Spyder Case Intro

See templates on Blackboard for WACC and DCF output

 Spyder Active Sports in 2004
• Perform a financial analysis of Spyder and benchmark to the comparable companies
in the case. Some historical financial data for the comparable public companies have
been provided for benchmarking. These can be found in the excel student worksheet.
• In your opinion, does Spyder possess a competitive advantage? Explain. Analyze
Spyder’s brand and positioning as compared to its competitors.
• Why would a strategic or financial buyer be interested in investing in (or acquiring)
Spyder in 2004? What would the investment strategy be for both types of investors?
Where are there opportunities and/or risks?
• Identify the different “exit” options that are feasible for Spyder in 2004, and analyze
the benefits and costs of each alternative. Is this a good time to sell the business?
Consider the interests and needs of the owner(s), the current state and future
prospects of the company, and the current state of the financial markets.
• Compare the alternative transactions described on the last page of the case. Which
one would you choose if you were: 1) David Jacobs; 2) a general partner in CHB; 3)
Shimokubo; 4) Jake Jacobs? Provide pros/cons for each stakeholder.

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 Spyder Active Sports in 2004
Valuation of a high growth private company & evaluation of strategic alternatives.
By 2004, Spyder’s Private Equity Investor CHB was seeking a liquidity event, and CEO
and founder Dave Jacobs was considering alternative types of transactions including:
• Sale to a strategic buyer
• Sale of a large block of stock to another private equity firm (financial buyer)
Your team must decide which alternative makes the most sense. Consider
perspectives of various owners: Dave, Jake (his son), Shimokubo, CHB.
• Perform a valuation of Spyder and make a recommendation.
• Create a football field valuation summary based on your DCF and implied value
from the market approach.

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 Ownership & Alternatives

Exit Alternatives Available to David Jacobs and CHB

Strategic Buyer Financial Buyer
Controlling Block 1 2
Minority Interest 4? 3

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 Spyder Analysis of Value Drivers

• Spyder has very high growth prospects: Spyder has come a long way since CHB
took an equity position in its capital in 1997.
• The company has shifted from a product orientation to a much stronger
marketing orientation, developing into a major brand, expanding product lines
and distribution channels, and successfully fitting the product line to the
distribution channel, thereby achieving one of the highest sell-through rates in
the industry (second only to Rossignol).
• Spyder has been able to maintain a very high-end image, aided by an excellent
product design and production process.

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 Spyder Financials
Exhibit 5 Spyder Consolidated Income Statement and Cash Flow Adjustments—Historical and Forecasted (in $ thousands)

FY2001 FY2002 FY2003 FY2004 FY2005E FY2006E FY2007E FY2008E

Net Sales 27,303 33,960 40,290 61,366 85,281 105,630 133,223 165,732
Cost of Sales 16,536 20,008 22,537 31,011 43,279 55,075 70,419 88,253
Gross Profit 10,767 13,952 17,753 30,355 42,002 50,554 62,804 77,479

Total Operating Expenses 9,573 12,175 14,159 21,007 28,014 33,571 41,028 49,584
Mgt Fee, Licns & Rylty Income 20 27 10 26 - - - -
Op. Income Before Depreciation 1,214 1,804 3,604 9,374 13,988 16,983 21,777 27,895

Non-Operating Income (Expense) 113 142 295 208 (217) - - -

EBITDA 1,327 1,946 3,899 9,582 13,771 16,983 21,777 27,895

Depreciation & Amortization 467 464 668 744 1,078 2,097 3,260 3,098
Interest Expense & Bank Fees 805 664 613 846 1,260 1,396 1,769 2,263
FAS 133 Expense (63) (185) 1,076 1,065 0 0 0 0
Taxes 35 159 688 1,858 2,297 2,898 3,729 5,396

Net Income 83 844 854 5,069 9,136 10,593 13,019 17,139

Capital Expenditures* 251 410 621 1,797 2,619 3,000 3,500 4,250
Net Working Capital Investment* n/a (1,592) (86) 69 1,590 929 1,292 1,459

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 Spyder Financials
Exhibit 6 Spyder Consolidated Balance Sheet—Historical and Forecasted (in $ thousands)

FY2001 FY2002 FY2003 FY2004 FY2005E FY2006E FY2007E FY2008E

Cash 485 793 2,693 7,975 6,812 15,572 27,060 41,587

Accounts Receivable 4,797 3,568 2,560 3,192 5,625 6,873 8,521 10,409
Inventories 1,458 1,284 922 845 1,130 1,402 1,798 2,246
Prepaid Expenses 250 483 406 346 454 543 666 806
Other Current Assets 155 242 829 617 617 617 617 617
Total Current Assets 7,145 6,370 7,410 12,975 14,638 25,008 38,661 55,665

Net PP&E 844 827 849 1,970 3,581 4,554 4,865 6,087
Other Assets 815 1,049 826 906 836 766 696 626

Total Assets 8,804 8,246 9,085 15,851 19,055 30,328 44,222 62,378

Accts Payable & Accrued Exp 2,001 2,216 2,834 5,499 3,372 4,052 4,927 5,945
Other Current Liabilities 123 295 162 - - - - -
Total Current Liabilities 2,124 2,511 2,996 5,499 3,372 4,052 4,927 5,945

Other Liabilities 2,109 502 - 3,814 - - - -

Total Liabilities 4,233 3,013 2,996 9,313 3,372 4,052 4,927 5,945

Preferred Stock & Commmon 4,717 4,719 4,723 4,731 4,731 4,731 4,731 4,731
Retained Earnings (146) 514 1,366 1,807 10,952 21,545 34,564 51,702
Total Stockholders' Equity 4,571 5,233 6,089 6,538 15,683 26,276 39,295 56,433

Total Liabilities & Equity 8,804 8,246 9,085 15,851 19,055 30,328 44,222 62,378

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 Spyder Comps
Exhibit 11 Selected Financial Data about Comparable Companies (in $ or Euro millions, as of 03/31/2004)a

Five-Year
Market Value LTM Interest- Average Debt-to-
Company Name Industry Betab of Equityc Bearing Debt Total Value LTM Sales LTM EBITDA

Adidas-Salomon AGd Sports Apparel, Footwear, & Equipment 0.81 4,302 1,459 0.39 6,221 586
Columbia Sportswear Co. Sports Apparel 1.48 2,239 20 0.06 990 220
K2 Inc. Sports Equipment 1.36 559 209 0.41 839 63
Nike Inc.e Sports Apparel & Footwear 0.70 20,558 866 0.08 11,751 1,736
Quiksilver Inc.f Sports Apparel 1.01 1,217 138 0.17 1,039 130
Skis Rossignol SA g
Sports Equipment & Apparel 0.55 174 118 0.44 479 25
VF Corp Apparel, incl. Sports Apparel 0.59 5,113 994 0.20 5,390 725

a Figures are in U.S. dollars for all companies except for Adidas-Salomon AG and Skis Rossignol SA, which are in Euros
b
Estimated by 60-month regression of stock returns on S&P500 returns
c
For companies that have dual share classes including one non-traded class, market value of equity is computed as the product of the publicly traded share price by the total number of shares
outstanding of all classes
d
Traded in the Frankfurt stock exchange
e
Fiscal quarter ending Jan 31, 2004 f Fiscal quarter ending Feb 29, 2004 g Traded in the Paris stock exchange

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 Spyder M&A Comps
Exhibit 9 Recent Acquisitions of Companies Comparable to Spydera

Date Date Total Ent. Value LTM Sales LTM EBITDA

Acquiror Target Announced Effective ($ millions) ($ millions) ($ millions) EV/Sales EV/EBITDA

Strategic Acquirors
VF Corp. The North Face Inc. 4/7/00 8/16/00 129 244 -44 0.53x NM
adidas-Salomon AG Arc'Teryx Inc. 12/5/01 3/1/02 21 19 1.4 1.10x 15.47x
Deckers Outdoor Corp. Teva Sandals 10/11/02 11/26/02 62 56 6.1 1.12x 10.30x
Columbia Sportswear Co. Mountain Hardwear Inc. 3/13/03 4/1/03 36 31 3.2 1.15x 11.11x
VF Corp. Nautica Enterprises Inc. 7/7/03 8/27/03 600 694 66 0.86x 9.08x
Nike Inc. Converse Inc. 7/9/03 9/4/03 335 205 36 1.63x 9.41x

high 1.63x 15.47x

low 0.53x 9.08x
average 1.07x 11.08x

Financial Acquirors
Investcorp International Inc. Helly Hansen ASA 4/11/97 5/1/97 160 146 18 1.10x 8.89x
Bain Capital Inc. Jack Wolfskin GmbH 8/28/02 9/9/02 63 52 7 1.20x 9.30x
Cerberus Partners LP Fila Holding SpA 3/7/03 6/10/03 586 954 44 0.61x 13.25x
Bear Stearns & Co. CameIBak Inc. 11/6/03 12/2/03 209 74 25 2.83x 8.22x

high 2.83x 13.25x

low 0.61x 8.22x
average 1.43x 9.92x

a All acquisitions were for 100% of the target's equity except for The North Face (81.2% acquired) and Helly Hansen (70% acquired)

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Spyder Comps EV/EBITDA

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Spyder Comps EV/Sales

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