comparable public companies
• Recent comparable transactions show higher implied valuation ranges due to flurry of consolidation and hardware M&A activity over 2009
• Discounted Cash Flow Analysis under base-case assumptions shows implied valuation on-par with Aardvark’s current share price, implying that share price is justified
• All valuation analysis is based on “base-case” financial projections in line with Wall Street analyst expectations
• Given Aardvark’s cash balance and high valuation multiples vs. similar public companies, few competitors are well-positioned to make substantial acquisitions
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Goldman Stanley
Aardvark Valuation Summary
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Goldman Stanley
Aardvark Comparable Public Companies
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Goldman Stanley
Aardvark Precedent Transactions
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Goldman Stanley
Aardvark Discounted Cash Flow AnalysisDCF Assumptions:
Discount Rate: 12.5%
Terminal EBITDA Multiple: 7.0 x
Model Uses “Base Case” Financial Projections
Mid-Year Convention Used For PV Of Cash Flows
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Goldman Stanley
Potential Acquisitions
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Goldman Stanley
Potential Acquisitions
• Given Aardvark’s large cash balance, it could make a wide variety of acquisitions – ranging from small “tuck-in” deals to acquire technology and IP to larger deals driven by customer or market share acquisition
• Tier 1 Potential Acquisitions
– “Tier 1” acquisition candidates are worth over $1 billion and would significantly boost Aardvark’s market share or result in substantial revenue or cost synergies
– Leading candidates include ARM, for its chipset technology and integration with Aardvark’s existing products, and Research in Motion – to capture additional share in the corporate smartphone market
• Tier 2 Potential Acquisitions
– “Tier 2” acquisition candidates are worth less than $1 billion and would enhance Aardvark’s core technology and fill in gaps in existing products
– Potential acquisitions include specialized chipset and semiconductor companies as well as Web 2.0, social media, and mobile software companies
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Goldman Stanley
Potential Acquisition Candidates
Tier 1 Acquisition Candidates
Tier 2 Acquisition Candidates
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Goldman Stanley
Company Profile: ARM
ARM Holdings is a supplier of semiconductor intellectual property and components of digital electronic products. It designs and licenses intellectual property rather than manufacturing and selling semiconductor chips, and it licenses its IP to a wide network of hardware, mobile, and networking companies. It also provides tools to optimize system-on-chip designs.
Products:
• Processors – ARM provides 32-bit embedded microprocessors based on a common architecture that delivers high-performance, power efficiency, and reduced system cost.
• System IP – Serves as the connection between processors, memory, and peripherals to ensure optimum performance.
• Multimedia – ARM provides graphics processors that enable embedded graphics, audio, and video applications.
• Physical IP – Provides SoC integrated circuits and logic, embedded memory, and interface IP.
• Tools – ARM subsidiaries provide compilers, debuggers, simulators, and other optimization tools for a wide variety of chip and processor families.
Key Partners:
Electronic Arts, LSI Logic, Microsoft, National Semiconductor, Nokia, NVIDIA, Rambus, Real Networks, Samsung, and Toshiba.
ARM Holdings
Headquarters: Cambridge, UKEmployees: 1700Founded: 1990
Financial Information:
Market Cap: $2.5BCash: $204M2009 Revenue: $490M2009 EPS: $7.852010E Revenue: $531M2010E EPS: $10.97
Management Team:
Warren East CEOTudor Brown PresidentGraham Budd COOMike Muller CTOTim Score CFOJohn Cornish EVP, SystemsIan Drew EVP, MarketingAntonio Viana EVP, Sales
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Goldman Stanley
Company Profile: Research In Motion
Research In Motion designs the BlackBerry smartphone and creates solutions for the worldwide mobile communications market, including a variety of software for the BlackBerry device. In addition to its line of BlackBerry devices, the company also provides enterprise server software to support businesses using the device.
Products:
• BlackBerry Pearl 3G – Provides Trackpad and dedicated media keys as well as SureType technology and 3G network support.
• BlackBerry Bold – Provides extended battery life as well as GPS, Wi-Fi, and 3G network support.
• BlackBerry Curve 8500 – Includes Trackpad and dedicated media keys, easy media sharing, and 2.0 MP camera.
• BlackBerry Tour 9630 – Provides GPS, worldwide compatibility, and 3.2 MP camera.
• BlackBerry Storm – Features Wi-Fi, SurePress technology, and 3G network support.
• BlackBerry Curve 8900 – Features thin, lightweight design as well as GPS and Wi-Fi support and 3.2 MP camera.
Key Partners:
AT&T, Brightstar, Digital China, GPXS, Hewlett-Packard, IBM, Skype, Sprint, Tata Indicom, T-Mobile, Verizon, Virgin, and Vodafone,
Research In Motion
Headquarters: Waterloo, ONEmployees: 12,000Founded: 1984
Financial Information:
Market Cap: $36BCash: $2.5B2009 Revenue: $13B2009 EPS: $3.702010E Revenue: $17B2010E EPS: $5.03
Management Team:
Jim Balsillie Co-CEOMike Lazaridis Co-CEODon Morrison COORobin Bienfait CIOBrian Bidulka CFODavid Yach CTO
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Goldman Stanley
Process Recommendations
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Goldman Stanley
Key Recommendations
• We recommend engaging in targeted discussions with the Tier 1 acquisition candidates and assessing their receptiveness to M&A discussions
• At the same time, Goldman Stanley will reach out to Tier 2 candidates and introduce Aardvark as a potential acquirer
• M&A process with Tier 1 candidates will take significantly longer due to the scale of the companies, so we recommend conducting both processes simultaneously
• Depending on responses from Tier 1 and Tier 2 candidates, Goldman Stanley and Aardvark may do additional research to determine other potential acquisitions and then approach them
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Goldman Stanley
Process Recommendation
BroadMarketing
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Goldman Stanley
Appendix
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Goldman Stanley
Aardvark Projected Income Statement
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Goldman Stanley
Aardvark Comparable Public Companies
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Goldman Stanley
Aardvark DCF Analysis – WACC Calculation