Dupont buyout Please address the following in your writeup. A spreadsheet supplement is available on canvas. As usual, please submit only pdf to canvas, and have a copy accessible for our in class discussion. 1. Assess DPC's fit going forward as a division of DuPont. 2. Why/why not would DPC be an attractive acquisition for a strategic buyer? Why/why not from a PE firm's perspective? Business Segment Performance (dollars in millions) Segment Sales Agriculture Electronics & Communications Nutrition & Health Performance Chemicals Performance Coatings Performance Materials Safety & Protection Industrial Biosciences Other Total segment sales Elimination of transfers 2009 $7,069 1,918 1,218 4,964 3,429 4,768 2,811 2010 $7,845 2,764 1,240 6,322 3,806 6,287 3,364 2011 $9,166 3,173 2,460 7,794 4,281 6,815 3,934 705 40 38,368 (407) $37,961 Year-over-Year Growth 2009 2010 2011 7.9% 11.0% 16.8% -10.7% 44.1% 14.8% -13.2% 1.8% 98.4% -14.5% 27.4% 23.3% -21.4% 11.0% 12.5% -25.3% 31.9% 8.4% -24.4% 19.7% 16.9% 158 194 26,335 (226) $26,109 31,822 (317) $31,505 Net sales -14.5% 20.7% 20.5% Pretax Operating Income* Agriculture Electronics & Communications Nutrition & Health Performance Chemicals Performance Coatings Performance Materials Safety & Protection Industrial Biosciences Pharmaceuticals (discontinued) Other Total pretax operating income *After significant items. 2009 $1,160 87 64 547 69 287 260 2010 $1,293 445 62 1,081 249 994 454 2011 $1,527 355 44 1,923 271 973 500 (1) 289 (235) $5,646 Segment Margins 2009 2010 16.4% 16.5% 4.5% 16.1% 5.3% 5.0% 11.0% 17.1% 2.0% 6.5% 6.0% 15.8% 9.2% 13.5% 2011 16.7% 11.2% 1.8% 24.7% 6.3% 14.3% 12.7% -0.1% 1,037 (169) $3,342 489 (206) $4,861 12.8% 15.4% 14.9% Data source: Company reports. Sales Growth Forecasts for Business Units Est. Sales Growth (201214) Major Products Sales as % of Product Major Industry Sales as % of Industry Agriculture 10% 47% 15% 13% Seeds Chemicals 68% 32% Performance Chemicals 12% 47% 36% Performance Materials 4% Performance Coatings 3%-5% Corn seeds Soybean seeds Herbicides White pigments (TiO2) Fluoroproducts ChemSolutions Engineering resins Ethylene co-polymers Elastomers Refinish coatings OEM coatings Ind. liquid and powder coatings Aramids products Tyvek/Typar Safety consulting & training Photovoltaic materials Electronic materials Printing, packaging materials Food ingredients Biomaterialsenzymes 34% 19% 46% 23% 9% 43% 31% 26% 39% 26% 16% 39% 25% 18% 100% Industrials and chemicals Construction Specialties Transportation Industrial Packaging Vehicle aftermarket Vehicle OEM General industrial Industrial Consumer Construction materials Photovoltaics Consumer electronics Advanced printing Food ingredients Bioprocessing 31% 18% 37% 18% 14% 43% 37% 15% 54% 20% 12% 39% 18% 18% 100% 100% Safety & Protection 7% Electronics & Communications 6% Nutrition & Health Industrial Biosciences 15% 29% Data Source: Company reports, Macquarie Research, El DuPont de Nemours & Co.," analyst report, January 26, 2012, and author estimates. Performance Coatings Historical Performance (dollars in millions) 2007 $4,347 Five-year CAGR -0.3% Net Sales Year-over-Year Growth Pretax Operating Income Margin 2008 $4,360 0.3% -8 -0.2% 2009 $3,428 -21.4% 69 2.0% 2010 $3,806 11.0% 255 6.7% 2011 $4,281 12.5% 268 6.3% -6.0% 366 8.4% Depreciation and Amortization Research and Development Capital Expenditures Segment Net Assets 107 71 126 2,607 111 69 91 2,226 123 56 55 2,018 105 48 74 2,047 104 46 80 2,107 Sales by Industry Aftermarket (refinishing) Vehicle OEM General Industrial Other 53% 28% 14% 5% 44% 36% 14% 6% 43% 37% 15% 5% Sales by Region North America Asia-Pacific Europe, Middle East, and Africa Latin America 26% 12% 46% 16% 27% 13% 44% 18% 27% 13% 43% 17% Data source: Company Databooks, various years. Metric Stand-Alone Valuation (dollars in millions) PPG Industries Actual Projected 2011 2012E 2013E 10.9% 4.1% 4.3% 11.2% 11.0% 12.0% 7.3 Sales Growth (%) EBIT Margin (Pretax) EV/EBITDA 2012 (). DuPont Performance Coatings Metric Closing Sales Growth (%) Depreciation and Amortization EBIT Margin (Pretax) Tax Rate Capital Expenditures Net Working Capital (%) 2011A 12.5% $104 6.3% 25% $80 2012E 4.0% $115 10.0% 25% $115 15.0% Projected 2013E 2014E 4.0% 4.0% $118 $122 10.0% 10.0% 25% 25% $122 $132 15.0% 15.0% 2015E 4.0% $125 10.0% 25% $144 15.0% 2016E 4.0% $130 10.0% 25% $150 15.0% 2 7.0 N/A Terminal EBITDA Multiple (x) Debt/EBITDA 2012 () Debt Blended Interest Rate on Debt Unlevered Cost of Equity 3 6.75% 11.2% 2011 A $4,281 $372 $104 2016E $5,208 $651 $130 $521 $0 $268 APV Analysis Closing 2012E $4,452 $560 $115 $445 $0 $445 ($111) $334 ($26) ($115) $308 Net Sales EBITDA Depreciation and Amortization Pretax Operating Income (EBIT) Interest Expense Earnings before Taxes Taxes Net Income Increase in Net Working Capital Capital Expenditures Residual (Levered) Cash Flow 2013E $4,630 $581 $118 $463 $0 $463 ($116) $347 ($27) ($122) $317 2014E $4,816 $604 $122 $482 $0 $482 ($120) $361 ($28) ($132) $323 2015E $5,008 $626 $125 $501 $0 $501 ($125) $376 ($29) ($144) $327 $521 ($130) $391 ($30) ($150) $341 $308 $317 $323 $327 $341 $4,738 $5,079 $308 $317 $323 $327 Unlevered Free Cash Flow Terminal Value Unlevered FCF, including TV Enterprise Value (EV) Interest Tax Shield PV Tax Shield EV with Tax Shield $3,970 $3,970 Data sources: Historical information for DPC is from DuPont company Databooks. Projections are case writer estimates. PPG's enterprise value is based on prices at the end of January 2012. PPG's projections are based on Buckingham Research Group analyst report, PPG Industries: "Other Industrial Coatings Review, May 21, 2012. Notes to stand-alone model: 1 DPC's estimated average tax rate of 25% is lower than the U.S. marginal corporate tax rate as a result of international operations taxed at lower rates. 2 Assumed forward exit multiple for Terminal Value is based on projected EBITDA growth in 2017 and is below PPG's multiple because of lower margins and slightly lower growth. 3 Unlevered Cost of Equity (ku) is based on PPG's estimated unlevered beta of 1.2, a normalized 4% long-term U.S. Treasury rate, and a 6% market risk premium. Financial Characteristics of Potential Strategic Buyers (Fiscal year-end values in millions, except multiples and percentages) Total Debt/ EBITDA 2.0x Akzo Nobel NV Market Capitalization 12/31/11 $11,837 $66,702 $12,893 $9,263 $3,637 Revenues $18,972 $95,482 $14,885 $8,766 $3,953 EBITDA $2,311 $15,205 $2,141 $956 $513 BASF SE PPG Industries Sherwin-Williams Valspar Total Debt 4,585 16,972 3,682 993 Five-Year Stock One-Year Stock Performance Performance NA -21.0% -5.4% -12.8% 30.0% -0.7% 1.1 x 1.7x 1.0x 40.4% 6.6% 1,057 2.1 41.0% 13.0% Data source: Financial data are from Capital IQ; stock price performance is based on CRSP data. Buyout Deals Volume and Number of Buyout Deals above $1 Billion $600 120 $500 98 100 $400 80 Deal Volume ($ billions) $300 61 60 No. Deals > $1 B $200 41 40 36 33 31 28 $100 20 10 $0 0 2004 2005 2006 2007 2008 2009 2010 2011 Above $1B Under $1B No. Deals > $1B Debt, Equity, and Purchase Price Multiples for Buyout Deals Medians Total Debt/EBITDA Equity/EBITDA Purchase Price/EBITDA 2004 5.3 2.3 7.6 2005 5 3.2 8.2 2006 5.9 3.1 9 2007 7.6 1.2 8.8 2008 4.4 5 9.4 2009 3.3 3.2 2010 4.6 2.7 7.3 2011 6.2 2.8 9.0 6.5 Data source: PitchBook, Annual Private Equity Breakdown 2012. Private Equity Exits Number of Exits by Exit Type 300 266 252 250 240 229 219 193 200 164 150 142 150 150 107 100 66 51 40 50 24 33 30 14 0 2006 2007 2008 2009 2010 2011 Strategic buyer PE-backed IPOs Secondary buyouts Medians Strategic buyer PE-backed IPOs Secondary buyouts 2006 9.5 5.8 11.0 Exit Multiple by Exit Type 2007 2008 2009 10.9 9.5 8.0 11.7 10.8 7.4 6.9 12.4 2010 8.5 7.2 9.4 2011 Average 8.7 9.2 5.1 8.0 9.6 9.9 9.8 Data source: PitchBook and Grant Thornton, Private Equity Exits Report, 2012 Annual Edition. Dupont buyout Please address the following in your writeup. A spreadsheet supplement is available on canvas. As usual, please submit only pdf to canvas, and have a copy accessible for our in class discussion. 1. Assess DPC's fit going forward as a division of DuPont. 2. Why/why not would DPC be an attractive acquisition for a strategic buyer? Why/why not from a PE firm's perspective? Business Segment Performance (dollars in millions) Segment Sales Agriculture Electronics & Communications Nutrition & Health Performance Chemicals Performance Coatings Performance Materials Safety & Protection Industrial Biosciences Other Total segment sales Elimination of transfers 2009 $7,069 1,918 1,218 4,964 3,429 4,768 2,811 2010 $7,845 2,764 1,240 6,322 3,806 6,287 3,364 2011 $9,166 3,173 2,460 7,794 4,281 6,815 3,934 705 40 38,368 (407) $37,961 Year-over-Year Growth 2009 2010 2011 7.9% 11.0% 16.8% -10.7% 44.1% 14.8% -13.2% 1.8% 98.4% -14.5% 27.4% 23.3% -21.4% 11.0% 12.5% -25.3% 31.9% 8.4% -24.4% 19.7% 16.9% 158 194 26,335 (226) $26,109 31,822 (317) $31,505 Net sales -14.5% 20.7% 20.5% Pretax Operating Income* Agriculture Electronics & Communications Nutrition & Health Performance Chemicals Performance Coatings Performance Materials Safety & Protection Industrial Biosciences Pharmaceuticals (discontinued) Other Total pretax operating income *After significant items. 2009 $1,160 87 64 547 69 287 260 2010 $1,293 445 62 1,081 249 994 454 2011 $1,527 355 44 1,923 271 973 500 (1) 289 (235) $5,646 Segment Margins 2009 2010 16.4% 16.5% 4.5% 16.1% 5.3% 5.0% 11.0% 17.1% 2.0% 6.5% 6.0% 15.8% 9.2% 13.5% 2011 16.7% 11.2% 1.8% 24.7% 6.3% 14.3% 12.7% -0.1% 1,037 (169) $3,342 489 (206) $4,861 12.8% 15.4% 14.9% Data source: Company reports. Sales Growth Forecasts for Business Units Est. Sales Growth (201214) Major Products Sales as % of Product Major Industry Sales as % of Industry Agriculture 10% 47% 15% 13% Seeds Chemicals 68% 32% Performance Chemicals 12% 47% 36% Performance Materials 4% Performance Coatings 3%-5% Corn seeds Soybean seeds Herbicides White pigments (TiO2) Fluoroproducts ChemSolutions Engineering resins Ethylene co-polymers Elastomers Refinish coatings OEM coatings Ind. liquid and powder coatings Aramids products Tyvek/Typar Safety consulting & training Photovoltaic materials Electronic materials Printing, packaging materials Food ingredients Biomaterialsenzymes 34% 19% 46% 23% 9% 43% 31% 26% 39% 26% 16% 39% 25% 18% 100% Industrials and chemicals Construction Specialties Transportation Industrial Packaging Vehicle aftermarket Vehicle OEM General industrial Industrial Consumer Construction materials Photovoltaics Consumer electronics Advanced printing Food ingredients Bioprocessing 31% 18% 37% 18% 14% 43% 37% 15% 54% 20% 12% 39% 18% 18% 100% 100% Safety & Protection 7% Electronics & Communications 6% Nutrition & Health Industrial Biosciences 15% 29% Data Source: Company reports, Macquarie Research, El DuPont de Nemours & Co.," analyst report, January 26, 2012, and author estimates. Performance Coatings Historical Performance (dollars in millions) 2007 $4,347 Five-year CAGR -0.3% Net Sales Year-over-Year Growth Pretax Operating Income Margin 2008 $4,360 0.3% -8 -0.2% 2009 $3,428 -21.4% 69 2.0% 2010 $3,806 11.0% 255 6.7% 2011 $4,281 12.5% 268 6.3% -6.0% 366 8.4% Depreciation and Amortization Research and Development Capital Expenditures Segment Net Assets 107 71 126 2,607 111 69 91 2,226 123 56 55 2,018 105 48 74 2,047 104 46 80 2,107 Sales by Industry Aftermarket (refinishing) Vehicle OEM General Industrial Other 53% 28% 14% 5% 44% 36% 14% 6% 43% 37% 15% 5% Sales by Region North America Asia-Pacific Europe, Middle East, and Africa Latin America 26% 12% 46% 16% 27% 13% 44% 18% 27% 13% 43% 17% Data source: Company Databooks, various years. Metric Stand-Alone Valuation (dollars in millions) PPG Industries Actual Projected 2011 2012E 2013E 10.9% 4.1% 4.3% 11.2% 11.0% 12.0% 7.3 Sales Growth (%) EBIT Margin (Pretax) EV/EBITDA 2012 (). DuPont Performance Coatings Metric Closing Sales Growth (%) Depreciation and Amortization EBIT Margin (Pretax) Tax Rate Capital Expenditures Net Working Capital (%) 2011A 12.5% $104 6.3% 25% $80 2012E 4.0% $115 10.0% 25% $115 15.0% Projected 2013E 2014E 4.0% 4.0% $118 $122 10.0% 10.0% 25% 25% $122 $132 15.0% 15.0% 2015E 4.0% $125 10.0% 25% $144 15.0% 2016E 4.0% $130 10.0% 25% $150 15.0% 2 7.0 N/A Terminal EBITDA Multiple (x) Debt/EBITDA 2012 () Debt Blended Interest Rate on Debt Unlevered Cost of Equity 3 6.75% 11.2% 2011 A $4,281 $372 $104 2016E $5,208 $651 $130 $521 $0 $268 APV Analysis Closing 2012E $4,452 $560 $115 $445 $0 $445 ($111) $334 ($26) ($115) $308 Net Sales EBITDA Depreciation and Amortization Pretax Operating Income (EBIT) Interest Expense Earnings before Taxes Taxes Net Income Increase in Net Working Capital Capital Expenditures Residual (Levered) Cash Flow 2013E $4,630 $581 $118 $463 $0 $463 ($116) $347 ($27) ($122) $317 2014E $4,816 $604 $122 $482 $0 $482 ($120) $361 ($28) ($132) $323 2015E $5,008 $626 $125 $501 $0 $501 ($125) $376 ($29) ($144) $327 $521 ($130) $391 ($30) ($150) $341 $308 $317 $323 $327 $341 $4,738 $5,079 $308 $317 $323 $327 Unlevered Free Cash Flow Terminal Value Unlevered FCF, including TV Enterprise Value (EV) Interest Tax Shield PV Tax Shield EV with Tax Shield $3,970 $3,970 Data sources: Historical information for DPC is from DuPont company Databooks. Projections are case writer estimates. PPG's enterprise value is based on prices at the end of January 2012. PPG's projections are based on Buckingham Research Group analyst report, PPG Industries: "Other Industrial Coatings Review, May 21, 2012. Notes to stand-alone model: 1 DPC's estimated average tax rate of 25% is lower than the U.S. marginal corporate tax rate as a result of international operations taxed at lower rates. 2 Assumed forward exit multiple for Terminal Value is based on projected EBITDA growth in 2017 and is below PPG's multiple because of lower margins and slightly lower growth. 3 Unlevered Cost of Equity (ku) is based on PPG's estimated unlevered beta of 1.2, a normalized 4% long-term U.S. Treasury rate, and a 6% market risk premium. Financial Characteristics of Potential Strategic Buyers (Fiscal year-end values in millions, except multiples and percentages) Total Debt/ EBITDA 2.0x Akzo Nobel NV Market Capitalization 12/31/11 $11,837 $66,702 $12,893 $9,263 $3,637 Revenues $18,972 $95,482 $14,885 $8,766 $3,953 EBITDA $2,311 $15,205 $2,141 $956 $513 BASF SE PPG Industries Sherwin-Williams Valspar Total Debt 4,585 16,972 3,682 993 Five-Year Stock One-Year Stock Performance Performance NA -21.0% -5.4% -12.8% 30.0% -0.7% 1.1 x 1.7x 1.0x 40.4% 6.6% 1,057 2.1 41.0% 13.0% Data source: Financial data are from Capital IQ; stock price performance is based on CRSP data. Buyout Deals Volume and Number of Buyout Deals above $1 Billion $600 120 $500 98 100 $400 80 Deal Volume ($ billions) $300 61 60 No. Deals > $1 B $200 41 40 36 33 31 28 $100 20 10 $0 0 2004 2005 2006 2007 2008 2009 2010 2011 Above $1B Under $1B No. Deals > $1B Debt, Equity, and Purchase Price Multiples for Buyout Deals Medians Total Debt/EBITDA Equity/EBITDA Purchase Price/EBITDA 2004 5.3 2.3 7.6 2005 5 3.2 8.2 2006 5.9 3.1 9 2007 7.6 1.2 8.8 2008 4.4 5 9.4 2009 3.3 3.2 2010 4.6 2.7 7.3 2011 6.2 2.8 9.0 6.5 Data source: PitchBook, Annual Private Equity Breakdown 2012. Private Equity Exits Number of Exits by Exit Type 300 266 252 250 240 229 219 193 200 164 150 142 150 150 107 100 66 51 40 50 24 33 30 14 0 2006 2007 2008 2009 2010 2011 Strategic buyer PE-backed IPOs Secondary buyouts Medians Strategic buyer PE-backed IPOs Secondary buyouts 2006 9.5 5.8 11.0 Exit Multiple by Exit Type 2007 2008 2009 10.9 9.5 8.0 11.7 10.8 7.4 6.9 12.4 2010 8.5 7.2 9.4 2011 Average 8.7 9.2 5.1 8.0 9.6 9.9 9.8 Data source: PitchBook and Grant Thornton, Private Equity Exits Report, 2012 Annual Edition
