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
•Graduation: May 2017
•Economics
James Perry
•Junior
•Graduation: May 2017
•PLS
•Economics
Justin Kim
•Sophomore
•Graduation: May 2018
•Finance
•Accountancy
Emily Bridges
•Junior
•Graduation: May 2017
•Politics
•Economics
Max Macey
•Junior
•Graduation: May 2017
•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
StrategicPositioning
Potential Buyers Valuation Final
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
StrategicPositioning
Potential Buyers Valuation Final
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
StrategicPositioning
Potential Buyers Valuation Final
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
StrategicPositioning
Potential Buyers Valuation Final
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
StrategicPositioning
Potential Buyers Valuation Final
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
StrategicPositioning
Potential Buyers Valuation Final
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
StrategicPositioning
Potential Buyers Valuation Final
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
• Total Revenue: $5,812.0mm• EBITDA: $1,775.0mm• Leverage: $7,753.0mm
• 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
• Total Revenue: $27,626.9mm• EBITDA: $3,478.4mm• Leverage: $37,865.8mm
• 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
StrategicPositioning
Potential Buyers Valuation Final
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
StrategicPositioning
Potential Buyers Valuation Final
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
StrategicPositioning
Potential Buyers Valuation Final
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
StrategicPositioning
Potential Buyers Valuation Final
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
StrategicPositioning
Potential Buyers Valuation Final
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
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