Lizard Insurance Bain | Round 2 | Acquisition05 | CASE: LIZARD INSURANCE LIZARD INSURANCE Bain | Round 2 | Acquisition Prompt: ur client, Lizard Insurance, is a US. based auto insurance provider that recently acquired a rival auto-insurance company MediumSure. As a part of the acquisition, Lizard Insurance also acquired a subsidiary of MediumSure named TechSize, that provides software for many insurance companies. Lizard Insurance wants to know ‘what they should do with TechSize, and they've brought us in to help. Clarifying Information: Note: Provse this ont icrosponaing questions are asked 1. Does Lizard insurance have any experience in the software space? No ~ they woulé ned to velop capably 2. Whats TechSize? The techsize software makes It easlrto comply with government regulations when @ customer moves rom sat to sate 4. Does Lizard Insurance have plans for TechSize? No ~ they bought MesiumSre for oher reasons and dont have lars for Techie 44 How does Lizard ns promis ‘5. How does TechSize make money? They sell 828 services helping insurance providers comely with goverment regulators. 188 make money? They selauto-nsurance dec to consumer and collect monty dae saad NTT) 1 aE Pears roc Poor ec kd OL ORT) Perrier ig erred05 | CASE: LIZARD INSURANCE Framework Guidanc Jrealize that ther here are other ways to approach this framework but a strong candidate will a binary choice with this asset — to hold it or to sell it. Note: There are many possible ateatives to this framework. These are only provided as possible suggestions. | Keep — and invest or hold Ea oop |} Sell — either spinning off part or all of TechSize How to Move Forward: the candidate has a more vadtonalpoftabilty framework ead thom to the inal question of Koop or Soll. Then ask the candidat to analyze the keep option, B oo05 | CASE: LIZARD INSURANCE Discussing the keep option: } Present the following information if/when asked: + TechSize requires substantial investments and upgrades in the next 2 years to maintain market position Given the vastly different nature of the subsidiary’s product, there are no cross-selling or up-selling opportunities between TechSize (a B2B business) and Lizard Insurance Co. (a B2C business) Switching our services over to utilize TechSize would be costly, and would not reduce processing costs by} any significant amount (no real cost synergies introduced with TechSize). There is no appetite for additional acquisitions by Lizard Insurance of companies in TechSize's industry, There was a recent acquisition by a competitor for a company in the same industry as TechSize * Ifthe candidate asks for market information — give them exhibits 1 and 2 From the exhibits, the candidate should realize that the market is not attractive, as it is stagnant and fragmented How to Move Forward: At this point, the candidate should realize thal the Keep option is unpalatable and decide to move into sale. 005 | CASE: LIZARD INSURANCE EXHIBIT 1: INSURANCE SOFTWARE MARKET SHARE Insurance Software Market Share ul Software Guru Insurance App Go Techsize Goggle Noxt Ten Playors BB 05 | CASE: LIZARD INSURANCE EXHIBIT 2: INSURANCE SOFTWARE MARKET SIZE Insurance Software Market Size ($B) $6.00 SSNS 35.00 34.00 33.00 200 1.00 0.00 zon zor ors 2014 2015 2016 iT 2018 201805 | CASE: LIZARD INSURANCE Discussing the sale option: | Ask the candidate to brainstorm some ways they might be able to determine a sale value for TechSize, options should include: + DCF + Industry Multiples + Comparable transactions |; Lead them to ask for company values. Once they do, present them with Exhibit 3, How to Move Forward: A tis point, the candidate should 0 that the Koop option is aly unpalatable ane decide to move into sale05 | CASE: LIZARD INSURANCE EXHIBIT 3: INFORMATION ON 2020 ACQUISITIONS CED PSI Fill-Your-Forms personalized service for $25 Million $125 Million high net worth individuals where a lawyer can be contracted to fill out forms on demand. Tech Toy Company Children’s toy company $1.5 Billion $20 Billion specializing in developing ‘educational toys for use in schools Insurance App Co. Insurance software that $300 Million $1.5 Billion automates elements of the insurance application process ™05 | CASE: LIZARD INSURANCE [Guidance on Exhibit 3: | The candidate should realize that they can use the information in exhibit 3 to find EBITDA multiples. |} Agreat candidate will also recognize that Tech Toys Co is not a comparable company and exclude that from any analysis. | Using the remaining information, the candidate should deduce that they can sell TechSize for 5 x EBITDA. | Agreat candidate will realize that they can find TechSize’s revenue using Exhibits 1 and 2. By taking 15% market share * the total market of $5.5B in 2020, they can get a revenue of $825M, | The candidate will need to ask for an operating margin (or EBITDA as a % of revenue) - tell them 25% | EBITDA = $825 * 25% = $206M | Sale value @ 5x EBITDA = $206 * 5 = How to Move Forward: | Ask the candidate to provide their recommendation 1505 | CASE: LIZARD INSURANCE CONCLUSION ‘The client's CEO is heading up the elevator, what do you recommend?" Recommendation: Candidate should recommand selling off TechSize due to limited market potential and lack of synergies * Analysis shows the company could be worth $18 based on comparable multiples and 2020 EBITDA Risks include: + Lack of buyers + Small sample size of multiples Noxt Stops: + Due diligence on buyers 16