Case Study and Sample Slides US: Cash Handling Systems
Disclaimer This document is the proprietary and exclusive property of Sutherland Global Services except as otherwise indicated. No part of this document, in whole or in part, may be reproduced, stored, transmitted, or used for design purposes without the prior written permission of Sutherland Global Services. The information contained in this document is subject to change without notice. The information in this document is for information purposes only. Sutherland Global Services® disclaims all warranties, express or limited, including, but not limited, to the implied warranties of merchantability and fitness for a particular purpose, except as provided for in a separate software license agreement. All confidential or proprietary information contained in Sutherland’s response shall at all times be and remain the sole and exclusive property of Sutherland Global Services, Inc.
©©2011 GlobalServices Services Inc., rights reserved. Privileged and confidential information of Sutherland Global 2010Sutherland Sutherland Global Inc., All All rights reserved. Privileged and confidential information of Sutherland Global Services Inc. Services Inc.
www.sutherlandglobal.com
Disclaimer Disclaimer
THE SAMPLE CONTAINS EXCERPTS FROM A STUDY CONDUCTED BY SUTHERLAND GLOBAL SERVICES FOR ITS CLIENT. THE SAMPLE MAY NOT CONTAIN ALL THE PAGES OF THE ORIGINAL DOCUMENT THIS SAMPLE HAS BEEN PREPARED BY SUTHERLAND GLOBAL SERVICES INC. OR ITS ASSOCIATES OR AFFILIATES (“SUTHERLAND GLOBAL SERVICES”) EXCLUSIVELY AS AN ILLUSTRATIVE SAMPLE ONLY AND IS SENT TO AUTHORISED RECIPIENTS SOLELY FOR THE PURPOSE OF EVALUATING SUTHERLAND GLOBAL SERVICES’S SUPPORT SERVICE CAPABILITIES. THIS SAMPLE SHOULD NOT BE CONSIDERED AS AN OFFER TO SELL, A SOLICITATION TO BUY, OR AN ENDORSEMENT OR RECOMMENDATION OF ANY COMPANY. SUTHERLAND GLOBAL SERVICES DOES NOT GUARANTY THE ACCURACY, COMPLETENESS OR OTHER CHARACTERISTICS OF THE DATA / INFORMATION OF THE REPORT. This Sample may not be reproduced or distributed (in whole or in part) to any third party without the express prior permission of Sutherland Global Services. Sutherland Global Services may also have (or have had) arrangements with entities whereby Sutherland Global Services receives or is in receipt of information relating to the subject matter of this Sample that is confidential or proprietary to a third party, and thus may not be utilized. Accordingly, Sutherland Global Services may be in receipt of relevant information that is not reflected in this Sample.
© 2011 Sutherland Global Services Inc., All rights reserved. Privileged and confidential information of Sutherland Global Services Inc.
www.sutherlandglobal.com 29 January 2013
2
US: Cash Handling Systems Client • The client is the Investment Banking Team of a leading US based employee-owned wealth management firm with with nearly $97 billion in client assets, offices in the US, Europe and Asia and serving clients across the globe
Project Scope • Sutherland closely assisted the client on a time sensitive deal within the US Cash Handling Segment: • In analyzing industry trends • Identifying potential acquirers and drafting their respective detailed company profiles • By detailing acquisition strategy of key market participants
Sutherland’s Solution • SGS conducted extensive secondary research to size the US Cash Handling industry segment: • And included a detailed industry overview which included important insights on the industry structure, recent events, key business drivers, trends and challenges and threats and opportunities • Identified each of the main end markets (Financial Institutions, Retail, Gaming and Cash in Transit), described recent trends and challenges in each of these end markets and identified the top players for every end market • Included an articulate Precedent Transaction Analysis that described recent acquisition deals within the cash handling industry • Included a detailed Comparable Company Analysis • Identified top potential acquirer companies, included company profiles for each one of them with a close focus on their financial analysis and acquisition strategy
• Benefits to the Client • Associating with the SGS team provided the Client with timely access to requisite research reports that helped in making informed decisions, reducing the turn around time for the deal execution and optimizing costs
© 2011 Sutherland Global Services Inc., All rights reserved. Privileged and confidential information of Sutherland Global Services Inc.
www.sutherlandglobal.com 29 January 2013
3
Industry Overview Disclaimer
US cash handling products, counting / sorting / scanning etc., were approximately sized at $1 billion in 2007
Cash is here to stay – Inspite of the threat from plastic and e-money, cash transactions account for almost 50% of all payments by value. There exist immense potential with more than three-fourth trillion of dollar bills in 2005 (Federal Bank of New York) and eight billion worth of coins in 2007 in circulation (XXX estimates)
Cash Handling Systems
– Primarily caters to Banking / Financial services, Retail, Gaming, Cash in Transit Operators and Amusement services – Industry requires constant innovation and R&D on account of increased complexity and volumes in the cash handling / management resulting in large number of patents held by most companies
Cash in transit operators
Retail and Gaming Back Office
Financial Institutional Back Office
Increasing circulation of counterfeit notes is also leading to significant growth in the cash handling products
– Recurring revenues constitute major pie of revenues due to 2-5 years in annual contracts thereby making customer retention a top priority
Retail and Gaming Front Office
Financial Institutional Front Office
– Increasingly a lot of retail and banking companies are moving to outsourcing the cash handling services to cash in transit operators leading to significant cost saving
Consumer
– Margin pressure is forcing the major players to shift their manufacturing base to China
China has also emerged as a producer of cheap unbranded cash handling products resulting in fierce competition
© 2011 Sutherland Global Services Inc., All rights reserved. Privileged and confidential information of Sutherland Global Services Inc.
www.sutherlandglobal.com 29 January 2013
4
Industry Structure Disclaimer Automated cash handling is the process of dispensing, counting and tracking cash through specially designed hardware and
software systems The industry is highly fragmented and split between hundreds of small regional players with handfuls of big players operating
at global level Significant cross selling opportunities exist for players with multiple products (breadth of front office and back office products) Major clientele includes Banking / Financial services, Retail, Gaming, Cash Logistics services and Amusement services Money Handlings
Cash (coins, bills, vouchers)
E-money
Institutional Customers
Retail Customer
ATMs
Plastic money
Vending machine / components
Front office / TAU (Teller Assisted Units)
Back Office
Product vending machines – Currency validation components
Sorter
Sorter
Gaming
Scanner
Scanner
Ticket kiosks
Counter
Counter
Others
Dispenser
Banknote packaging
Software
Coin wrapper
Currency strapper
© 2011 Sutherland Global Services Inc., All rights reserved. Privileged and confidential information of Sutherland Global Services Inc.
www.sutherlandglobal.com 29 January 2013
5
EndDisclaimer Markets Financial Institutions US commercial banking industry
grew at a CAGR of 5.5% during the period 2002-06 and is expected to grow at 4.4% between 2006-11 Banks are refocusing their
investments on branch banking, with a significant amount dedicated to teller automation Increase of counterfeit money and
issuance of new banknotes in many countries is leading to significant rise in cash handling products Demand for promoting accuracy
and efficiency in cash management by Basel II is expected to lead in significant demand Outsourcing of cash handling
operations by central and local banks to cash logistics companies emerging as a major trend resulting in growth of cash logistics providers
Retail The US retail industry is a $2.9
trillion industry in 2007 Escalating costs of cash handling at
the point of sale and cash back office is driving retailers to increase their focus on achieving better efficiencies in cash handling On the consumer side there is
increasingly strong focus on providing self-service solutions such as currency converters Approximately three billion worth
of coins were redeemed at supermarket machines in 2007 On the business processing side
retailers are increasingly seeking services of cash in transit operators (CIT) Top Players ► XXX
Gaming The US casinos and gaming industry
generated total revenues of $86.6 billion in 2006, representing an increase of 5.4% compared to 2005 Casino gaming is a growth industry
with resilience to economic downturns - State Governments use gaming as a mean to raise tax receipts during difficult times Gaming operators keep a close eye
on cost and cash handling - require sophisticated and cost effective solutions for in-house processing of coins and banknotes Despite advent of electronic
payment, customers still prefer the sound of coins paid out in cash Top Players ► Global Cash Access ► Cash Systems
► Cummins Allison
Top Players
Cash in Transit (CIT) The US cash handling (cash in transit
) market stood at $ 2.9 billion in 2005 (RBC Capital Markets) The players in the CIT space are
expanding their service offerings to include fully outsourced cash handling services including ATM servicing and cash logistics services such as currency and deposit processing, coin sorting and wrapping, and servicing of safes apart from the armored carriers Most of the CIT players are
capitalizing on the trend towards outsourcing of vaulting and cash processing operations (backroom operations) by banks and retail customers Brink’s, Garda, Loomis, Dunbar and
Pendum are the major CIT players in US Top Players
► Cummins Allison ► Cash Guard AB
► De La Rue ► Cummins Allison
© 2011 Sutherland Global Services Inc., All rights reserved. Privileged and confidential information of Sutherland Global Services Inc.
www.sutherlandglobal.com 29 January 2013
6
Threats & Opportunities Disclaimer Threats / Challenges Product innovation remains a key challenge Increasing use of cash recyclers, as is the trend in Asia and Europe, by banks and retailers posses a significant threat
Emergence of players manufacturing multicurrency equipments pose a significant challenge for the existing players to customers operating on global scale. Some such players include – Wenzhou Huangwei Enterprise Incorporation – Bcash Mechatronics Piracy of intellectual property by Chinese firms Emergence of low cost manufacturing capabilities of the Chinese firms would also result in significant threat to the margins of industry players Increasing e-payments and emergence of wireless technology for transferring money through mobile/wireless pose a long term threat Chinese, Japanese and European government’s view to treat currency processing and authentication as national security issue puts US cash handling equipment manufacturers at a competitive threat
Opportunities Product expansion Teller Assist Units (TAU) - renewed focus on branch banking and automation for cross-selling opportunities has resulted in a lot of focus on TAU segment from leading suppliers such as De La Rue, XXX Nixdorf and Glory Coin converters and redeemers - Increasing focus on self service solutions by retailers offers significant growth opportunity XXX New customer segments - passport & identity cards validation, voting systems, mail room equipment provide new opportunities to leverage the existing technology Emerging trend by retailers and banks to bring about efficiencies through outsourcing of end to end cash processing services offers opportunities for industry players to expand the service offering Counterfeit currency Rising circulation of counterfeit dollar bills in countries like china, Korea is leading to significant demand of currency validator Increasing regulation from central banks on bank branches to have a currency sorter / validator (e.g. India)
© 2011 Sutherland Global Services Inc., All rights reserved. Privileged and confidential information of Sutherland Global Services Inc.
www.sutherlandglobal.com 29 January 2013
7
TopDisclaimer Potential Acquirers Top 5 potential acquirers – – – – –
XXX DXX OXX TXX HXX
Focus and Financial Capability of Acquirer
3.3
NCR Corporation, $6,044.0
WMS, $539.8 2.8
Oberthur Technologies, $699.2
Crane, $2,256.9
Dover, $6,511.6
Wincor Nixdorf, $2,851.0
Honeywell , $31,367.0
2.3
De La Rue, $1,386.0
Diebold, $2,911.0
1.8
Toshiba, $62,027.3
Giesecke & Devrient, $1,854.2 1.3
Global Cash Access, $598.7
0.8 1.2
1.7
2.2
2.7
Strategic Fit (Product, Technology and Customer Base)
Note: The strategic fit for companies is taken on subjective analysis of potential product, technology and customer synergies with maximum weightage given to technology. The financial capability is based on company’s leverage, historical acquisitions trends and future outlook.
© 2011 Sutherland Global Services Inc., All rights reserved. Privileged and confidential information of Sutherland Global Services Inc.
www.sutherlandglobal.com 29 January 2013
8
Precedent Transaction Analysis Disclaimer
Š 2011 Sutherland Global Services Inc., All rights reserved. Privileged and confidential information of Sutherland Global Services Inc.
www.sutherlandglobal.com 29 January 2013
9
XXXDisclaimer Inc. Company Overview
M&A Strategy
XXX Inc founded in 1991, offers a range of 4th Wall solutions for the retailers storefront consisting of self-service coin counting, e-payment solutions, entertainment services, money transfer and self-service DVD rental XXX has over 70 United States and international patents covering various aspects of coin service business Provide money transfer services in 142 countries XXX is spread across US, Canada, Puerto Rico and UK Company is headquartered at Bellevue, US
Financial Overview ($ in millions, except per share data) FYE 12/31 Revenue Growth EBITDA EBIT EPS
2006 $534.4 NA 105.9 46.8 0.7
LTM $613.0 NA 121.0 55.0 0.9
2007E $553.0 3.48% 119.0 50.0 0.7
2008E $605.0 9.40% 133.0 59.0 0.9
($ in millions, except per share data) Share Price (1/15/08) 52-Week High 52-Week Low Fully-diluted Shares Outstanding Equity Market Value (+) Total Debt (+) Minority Interest (+) Preferred Stock (-) Cash & Equivalent Enterprise Value
$26.55 34.97 24.69 28.29 737.0 272.37 (32.70) – (3.70) 972.94
Enterprise Value to: CY 2007E Revenue CY 2008E Revenue CY 2007E EBITDA CY 2008E EBITDA
1.8x 1.6x 8.2x 7.3x
Net Debt / EV Net Debt / EBITDA
0.3x 2.2x
Name
Target Business Description
GroupEx Financial Corp Travelex Money Transfer Ltd
Provide electronic money transfer services Provide money transfer services
US
62.0
UK
5.8
Red Box Automated Retail LLC
Provide DVD rental services
US
Amusement Factory LLC
Provide amusement vending services
Mundo Commun Network Inc
Nation
Net Sales ($mn)
Transaction Rational
Value ($ mn) 60.0(100.0% stake) (Buy in 2007) 26.6 (100.0% stake) (Buy in 2006)
Geographic expansion
NA
20.0 (47.3% stake) (Buy in 2005)
Product expansion
US
60.0
36.0 (100.0% stake) (Buy in 2005)
Enhancement of operational efficiencies
Manufacture and wholesale prepaid cards
US
NA
NA (100.0% stake) (Buy in 2005)
Expansion of products, customer base and distribution network
American Coin Merchandising
Own and operate coinoperated amusement devices
US
220.0
Cellcards of Illinois LLC
Retail pre-paid cellular calling cards
US
NA
Product expansion
235.0 (100.0% stake) Expansion of products, (Buy in 2004) customer base and distribution network NA (100.0% stake) (Buy in 2004)
Expansion of products, customer base and distribution network
Possible reasons to acquire Target: Introduced a new design of coin-counting machine for the financial institutions market in 2006 and focused to grow in this market Focused on international growth and exploring opportunities to acquire companies to add complementary products and services to the existing product lines Growth strategy is based on cross-selling the full range of products and services to retailers Existing strong service network would cater to the service needs of the customer base of the target immediately Consistent and diversified revenue streams and stable operating cash flow Tie-ups with renowned retail chains and network carriers for its various product and service offerings
Source: Annual report FY 2006 as available on company’s website
© 2011 Sutherland Global Services Inc., All rights reserved. Privileged and confidential information of Sutherland Global Services Inc.
www.sutherlandglobal.com 29 January 2013
10
XXX Inc. Company Overview
M&A Strategy
XXX founded in 1952, is a provider of information technology solutions, ATM machines, electronic cash registers, electronic point-of-sale-systems, PC and server based retail systems for the retail and banking sectors Major shareholders include Fidelity International Ltd.– 7.84% Company is headquartered at Paderborn, Germany, and it employs 8,300 people The Company’s production facilities are located in Paderborn (Germany) Singapore, Shanghai and Sao Paolo XXX has a presence in over 90 countries, with its direct subsidiaries in 36 nations
Financial Overview 2007 $3,114.6 332.1 254.6 4.8
Share Price (1/15/08) 52-Week High 52-Week Low Fully-diluted Shares Outstanding Equity Market Value (+) Total Debt (+) Minority Interest (+) Preferred Stock (-) Cash & Equivalent Enterprise Value
LTM $3,114.6 323.7 254.6 4.8 $80.24 108.8 73.1 33.1 2,653.9 296.5 8.6 39.5 2,919.5
2008E $3,330.1 6.92% 365.0 283.9 5.78
Name
Business Description
BEB IndustrieElektronik AG Wincor AutoTell LLC Wincor Nixdorf Engineering GmbH Banksys-Third Party Services
Developer of image recognition software Developer of ATM software & hardware Provider of computer consulting services Provider of ticket distribution services Manufacturer of vending & back taking machines
Prokent AG
Transaction Nation Switzerland
Net Sales ($mn) 22.1
U.S
NA
Germany
9.7
Belgium
NA
Germany
4.8
Value ($ mn) Rational Undisclosed (Buy in 2005) Undisclosed (Buy in 2003) 0.7 (Sell in 2003) Undisclosed (Buy in 2003) Undisclosed (Buy in 2002)
Technological expansion Geographical expansion Loss making division Product line expansion Entry to reverse vending market
Possible reasons to acquire Target: Strong Operating Model: XXX Nixdorf has been generating a steady operating cash flow ($261 million) which is a clear indication of its proven business model & its ability to fund M&A activity
($ in millions, except per share data) FYE 09/30 Revenue Growth EBITDA EBIT EPS
Target
2009E $3,568.2 7.15% 275.5 317.7 6.55
Enterprise Value to: CY 2007E Revenue CY 2008E Revenue CY 2007E EBITDA CY 2008E EBITDA
0.9x 0.9x 8.8x 8.0x
Net Debt / EV Net Debt / EBITDA
0.09x 0.82x
Dividend Yield
3.3%
Growth opportunity: The company’s banking division is involved with several U.S banks for pilot projects, which, if successful could translate in to a substantial order base. Target’s service suite & its established network would be complimentary in achieving this goal
The company has been expanding in Asia with above average sales growth. Target’s world-wide presence will help in faster roll out of its products and services in this growing market
R&D strength: The company spent $127 million towards R&D in 2006, emphasizing its role in future growth. This increases the prospect of acquiring a target with strong R&D capabilities
Positive outlook: Over the medium term, the Company forecasts above-average growth and margin progression for its banking division, indicating substantial operating cash flows and sufficient headroom for any M&A activity
Source: Reuters, Annual report FY 2006 as available on company’s website
© 2011 Sutherland Global Services Inc., All rights reserved. Privileged and confidential information of Sutherland Global Services Inc.
www.sutherlandglobal.com 29 January 2013
11
XXX Inc. Company Overview
M&A Strategy
XXX founded in 1852, is a privately owned technology group, specializing in securities printing, manufacturing of currency processing equipment and supplier of smart cards XXX is a family owned company held by XXX and headquartered at Munich, Germany XXX group comprises of 50 subsidiaries and joint ventures globally, and employs 8,295 people The company operates in all major markets of Europe, Asia and North & South America targeting central and commercial banks, banknote printers, security transport companies, casinos, restaurant chains and retailers.
Financial Overview ($ in m illions , except per s hare data) FYE 12/31 Revenue Growth EBITDA EBIT EPS
2005 $1,765.5 209.0 115.4 NA
Share Price (1/15/08) 52-Week High 52-Week Low Fully-diluted Shares Outstanding Equity Market Value (+) Total Debt (+) Minority Interest (+) Preferred Stock (-) Cash & Equivalent Enterprise Value
2006 $1,854.2 5.0% 217.1 133.3 NA NA
63.3 148.8 -
2007E NA NA NA NA NA
2008E NA NA NA NA NA
Enterprise Value to: CY 2007E Revenue CY 2008E Revenue CY 2007E EBITDA CY 2008E EBITDA Net Debt / EV Net Debt / EBITDA Dividend Yield
-
Target Name
Transaction
Business Description Nation
Jiangxi G&D Chip Production/sale of China Card Systems cards & card systems South Secure technology Altech NamITech Africa provider Secunet AG
IT security services
Germany
Net Sales ($mn) 88.0 NA 47.0
Value ($ mn)
Rational
16.1(5.1% stake) (Buy in 2006) 2.4 (11% stake) (Sale in 2006) Undisclosed (Buy in 2004)
Expansion of cards unit Sale of minority stake Expansion into IT security
Possible reasons to acquire Target: Cash surplus: G&D is a cash rich company (surplus of $149 million) with very low leverage which places it in a strong position to acquire a medium to small sized target in the industry Customer groups: The company provides organizations in financial, retail, transport, gaming and leisure industry across the world with its currency processing equipments, similar to the customer groups mapped by the target R&D strength: G&D gives high priority to R&D, investing 5.8% of its turnover and employing 735 employees in these activities, and a target with strong R&D focus will be a favorable business fit Healthy future outlook: Over the medium term, the company reports strong order situation in all three divisions, which should strengthen the operating cash flows even further and provide headroom flexibility in a merger/acquisition situation
NM -
Source: Annual report FY 2006 as available on company’s website
© 2011 Sutherland Global Services Inc., All rights reserved. Privileged and confidential information of Sutherland Global Services Inc.
www.sutherlandglobal.com 29 January 2013
12
XXX Inc. Company Overview
M&A Strategy
XXX, founded in 1813, is a commercial security printer, papermaker and provider of cash handling equipment and software solutions to banks and retailers worldwide Major shareholders include Barclays Global (13.27%) and company headquartered at Hampshire, UK The company owns 19 manufacturing facilities in 10 countries in Europe, North America, Africa, Asia and CIS and it employs 6,000 people with a presence across 31 countries Company produces over 150 national currencies and security documents. 5000 banks and cash in transit companies in 60 countries are users of its cash systems
Financial Overview
Target Name Currency Systems International ATS Money Systems Inc. Ascom Cash Handling Unit DLAR Cash Systems (Italy) Sequoia Voting Systems
2007 $1,344.7 236.9 184.2 0.93
LTM $1,377.3 263.5 202.8 1.03
2008E $1,408.1 2.23% 268.7 208.9 1.07
2009E $1,452.8 3.18% 287.3 224.5 1.06
Share Price (1/15/08) 52-Week High 52-Week Low Fully-diluted Shares Outstanding Equity Market Value (+) Total Debt (+) Minority Interest (+) Preferred Stock (-) Cash & Equivalent Enterprise Value
$17.3 19.6 13.0 150.0 2,598.1 44.4 10.4 129.1 2,481.9
Enterprise Value to: CY 2007E Revenue CY 2008E Revenue CY 2007E EBITDA CY 2008E EBITDA
1.8x 1.7x 9.2x 8.6x
Net Debt / EV Net Debt / EBITDA
NM NM
Dividend Yield
2.3%
Nation US US
12.3
S.Africa
27
Italy
NA
US
74.7
Transaction Value ($ mn) Rational 54.5 Cost saving (Buy in 2001) synergies 13.9 Cost saving (Buy in 2001) synergies 12.7 Geographical (Buy in 2001) expansion 1.8 Corporate (Buy in 2004) restructuring 16 Loss making (Buy in 2005) division
Possible reasons to acquire Target:
($ in millions, except per share data) FYE 03/31 Revenue Growth EBITDA EBIT EPS
Business Description Manufacturer of money sorting machines Manufacturer of currency counting systems Provide cash handling services Cash handling unit of De La Rue in Italy Manufacturer of voting systems in U.S
Net Sales ($ mn) 51.0
Cash surplus: XXX has positive group cash flows ($129 million) and very low leverage, which places it in a strong position to expand inorganically by acquiring the target U.S. focused: The company places additional emphasis on key growth markets, particularly North America Increased the size and quality of its North American sales force Number of product upgrades and replacements have been launched that have assisted further growth Customer groups: The company caters to organizations in financial, retail, transport, gaming and leisure industry across the world with its cash systems products, specifically the desktop products (coin sorters, counters) R&D strength: In FY 2007, the company invested $36.4 million in R&D. Prospect of acquiring the target having strong R&D focus Positive outlook: Over the medium term, the company forecasts above-average underlying growth and margin progression for its cash handling division
© 2011 Sutherland Global Services Inc., All rights reserved. Privileged and confidential information of Sutherland Global Services Inc.
www.sutherlandglobal.com 29 January 2013
13
End of Presentation
Š 2011 Sutherland Global Services Inc., All rights reserved. Privileged and confidential information of Sutherland Global Services Inc.
www.sutherlandglobal.com 29 January 2013
14