kona adventures -2
TRANSCRIPT
Kona AdventuresHicks | Hicks | Ballard | Rice
Table of Contents
Executive Summary
Valuation Methodologies
Potential Buyers
Potential Target
Recommendation
3
10
16
20
22
Section
Table of Contents
2
Executive Summary
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
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
Car Rental
3%
Tour and Package Travel Bookings
32%
Cruise Bookings
26%
International and Domestic Airline
Bookings23%
Accomodation
Bookings11%
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 China‘s growth prospects make predictions in the index unpredictable
Executive Summary 6
Corporate Social Events
43%
Weddings
28%
BirthdayParties
16%
Other13%
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
Executive Summary 7
Company Overview
Service Mix Competitive strategy
Sources: Case Materials
Airfare Hotels TransportEvent
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 Booking27%
TransportationServices
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
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
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
Arrw 2
• Specialty meetings and large corporate events• Group travel coordination and events
Facilitation of Corporate and Personal Events
Valuation Methodologies
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 andinorganically
• Rapidly increasing scale and breadth of online service
Platform Attributes
• Experienced management with financial and technical expertise in the travel and entertainment and techindustries 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, transportationproviders, and event venues
Industry Environment
• 60% of market share controlled by regional and local agencies offers attractive opportunity to gain market sharethrough 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
Valuation Methodologies 12
Public Comparables Analysis
Valuation
Sources: Case Materials, Bloomberg
• Focus on travel agencies, especially technology-enabled platforms, to reflect Kona’shigh potential in that space
• Inclusion of event planning and online reviewing platforms are meant to reflectKona’s 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 Enterprise Value / NTM
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
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 positiveeffects 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 44.80x2/12/2015 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 305 444 7.75x
7/31/2007 Goldman Sachs Capital Partners Aernaturist dd Private/Public Cash 91 91 27.05x
4/25/2008 Industrial Development Corp of Southa Africa Ltd Tourism Investment Corp Public/Public Cash 1,727 1,991 7.46x
3/6/2015 Fosun International Ltd Thomas Cook Group PLC Public/Public Cash 92 92 3.47x
7/7/2014 Expedia Inc Wotif.com Holdings Ltd Public/Publc Cash 699 584 8.49x2/10/2009 Live Nation Entertainment Ticketmaster Entertainment IncPublic/Public Stock 1,241 670 2.86x
Mean $999 $998 14.37x
Median $970 $627 9.96x
Sources: Case Materials, Bloomberg
Valuation Methodologies 14
Discounted Cash Flow Analysis
Valuation• Key assumptions:
• Potential acquisition incorporated in projects
• Anticipated continued growth in key productsegments, in particular the Entertainment PlanningDivision
CAGR
2013 2014 2015 2016E 2017P 2018P 2019P 2020P 2021P ('16 - '21)
EBITDA 35.8 41.1 46.5 52.7 60.7 66.8 75.3 88.4 104.2 18.59%
% margin 22.00% 23.38% 24.51% 25.55% 27.00% 27.01% 27.52% 29.02% 30.52%
Depreciation & Amortization 0.30 0.40 0.60 0.50 0.50 0.60 0.64 0.72 0.81
EBIT 35.5 40.7 45.9 52.2 60.2 66.2 74.6 87.6 103.4 18.64%
% margin 21.82% 23.15% 24.20% 25.30% 26.78% 26.77% 27.28% 28.78% 30.28%
Taxes 13.7 15.7 17.7 20.1 23.2 25.5 28.7 33.7 39.8
EBIAT $22 $25 $28 $32 $37 $41 $46 $54 $64 18.64%
Plus: Depreciation & Amortization 0.3 0.4 0.6 0.5 0.5 0.6 0.6 0.7 0.8
Less: Capital Expenditures 0.3 0.5 5.5 0.7 0.6 0.7 0.8 0.9 1.0
Less: Increase in Net Working Capital 0 7 (1) 3 1 2 0 3 4
Unlevered Free Cash Flow $22 $33 $34 $36 $39 $44 $48 $58 $69
WACC 9.55%
Historical period Projection period
Cumulative Present Value of FCF $150
Terminal Year EBITDA (2020E) 88
Implied Exit Multiple 11.36
Terminal Value $1,004
Discount Factor 0.63
Present Value of Terminal Value 636$
% of Enterprise Value 80.97%
Enterprise Value $786
Enterprise Value
Terminal Value
$786 2.000% 2.250% 2.50% 2.750% 3.000%
8.546% 831 860 891 925 962
9.046% 783 808 835 864 895
9.55% 741 763 786 811 838
10.046% 704 723 744 766 789
10.546% 672 689 707 726 747
Enterprise Value
Perpetuity Growth Rate
16.90 2.000% 2.250% 2.50% 2.750% 3.000%
8.546% 17.88 18.50 19.17 19.90 20.69
9.046% 16.84 17.37 17.95 18.57 19.25
9.546% 15.94 16.40 16.90 17.44 18.02
10.046% 15.14 15.56 16.00 16.47 16.97
10.546% 14.45 14.81 15.20 15.62 16.06
Implied Enterprise Value / LTM EBITDA
Perpetuity Growth Rate
Sources: Case Materials, Bloomberg
Valuation Methodologies 15
Leveraged Buyout Analysis
Sources: IBIS World
(1)
(1): Numbers in thousands
Free Cash Flow 2017 2018 2019 2020 2021
EBITDA $60,700 $66,800 $75,261 $88,362 $104,223
Less: CapEx (600) (700) (811) (903) (1,012)
Less: Increase in NWC (1,245) (2,249) (215) (2,949) (3,595)
Less: Cash Interest (18,840) (18,840) (18,840) (18,840) (18,840)
Less: Cash Taxes (14,646) (16,838) (19,388) (22,409) (26,014)
FCF for Debt Repayment 25,369 28,173 36,007 43,261 54,762
Free Cash Flow
Implied Offer Price Per Share
Returns Analysis
Terminal EBITDA $104,223
Exit Multiple 7.8x
Enterprise Value $807,729
Less: Net Debt (196,479)
Equity Value at Exit $611,250
Sponsor Ownership at Exit 40.0%
Sponsor Equity Value at Exit $244,500
Sponsor Equity Value at Closing 37,915
IRR % 45.2%
Cash return 6.45x
EBITDA Exit Multiple
6.8x 7.3x 7.8x 8.3x 8.8x
25.0% $17.24 $17.54 $17.84 $18.13 $18.43
Sponsor 22.5% 17.55 17.88 18.21 18.54 18.87
Required 20.0% 17.90 18.26 18.63 19.00 19.36
IRR% 17.5% 18.29 18.70 19.11 19.51 19.92
15.0% 18.74 19.20 19.65 20.10 20.56
CapEx as % of D&A
142.0% 141.0% 140.0% 139.0% 138.0%
25.0% $17.84 $17.84 $17.84 $17.84 $17.84
Sponsor 22.5% 18.21 18.21 18.21 18.21 18.21
Required 20.0% 18.63 18.63 18.63 18.63 18.63
IRR% 17.5% 19.11 19.11 19.11 19.11 19.11
15.0% 19.65 19.65 19.65 19.65 19.65
Return Analysis
• Entry and exit multiples based on results of precedent transactions analysis
• Strong FCF’s dedicated towards repayment of debt• Senior Debt 5.5x EBITDA, Equity 0.7x• Leads to valuation range of $942-$980 million
Summary (1)
Potential Buyers
Potential Buyers 17
Potential Financial Sponsors
• Venture Capital firm focusing on technology such as cloud & enterpriseIT, healthcare IT, cybersecurity, and most importantly internet &marketing services
• General investment fund focusing on growth companies with aportfolio totaling over $19.6 billion
• International Private Equity Firm with a focus on mid-market dealsinvesting primarily in Western Europe who recently just purchased aDutch e-commerce company with an emphasis on the online travelmarket for €15.4m
• Invests in superior middle-market companies requiring capital foran acquisition, expansion or recapitalization with an emphasis withOperating Cash Flows in excess of $2m and experiencedmanagement team with sustainable competitive advantage overthe market
Buyer Description Relevant Portfolio Companies
Undisclosed Travel Document Expediting Business
Sources: Bloomberg, CapitalIQ, Firm Website
Potential Buyers 18
Potential Financial Sponsors
• Extremely well known brand recognition recently emphasizing emphasison tourism and lodging services with announcement of opening the newHyatt Waikiki Beach hotel
• Similar investments: PortAventura, Queens Moat Hotels
• One of the largest Private Equity firms in the world
• “Global travel continues to be an attractive investment area.Consumers are increasingly shifting their spending from things toexperiences.” Sandra Horbach, cohead of Carlyle Group’s US buyoutteam
• Private Equity firm dedicated to investments in travel and leisurebusinesses
Buyer Description Relevant Portfolio Companies
Queen’s Moat Hotels
• 100% of investments focused on travel companies and seeks activelygrowing travel companies
Sources: Bloomberg, CapitalIQ, Firm Website
Potential Buyers 19
Potential Strategic Buyers
• Major industry player with recent acquisitions focusing on ecommerceand travel planning solutions
• Leading player in travel industry focusing on maintaining elite statusthrough acquisitions of competitive smaller companies
• Various acquisitions to improve overall services and digitalefficiency of company
Buyer Description Recent Acquisitions
• Diverse acquisition portfolio of airlines, hotels, and travel agencies
• Niche industry player with acquisitions focusing mostly on digitalplanning
Sources: Bloomberg, CapitalIQ, Firm Website
Potential Target
Potential Target 21
Target Candidate
Sources: travelzoo.com, Yahoo Finance
Travel Zoo
0
5
10
15
20
25
30
35
10/24/2011 10/24/2012 10/24/2013 10/24/2014 10/24/2015
Five-Year Share Price Trend
Headquarters:Market cap:Current share price:
• Global media commerce company with more than 28 million members in North America
• Publishes deals for more than 2,000 travel, entertainment, and local businesses
Strategic Rationale
• Broaden spectrum of services and offerings• Opportunity to channel existing customers towards Travel
Zoo businesses• Penetrate international markets• Increase focus on individual customer / family end markets• Achieve synergistic efficiencies
New York City$166.84M$12.30
Recommendation
Recommendation 23
Recommendation
$942.00
$695.00
$527.00
$723.00
$980.00
$811.00
$758.90
$811.00
300.00 350.00 400.00 450.00 500.00 550.00 600.00 650.00 700.00 750.00 800.00 850.00 900.00 950.00 1000.00
Leveraged Buyout
Comparable Companies
Precedent Transactions
Discounted Cash Flows
Football Field Valuation BenchmarkLeveraged Buyout
• Strong cash flows and leading management team make Kona Adventures a good LBO candidate
Comparable Companies
• We benchmarked Kona against a comparable universe chosen because of similar business plans and relative size
• Focus on technology enabled platforms
Precedent Transactions
• Precedent Transactions analysis gives us a large valuation range due to small prior deals and more recent large transactions
• We focus on the upper end of this valuation because of Kona’s similarities with large deal companies
Discounted Cash Flows
• WACC calculation include:• Re-levered Beta from comparables• Liquidity premium of 3%
• Potential acquisition incorporated in valuation
Enterprise Value (EV)
Recommendation 24
Recommendation
Continue Acquisitive Policies
• Implied Valuation Range: $710mm to $800mm
• Growing volume of M&A activity in the travel/tourism industry
• Competitive landscape
• Major players looking to gain increased market share through acquisitions
• Given highly fragmented market, driven byregional firms, we recommend Konacontinue to take advantage of it’sacquisitive policies
• Kona should pursue the purchase ofTravelzoo and other relevant private firms