PowerPoint Presentation

Present to executive management and the board of directors. Present an executive level presentation noting what was discovered.

Powerpoint presentation of the two sections below, at least 6 slides each section. Include word document with narriation explaining the slides.

The Proposal

Financial Statement Analysis

Use the attached powerpoint template, Use the attached documents as reference to do the powerpoint presentation.

Industry Analysis and Acquisition Proposal Industry Size The restaurant industry is expected to see its seventh consecutive year of growth in 2016 with expected sales of $780 billion. Currently the industry employs 14 million people and is expected to add another 1.7 million jobs over the next 10 years (Fast Casual Industry, 2016). The global quick service restaurant segment has seen an annual revenue growth of 2.6% from 2011 to 2016. Gross revenue in this segment is derived from both franchised and company-owned stores (IBIS, 2016). Industry Segmentation The restaurant industry is segmented based on the level of service received by the customers. The two biggest segments of this industry are full-service and fast food or quick service restaurants. These two segments account for over 75% of total industry sales (Elitzak, 2016). Full-service is characterized primarily by the presence of a wait staff. Quick service is characterized by ordering and paying at a counter or window and taking your own food to wherever you plan on eating. There is no table service and condiments are typically centrally located as opposed to being on individual tables. The menu offerings of quick service locations are consistent across most locations so customers can rely on the same quality meal at a location in New York as they can in California. Within the quick service industry there is an emerging sub-segment known as fast casual which like its name implies falls between traditional fast food and traditional full-service establishments. In this category food is usually ordered at a counter and there is no table service like traditional fast food. However, the environment is more upscale including things such as real plates and non-plastic utensils. The food is also considered higher quality as it is usually made on site. A good example of this type of establishment is Panera Bread (Fast Food Industry, 2016). Other segments in this industry include what are known as eating and drinking places, which refer to caterers and concession stand vendors, and retail hosts which are typically franchises of major brands located within gas stations and grocery stores (Akers, n.d.). Economic Climate The quick service restaurant industry is highly competitive. Below is a breakdown of the top 7 competitors by size and ranking according to QSR Magazine. It also includes innovations in products, distribution, finances and regulatory issues. The industry over the years has proven to be elastic with both store openings and store closings. 1. McDonalds: This chain was seen in decline in 2015. However, they still had a $350 million boost in sales. Trends included the \"All Day\" breakfast and healthier choices. They also have had issues with the National Labor Relation Board (NLRB) over joint employer liability and have worked hard to emphasize corporate responsibility (Duncan, 2016). Page 1 of 5 2. Starbucks: The company initiated a national rollout of mobile pay. They are also using perks or rewards for recurring customers. New products include Limited Term Offerings (LTOs) such as the Halloween-themed \"Frappula,\" as well as Cherry Blossom and Caramel Waffle Cone drinks. In addition, they are expanding their selection of less sugary drinks. This theme seems to work towards healthier choices (Duncan, 2016). 3. Subway: The Jared Fogle scandal caused Subway sales to drop $400 million. In 2016 they launched a thick carved turkey and Applewood-smoked bacon sandwiches to upgrade their menu. In addition, they are also effectively working to remove less healthy ingredients including high fructose corn syrup (Duncan, 2016). 4. Burger King: System wide sales for Burger King were up 900 million in 2015. They continued to close less profitable stores. Their menu is essentially the same but did bring back Chicken Fries and even expanding with items such as a buffalo version of Chicken Fries, Grilled Dogs, and a Flame Grilled Chicken Burger (Duncan, 2016). 5. Taco Bell: Taco Bell is targeting younger consumers with offerings like the Quesalupa and Beefy Crunch Burritos. In addition, they are sourcing healthier cage free eggs and removing artificial flavors. Taco Bell has added over 200 stores (Duncan, 2016). 6. Wendy's: This competitor failed to keep pace with Burger King. The company instead was focused on technology and created a vegetarian black bean burger (Duncan, 2016). 7. Dunkin' Brands: This competitor consists of Dunkin' Donuts and Baskin-Robbins. Dunkin' Donuts is growing rapidly with 1,125 new stores in just 3 years while increasing sales by 500 million. They are making plays in international markets like South Africa and Switzerland. They are also involved in various marketing via social media and a perks reward programs (Duncan, 2016). Baskin-Robbins had U.S. comparable store sales growth of 6.1% (Dunkin', 2016). Overall it seems that all these companies are innovating at varying rates. The trend is to healthy choices, rewards, and technology both in product and rewards points that are driving innovation. I would say that the risks in product liability stem from the outsourcing of raw materials within the supply chain. Regulations internationally and domestically must always be properly examined in the food industry. One such regulation, published by the United States' Food and Drug Administration (FDA) was the Food Safety Modernization Act (FSMA). The FSMA relates to the regulation of food safety and grants the FDA the power to monitor private sector food safety issues (Global Food Safety, n.d.). Projected Growth and Profitability The quick service restaurant industry is expected to see revenue grow to $223 billion dollars by 2020 (Statista, n.d.). Currently the industry employs 14 million people and is expected to add another 1.7 million jobs over the next 10 years (Fast Casual Industry, 2016). According to Zacks, restaurant industry measures show a mixed outlook for the future. They ranked the industry in the bottom third, of all industries, based on the earnings outlook and strength of the players in the industry. Zacks' points to unpredictable consumer behavior and an unwillingness to spend as possible explanations for this less than favorable outlook. However, given the improving economy, this may prove to be a temporary state for the industry (Zacks, 2016). Page 2 of 5 Factors Affecting Growth and Profitability Porter's five forces can be used to determine what factors affect the growth and profitability of an industry. These five forces relate to a firm's competitive environment which directly affects profitability. Porter's five forces are: barriers to entry, bargaining power of the customers, bargaining power of the suppliers, level of competition in the market, and existence of substitutes. If an industry has significant barriers to entry, it will be difficult for new firms to enter the market. As a result, there will be less competition for an existing firm in the industry. Bargaining power of the customers will impact the price that the firms can charge for their product while bargaining power of the suppliers will impact the costs of inputs for firms. Lastly, the existence of substitutes means that if consumers have many similar products to choose from they will tend to purchase the lowest cost item thereby driving long-term profits of firms in this type of industry to zero. As it relates to the competitive advantage of an individual firm, Porter developed four additional forces including local demand, existing resources (i.e. land, labor, capital) company strategy, and the existence of supporting industries. If these forces are acting favorably for a firm the firm will possess a competitive advantage which will positively impact its growth in an industry (Basu, n.d.). Proposal for Acquisition (Discuss your target acquisition company and reasons why it might be a good acquisition) To: Dunkin's Brands Executive Team Re: The potential acquisition of Starbucks Corporation We are pleased to submit this initial proposal for Dunkin' Brands to acquire Starbucks Corporation. At Dunkin' Brands, our mission is to lead and build great brands. We \"connect powerful brands to growing businesses while delivering great food, beverages, and an overall great experience through the kind of hospitality that results in loyal customers\" (Dunkin' Brands, n.d.). Our main competitor, Starbucks, strives to \"inspire and nurture the human spiritone person, one cup, and one neighborhood at a time\" (Starbucks, 2016). It is that focus on humanity and community that points to Starbucks as a great brand. The values of both Dunkin' Brands and Starbucks include a commitment to delivering the best products and experiences to our customers. The first Starbucks was opened in 1971 in Seattle, Washington. Today, this single coffee shop has grown into a global brand present in 70 countries with more than 24,000 stores. Starbucks' products include over 30 varieties of coffee, tea, baked goods and other food items, ready-todrink bottled beverages, branded merchandise (mugs, ornaments, etc.), and home-brewing equipment. The company went public in 1992 for $17.00 per share (Starbucks, n.d.). Today their stock is trading at over $52.00 per share (Yahoo! Finance, 2016). Last year Starbucks Corporation saw $19,162.7 million in total revenue (Starbucks, n.d.). The main reason for acquisition is to expand the market share of Dunkin' Brands. Currently, our presence in the United States is only in the northeastern part of the country while Starbucks is present coast to coast. We believe the acquisition should be done piecemeal. We would retain Page 3 of 5 much of the former staff to help avoid rehiring costs and provide consistent service to all our customers. Since we have similar business models in our retail stores as well as similar products overall, the operation of the joint firm will closely resemble the way we currently run our company. Given our similar missions and values it would be that much easier for us to come together under one mission and vision. Both Dunkin' Donuts and Starbucks are considered quick service restaurants but it seems that the atmosphere of Starbucks leans more towards fast casual. While this is still the smallest category in the restaurant industry in terms of market share at only 7.7% the growth of this category far outshines the rest of the industry. From 2014 to 2015 fast casual grew 10.4% while the overall industry only saw growth of 5.7% (Fast Casual Industry, 2016). This provides a great opportunity for Dunkin' Brands to tap into this market through its acquisition of Starbucks. Therefore, we should seriously consider Starbucks as a potential acquisition target. We look forward to doing our due diligence to evaluate and plan this potential acquisition. Page 4 of 5 Resources Akers, H. (n.d.). Major Segments of the Restaurant Industry. Retrieved from http://smallbusiness.chron.com/major-segments-restaurant-industry-25986.html Basu, C. (n.d.). The Importance of Porter's Diamond & Porter's Five Forces in Business. Retrieved from http://smallbusiness.chron.com/importance-porters-diamond-porters-five-forcesbusiness-33891.html Duncan, N. (2016). The QSR 50. Retrieved from https://www.qsrmagazine.com/QSR-50 Dunkin' Brands. (n.d.). Investor Relations. Retrieved from http://www.dunkinbrands.com/ Dunkin' Brands. (n.d.). Press Kit. Retrieved from http://www.dunkinbrands.com/ Elitzak, H. (2016). Market Segments. Retrieved from http://ers.usda.gov/topics/food-marketsprices/food-service-industry/market-segments.aspx Fast Casual Industry Analysis. (2016). Retrieved from https://www.franchisehelp.com/industryreports/fast-casual-industry-report/ Fast Food Industry Analysis. (2016). Retrieved from https://www.franchisehelp.com/industryreports/fast-food-industry-report/ Global Food Safety Resource. (n.d.). The Food Safety Modernization Act (FSMA) - An Overview. Retrieved from http://globalfoodsafetyresource.com/compliance/food-safetymodernization-act IBISworld. (2016). Global Fast Food Market Research Report. Retrieved from http://www.ibisworld.com/industry/global/global-fast-food-restaurants.html Starbucks. (2016). Investor Relations. Retrieved from http://investor.starbucks.com/phoenix.zhtml?c=99518&p=irol-irhome Statista. (n.d.). Statistics and facts about the fast food industry. Retrieved from https://www.statista.com/topics/863/fast-food/ Yahoo! Finance. (2016). Starbucks Corporation SBUX. Retrieved from http://finance.yahoo.com/quote/SBUX?ltr=1 Zacks Equity Research. (2016). Restaurants Industry Stock Outlook - Sept. 2016. Retrieved from https://www.zacks.com/commentary/90482/restaurants-industry-stock-outlook---sept-2016 Page 5 of 5 INTRODUCTION This paper comprehensively and candidly shows a performance summary of both the target and acquisition companies to evaluate the feasibility of the acquisition. The following tests will be performed to determine the acquiring cost of the company: the value of the firm's operations, the weighted cost of capital, the intrinsic value, the book value of the firm and the firm's market value. KEY STATISTICS KEY STATISTICS FOR: DUNKIN' BRANDS Market Cap $4669.290M Beta 0.07 Historical Market Returns rm 7.5% Risk Free Rate 2.29 Market capitalization is the market value of a firm's outstanding shares. The beta is the measure of volatility or systematic risk as used in the capital asset pricing model (Fernandez et al., 2013). The risk-free rate, on the other hand, is the interest that an investor would expect from totally risk free investment over a certain time period. BALANCE SHEET PERIOD ENDING 2015 2014 2013 Short/Current Long Term Debt 418,792 355,519 344,298 Long Term Debt 1,795,62 3 1,818,60 9 2,420,60 0 INCOME STATEMENT PERIOD ENDING 2015 2014 2013 Interest expense 96,765 68,098 80,235 Income before tax 201,58 8 255,73 3 218,08 8 Income tax expense 96,359 80,170 71,784 CASH FLOWS Page 1 of 9 VALUE OF FIRM'S OPERATIONS Valuation Calculation = [FCF(1+g)]/(WACCg) WACC =2.77% Terminal Growth PV of FCF Growth rate =2% Terminal Value 2013 = 126,737(1+.02)/ (0.0277-0.02) =16,788,537 PV=16,788,537 (1.02) ^-3=$15,820,214 WACC-WEIGHTED AVERAGE COST OF CAPITAL A firm's WACC is the rate that a company anticipates to pay, on average, to all the security holders to finance the respective assets (Krueger et al., 2015). WACC Formula = WACC = Cost of Debt (1- Tax rate) *(Debt %) + Cost of Equity *(Equity%) Cost of Equity = Risk Free Rate + Beta x (Market Risk Premium-Risk Free Rate) Cost of equity =2.29+0.07(7.5-2.29) =2.65% Weight of equity = E / (E + D) = 4808.730 / (4808.730 + 2130.5995) = 0.693 Weight of debt = D / (E + D) = 2130.5995 / (4808.730 + 2130.5995) = 0.307 Page 2 of 9 Common Equity= 4808.730M Cost of Debt = 96.765 / 2130.5995 = 4.5417%. Total Debt =2130.5995M Total weight = 6,939.3295 WACC = Debt weight (1- Tax rate) *(Debt %) + Equity weight*(Equity%) WACC=0.307 (1-0.3275)4.5417%+0.693*2.65% WACC= 2.77% INTRINSIC VALUE NOTES Dunkin' Brands denotes a median price-to-book (PB) value of 12.18, this is due to their large amount of current debt. McDonald's currently has a PB value of 153, which skews the numbers for comparison. Starbucks seems to be balanced in their approach to both equity and debt financing. Dunkin' Brands and McDonald's prefer to use debt financing. This is not bad just different, and in effect, if CAPEX is financed early during a rising interest rate environment it can be favorable in terms of long term debt at lower costs in the future. BELOW IS THE YEAR TO DATE STOCK PERFORMANCE Page 3 of 9 MARKET VALUE Target company's stock values: Preferred Stock Par Value: $0.001 # of shares authorized 0 None issued & outstanding Common Stock Par Value: $0.001 # of shares authorized: 475 mil # of shares issued: 91.26 mil # of shares outstanding: 91.74 mil Shares issued and outstanding (in millions): DATE Stock Price 11/25/16 53.55 Shares Outstanding 91.74 Market Cap 4.949 bn Market Value as of November 25, 2016: $ 4.912 billion Summary The intrinsic value is varied among top competitors which leads to difficulty in evaluating the overall takeover price. The target company has relied heavily on debt financing. This could be positive should interest rates rise with favorable long term debt structures. In addition, the time value of a build out the size of Dunkin' Brands is also difficult to evaluate but serves as another positive with the addition of over 15,000 locations. I was alarmed that McDonald's has the largest price to book ratio of 153. We should not completely discount this figure, but consider it an outlier that skews the averages calculated above. In a post-acquisition environment, however, the combined company may be able to increase their price to book ratio to be more competitive with McDonalds'. It is not to say that we should value this skew too much as the combination of the two companies would be more competitive in the larger markets against McDonalds'. I would estimate that the profits of the combined company could exceed $1 billion dollars within a 5-year period. BOOK VALUE TARGET COMPANY Page 4 of 9 TABLE - 1: TARGET COMPANY'S - CONSOLIDATED BALANCE SHEET (Present most recent three fiscal years) TABLE - 2: TARGET COMPANY'S - CONSOLIDATED STATEMENT OF INCOME (Present most recent three fiscal years) THE PROPOSED PURCHASE PRICE In combination with the above analysis, several other factors were incorporated to determine a purchase price for Dunkin' Brands. For comparison, the following acquisitions and related companies were researched: 1 The above acquisitions are useful to determine this acquisition price because two of the target companies were major competitors of both us and Dunkin' Brands and the other two show our previous strategies in acquisitions. To purchase all of Dunkin' Brands 92,641,044 common shares outstanding as of their last 10-K filing with the SEC, at today's1 opening market price of $53.95/share would cost approximately $5 billion. Using this base share price and number of shares outstanding, if we apply the lowest (25%), average ([25+30+53]/3=36%), and highest (53%) premium levels from the above table we would end up with purchase prices as follows: 2 In addition to share price we must also consider the company's enterprise value (EV), and EV/EBITDA (Earnings Before Interest Taxes Depreciation Amortization) ratio. The enterprise value of a company is often considered a truer measure of a company's overall value because it represents the theoretical price of purchasing every share of common stock, preferred stock, and outstanding debt. The formula for calculating enterprise value is: 1 Refer to Reference section for data sources 2 Refer to Reference section for data sources Page 5 of 9 EV= market value of common stock + market value of preferred equity + market value of debt+ minority interest - cash and cash equivalents where the market value of preferred equity and minority interest is usually zero and cash and cash equivalents are subtracted because the acquiring company takes ownership of these assets after acquisition (Investopedia, n.d.). While EV alone is not especially useful, the ratio of EV/EBITDA can be used to compare with different levels of debt and/or cash levels. This is particularly useful to us in the acquisition of Dunkin' Brands because of their large amount of overall debt relative to the industry (Forbes, 2012). Below is a table of the components and resulting calculation of EV, along with the company's EBITDA and EV/EBITDA ratio (where available). Starbucks Corporation's figures are given for comparison. 3 As shown in the table above, despite their high level of debt, Dunkin' Brands EV/EBITDA ratio of 16.84 is comparable to ours at 17.46. The only concern is that a high EV/EBITDA ratio can be indicative of an overvalued stock. In addition, Dunkin' Brands has recently reached its 12-month target price of $50.62. This means that analysts can now either downgrade their valuation or raise their target price. Finally, we must also take into consideration what the acquisition of Dunkin' Brands will bring to Starbucks Corporation; in other words, why are we willing to pay the premium we offer? Despite taking on a massive amount of debt to acquire a company whose market cap is almost 12 times smaller than ours, in acquiring Dunkin' Brands our new company will be able to better compete in the market. After Burger King's acquisition of Tim Hortons, they became the third largest fast food conglomerate so it stands to reason that acquiring Dunkin' Brands would make us more competitive (Kedmey, 2014). This acquisition will also help us to reach a much larger demographic. In the long run this will provide increased stabilization to our earnings in times of economic downturn because customers will be less likely to decrease spending on a $2.00 coffee drink as compared to a $4.50 coffee drink. As we bring these two companies together, Starbucks will also have access to the research and development resources that Dunkin' Brands can provide. This can be especially useful in helping us expand our offerings in our Starbucks store fronts by using the Baskin-Robbins team to potentially develop a line of gelato for Starbucks. Taking into consideration all of the facts presented in this report, we have determined that an adequate purchase price to be $7.247 billion. This is based on a 45% premium on Dunkin' Brands' current stock price. We arrived at this premium figure based on a combination of historic acquisition premiums paid, and the current enterprise value of Dunkin' Brands. In our above analysis, the lower and average premium levels would result in a purchase price that is less than the enterprise value. We believe it is unlikely that Dunkin' Brands' investors will accept an offer that values the company at less than enterprise value. Using the enterprise value as a purchase price would result in an approximate premium of 42%. We believe the additional 3% necessary to bring the premium to 45% is justified given both the amount of debt we will need to take on as well as the synergies that the acquisition will bring. 3 Refer to Reference section for data sources Page 6 of 9 CONCLUSION The company should be acquired taking into consideration that it will provide the following synergies: Competitive advantage: The acquired company will enhance the competitive advantage of Starbucks hence increasing the production and consequently leading to an increase in revenue generation to the company. Furthermore, the company will benefit from economies of scale in terms of production costs thereby decreasing production costs and increasing profit. Staff reduction: The merger between the two companies will enable a reduction of employees in duplicate departments between the two companies for example, marketing and accounting. This reduction will reduce compensation expense which contributes to the enhancement of profit generation. Improved market and industry visibility: The merger between the two companies will result in new markets and growth in earnings and revenues. The merger will also improve the company's investment opportunities, making it easier for the company to raise capital. Page 7 of 9 REFERENCES De La Merced & Strom. (2012). Starbucks to Buy Teavana for $620 Million. Retrieved from http://dealbook.nytimes.com/2012/11/14/starbucks-to-buy-teavana-for-620-million/?_r=1 Dunkin' Brands. (2015). Dunkin' Brands Group, Inc annual report 2015. Retrieved from http://files.shareholder.com/downloads/ABEA-68SCR9/3268268436x0x883107/32BF1764-3E53-45CF-9824D8753F797D37/DNKN_Annual_Report_Final_.PDF Dunkin' Brands. (2014). Dunkin' Brands Group, Inc annual report 2014. Retrieved from http://files.shareholder.com/downloads/ABEA-68SCR9/3268285185x0x737142/968D8A70-6911-43A5-AE59791BF8FD6504/DNKN_Annual_Report_Final_.pdf Dunkin' Brands. (2013). Dunkin' Brands Group, Inc annual report 2013. Retrieved from http://files.shareholder.com/downloads/ABEA-68SCR9/3268285185x0x737142/968D8A70-6911-43A5-AE59791BF8FD6504/DNKN_Annual_Report_Final_.pdf Dunkin' Brands. (2012). Dunkin' Brands Group, Inc annual report 2012. Retrieved from http://files.shareholder.com/downloads/ABEA-68SCR9/3268285185x0x737142/968D8A70-6911-43A5-AE59791BF8FD6504/DNKN_Annual_Report_Final_.pdf Fernandez, P. (2015). Valuation using multiples: How do analysts reach their conclusions. Available at SSRN 274972. Fernandez, P., Aguirreamalloa, J., & Linares, P. (2013). Market risk premium and risk free rate used for 51 countries in 2013: a survey with 6,237 answers. Available at SSRN 914160. Forbes. (2012). Using Enterprise Value to Compare Companies. Retrieved from http://www.forbes.com/sites/investopedia/2012/11/15/using-enterprise-value-to-comparecompanies/#b87ef2640a0d Google Finance. (2016). Dunkin' Brands Group Inc. Charts. Retrieved from https://www.google.com/finance? q=dnkn&ei=1bY4WNn6E8_IeeaPtNgL Gurufocus. (2016). Krispy Kreme Doughnuts Inc (NYSE:KKD) Enterprise Value. Retrieved from http://www.gurufocus.com/term/ev/KKD/Enterprise%2BValue/ Gurufocus. (2016). Dunkin' Brands Group Inc. (DNKN). Retrieved from http://www.gurufocus.com/stock/DNKN Gurufocus. (2016). McDonald's Corp (MCD). Retrieved from http://www.gurufocus.com/stock/MCD. Gurufocus. (2016). Restaurant Brands International Inc. (QSR). Retrieved from http://www.gurufocus.com/stock/QSR Gurufocus. (2016). Starbucks Corporation (SBUX). Retrieved from http://www.gurufocus.com/stock/SBUX Hilscher, J., Raviv, A., & Reis, R. (2013). Measuring the Market Value of Central Bank Capital. Brandeis University and Columbia University. Page 8 of 9 Investopedia. (n.d.). What is 'Enterprise Value (EV)'. Retrieved from http://www.investopedia.com/terms/e/enterprisevalue.asp?lgl=no-infinite Kedmey, D. (2014). Burger King and Tim Hortons Tie the Knot. Retrieved from http://time.com/3181624/burgerking-tim-hortons-merger/ Krueger, P., Landier, A., & Thesmar, D. (2015). The WACC fallacy: The real effects of using a unique discount rate. The Journal of Finance, 70(3), 1253-1285. Retrieved from http://www.gurufocus.com/term/wacc/DNKN/Weighted %2BAverage%2BCost%2BOf%2BCapital%2B%2528WACC%2529/Dunkin%2BBrands%2BGroup%2BInc SEC. (2016). View Filing Data: Dunkin' Brands Group, Inc. Form 10-K. Retrieved from https://www.sec.gov/cgibin/viewer?action=view&cik=1357204&accession_number=0001357204-16-000070&xbrl_type=v# Skidmore, S. (2011). Starbucks Acquires Juice Business for $30M. Retrieved from http://archive.boston.com/business/articles/2011/11/10/starbucks_acquires_juice_business_for_30m/ Street of Walls. (n.d.) Mergers & Acquisitions (M&A) Valuation. Retrieved from http://www.streetofwalls.com/finance-training-courses/investment-banking-technical-training/mna-valuationtechniques/ Yahoo! Finance. (2016). Dunkin' Brands Group, Inc. (DNKN). Retrieved from http://finance.yahoo.com/quote/DNKN?ltr=1 Yahoo! Finance. (2016). Starbucks Corporation (SBUX). Retrieved from http://finance.yahoo.com/quote/SBUX/keystatistics?p=SBUX Page 9 of 9 Title Layout Subtitle Add your first bullet point here Add your second bullet point here Add your third bullet point here Title and Content Layout with List 6 5 4 3 2 1 0 Category 1 Category 2 Series 1 Category 3 Series 2 Series 3 Title and Content Layout with Chart Category 4 First bullet point here Second bullet point here Third bullet point here Group A Group B Class 1 82 95 Class 2 76 88 Class 3 84 90 Two Content Layout with Table First bullet point here Second bullet point here Third bullet point here Two Content Layout with SmartArt Click icon to add picture Page 1: Cover page - The acquisition proposal Page 2: Industry size & segmentation - This slide will talk about the industry size and how it is segmented, about the growth of the industry, some sales figures, no of employees employed etc. which are as follows a. Restaurant industry is expected to see its seventh consecutive year of growth in 2016 with sales expected in 2016 is $ 780 billion b. The industry has seen an annual growth rate of 2.6% from 2011 to 2016 c. The restaurant service has 2 segments i.e. full service and fast food or quick service. These two service account for over 75% of total industry sales. Page 3 & 4: The economic climate - These 2 slides will give an idea about the economic climate of the 7 companies which are being evaluated for acquisition. Here, you will discuss the strengths and weaknesses of each company and also an overall discussion about the same. Sales of McDonald's was declining in 2015 with $ 350 million. Starbucks initiated a national rollout of mobile pay and their new products includes \"Frappula\" & \"Cherry Blossom\". Jared Fogle scandal caused Subway's sales to decline to $ 400 million. It is also working to remove unhealthy ingredients. Burger king's sales up in 2015 to $ 900 million and it continued to close less profitable stores to increase the profit further. It believes that closing the less profitable store will help in reducing the losses which will ultimately help in increasing the profit. Taco Bell is targeting younger consumers with offers like Quesalupa and beefy crunch burritos and it is sourcing healthier cage free eggs and removing artificial flavors and it also added over 200 stores recently. Wendy's failed to keep pace with Burger King though they focused on technology and created a vegetarian black bean burger in 2016. Dunkin' brands consists of Dunkin Donuts & BaskinRobbins. It is growing rapidly with 1,125 stores in 3 just years while increasing sales by $ 500 million. It is also a good player of international market playing in international markets like South Africa and Switzerland. Hence, overall all companies are innovating at varying rates, the trend is to healthy choices, rewards and technology, regulations must always be properly examined Page 5: Project growth and profitability - This page will give an idea of the long term growth and about the profitability of this project. Again, here some facts and figures can be discussed about the revenue, no of employees, growth rate etc. which are as follows - The quick service restaurant industry is expected to see revenue growth to $ 223 billion by 2020. According to a survey conducted by Zacks, restaurant industry shows a mixed outlook for the future. This industry in ranked third from the bottom among all industries based on earnings outlook and strength of the players in the industry. Hence, from the above, it is concluded that this industry has a very good outlook and expanding will be a very good strategy. It has some negative points like unpredictable consumer behavior and willingness to spend less are the possible reason for less favorable outlook. However, given the improving economy, this may prove to be a temporary state for the economy. Page 6: Factors affecting growth & profitability - In this page we will discuss the various factors that will affect the growth and profitability of the project. Also, we will discuss how any adverse factor can be handled to improve the profitability of the project. Here, Porter's five forces can be used to determine the factors affecting growth & profitability. Bargaining power of the customers, bargaining power of the suppliers, level of competition in the market, and existence of substitutes are the five forces that affect the growth and profitability. If an industry has significant barriers to entry, it will be difficult for new firms to enter the market. If industry has significant barriers to entry, then less competition. Bargaining power of customers impact the pricing and hence profitability. Bargaining powers of suppliers will impact the cost of inputs which in turn hurt the profitability. If consumer has many similar products to choose from, they will tend to choose product with lowest cost. Page 7: Proposal for acquisition - This is the final proposal about which company to acquire and why. The target acquisition company is Starbucks Corporation. There are various reasons why it was selected which are as follows - i. The values of both Dunkin' Brands and Starbucks include a commitment to delivering the best products and experiences to our ii. customers Starbucks focuses on humanity and community which makes it a great iii. iv. v. brand It has 24,000 stores today spread across 70 countries Its product range includes over 30 verities of coffee, tea, baked goods It will help in expanding market share Page 8: Cover page - The Analysis Page 9: Introduction - This is the introduction page and here we will talk about what all tests that needs to be performed to determine the acquiring cost of the company. This paper comprehensively and candidly shows a performance summary of both the target and acquisition company to evaluate the feasibility of acquisition. a. There are various tests which will be performed to determining the acquiring cost of company - i. The value of the firm's operations - In this the value of firm's operations ii. will be measured The weighted average cost of capital - Here the cost of capital of the iii. company will be measured The intrinsic value - Intrinsic value is nothing but the price per share of the company based on the valuation model. iv. The book value of the firm - Book value of the book price of share as v. per accounting records i.e. as per latest balance sheet of the Company. Market value of the firm - Market value is nothing but the market price per share multiplied by number of shares of the company. Page 10: Key statistics - It gives some key statistics about the market cap of dunkin's donuts, balance sheet and income statement. a. Market capitalization is the market value of a firm's outstanding shares while beta measures the volatility and risk free rate is the expected rate of return on risk free investments b. Dunkin Brands market cap is about $ 4669.29 million, its beta is 0.07, market returns are 7.5%, risk free rate is 2.29% c. Balance sheet shows that short term debt has grown from 344,298 in 2013 to 418,792 in 2015. d. Balance sheet shows that long term debt has grown from 1818609 in 2013 to 2420600 in 2015. e. Income statement shows that interest expense has grown from 80235 in 2013 to 96765 in 2015. f. Income statement shows that income before tax has decreased from 218088 in 2013 to 201588 in 2015. g. Income statement shows that income tax expense has grown from 71784 in 2013 to 96359 in 2015. Page 11: Cash flow statement - A cash flow statement is nothing but the company's sources and applications of funds and what is the surplus cash that the company has generated. Here we will discuss the cash flow statement. Here, you can speak how the cash flow is and how are the changes in working capital, how are the capital expenditures etc. a. As per the cash flow statement the free cash flow has been increased from 47181 in 2011 to 84012 in 2016. b. There is a steady rise in capital expenditures as well which rose from 18596 in 2011 to 35352 in 2016. c. The dividend payout ratio has increased from 21% in 2011 to 41% in 2016. Page 12: Value of firm's operations and WACC - This talks about the value of firm's WACC, how the same is derived, what is the cost of debt, what is the cost of equity. It also talks about the value of firm's operations and how the same is derived. a. WACC Formula = WACC WACC is derived by multiplying cost of debt with its percentage and adding the same to cost of equity multiplied by its weight. Cost of Debt (1- Tax rate) *(Debt %) + Cost of Equity *(Equity%) WACC=0.307 (1-0.3275)4.5417%+0.693*2.65% WACC = 2.77% b. Value of firm's operations - Valuation Calculation = Valuation is done on the basis of free cash flow of the company, weighted average cost of capital of the company and growth rate of the Company. [FCF(1+g)]/(WACCg) Present Value = 16,788,537 (1.02) ^-3 = $15,820,214 Page 13: Intrinsic value - This page talks about the intrinsic value of acquiring company, target company, other companies and also the book value per share, cash flow per share, earnings per share etc. a. The intrinsic value per share of various companies are as follows - i. Starbucks - $ 57.59 ii. Dunkin Brands - $ 53.95 iii. McDonalds - $120.14 iv. RBI Inc. - $ 47.76 Page 14: Year to date stock performance and proposed purchase price - This page talks about how the stock has performed over a year and what would be the proposed prices for the different companies. a. The proposed purchase price of various companies are as follows - i. Tim Hortons in 2014 - $ 11 Billion ii. iii. iv. Krispy Kreme in 2016 - $ 1.35 Billion Teavana in 2012 - $ 620 Million Evolution fresh in 2011 0 $ 30 Million Page 15: Conclusion - This page talks about what all the acquired company should provide in order to be acquired. A company should be acquired taking into consideration that it will provide the following synergies: a. Competitive advantage - Competitive advantage means how this company will help in gaining competitive advantage over its competitors. Acquired company will enhance the competitive advantage of Starbucks and hence will lead to increase in revenue. Further, the Company will benefit from the economies of scale b. Staff reduction - This point talks about how the acquisition will help in staff reduction. Merger will help in reducing the number of employees by removing employees of duplicate department. c. Improved market and industry visibility - This point will talk how the acquisition will improve the market and industry visibility. Merger will result in new markets and growth in earnings and revenues. It will also improve Company's investment opportunities, making it easier for the Company to raise capital