Project AardvarkJanuary 29, 2010
Appendix 19
Goldman Stanley
Executive Summary
Goldman Stanley
Executive Summary
As of January 29, 2010, Aardvark’s share price and valuation are at all-time highs, having more than doubled since early 2009
As Aardvark’s stock price has soared in value, it has also generated over $35B in cash & cash-equivalents
As Aardvark’s cash balance grows, it is likely to face shareholder pressure to re-invest the cash in its business and to make significant acquisitions
Given Aardvark’s strong currency and cash balance, it could easily make several “tuck-in” acquisitions – or larger-scale acquisitions to acquire customers
Such a strategy would allow Aardvark to capture more of the smartphone, laptop, and desktop markets, and significantly improve its software offerings
Given Aardvark’s cash position, such acquisitions could be made with 100% cash – or in the case of a larger deal, stock could also be used
Goldman Stanley
Aardvark Valuation
Goldman Stanley
Valuation Summary
Aardvark’s current share price of $192.61 far exceeds the value implied by comparable public companies
Recent comparable transactions show higher implied valuation ranges due to flurry of consolidation and hardware M&A activity over 2009
Discounted Cash Flow Analysis under base-case assumptions shows implied valuation on-par with Aardvark’s current share price, implying that share price is justified
All valuation analysis is based on “base-case” financial projections in line with Wall Street analyst expectations
Given Aardvark’s cash balance and high valuation multiples vs. similar public companies, few competitors are well-positioned to make substantial acquisitions
Goldman Stanley
Aardvark - Financial Statements
($ in Millions, Except Per Share Amounts in Dollars and Share Counts in Thousands)
Assumptions & Valuation Overview
Basic Equity Value:
$327
$496
$734
$918
$1,073
$1,192
$1,299
$1,390
$24.17
$34.56
$47.17
$61.94
$78.98
$97.70
$118.76
$327
$496
$734
$918
$1,073
$1,192
$1,299
$1,390
Accounts Receivable:
$377
$757
$270
$0
$0
$0
$0
$0
$0
$0
$0
$1,000
$0
$0
$0
$0
($3)
($124)
($82)
$0
$0
$0
$0
$0
Valuation Summary - Aardvark
($ in Millions, Except Per Share Amounts in Dollars and Share Counts in Thousands)
Valuation Statistics - Aardvark
25th
75th
Applicable
25th
75th
Minimum
Pecentile
Median
Pecentile
Maximum
Aardvark
Minimum
Pecentile
Median
Pecentile
Maximum
$ 163.88
$ 182.19
$ 201.98
$ 223.36
$ 246.46
$ 163.88
$ 182.19
$ 201.98
$ 223.36
$ 246.46
$ 163.88
$ 18.31
$ 19.79
$ 21.38
$ 23.10
Comparable Companies - US-Based Hardware & Networking Companies with Over $20 Billion Revenue
($ in Millions, Except Per Share Amounts in Dollars and Share Counts in Thousands)
Operating Statistics
M&A-Comps
Networking & Hardware M&A Transactions Over $1 Billion with US-Based Sellers Since 1/1/2008
($ in Millions, Except Per Share Amounts in Dollars and Share Counts in Thousands)
Aardvark - Comparable M&A Transactions
Operating Metrics
Valuation Multiples
Discounted Cash Flow Analysis - Aardvark
($ in Millions, Except Per Share Amounts in Dollars and Share Counts in Thousands)
Aardvark - Cash Flow Projections
Aardvark - DCF Assumptions & Output
$56,296
$2,136
$1,815
$1,374
$1,248
$1,058
$12,064
$ 11,971
$ 11,332
$ 10,811
$ 10,119
11.6%
6.5%
7.3%
5.3%
Discount Rate
Discount Rate
WACC Analysis - Aardvark
($ in Millions, Except Per Share Amounts in Dollars and Share Counts in Thousands)
Discount Rate Calculation - Assumptions
Levered
Equity
Unlevered
Name
Beta
Debt
Value
Unlevered
Equity
Levered
Beta
Debt
Value
12.50%
15.37%
WACC
12.50%
Merger-Model
Merger Model - Aardvark and Research in Motion Limited
($ in Millions, Except Per Share Amounts in Dollars and Share Counts in Thousands)
Transaction Assumptions
Goodwill Calculation:
$147
($174)
$2,225
$22
$22
($1,291)
($1,291)
Sensitivity Analysis - Year 1 EPS Accretion/Dilution and Purchase Price vs. Operating Expense Synergies:
Expense Synergies % Seller OpEx:
Sensitivity Analysis - Year 1 EPS Accretion/Dilution and Purchase Price vs. Revenue Synergies:
Revenue Synergies % Seller Revenue:
Merger Model - Seller Diluted Share Count & Combined Balance Sheets
($ in Millions, Except Per Share Amounts in Dollars and Share Counts in Thousands)
Diluted Share & Enterprise Value Calculations - Seller
Company Name:
Assets:
Buyer
Seller
Adjustments
Combined
Aardvark - Basic LBO Model
($ in Millions, Except Per Share Amounts in Dollars and Share Counts in Thousands)
Transaction Assumptions
5.4%
5.5%
1.7%
4.0%
2.9%
2.0%
1.6%
1.3%
$327
$496
$734
$918
$1,073
$1,192
$1,299
$1,390
$918
$1,073
$1,192
$1,299
$1,390
$2,136
$1,815
$1,374
$1,248
$1,058
$8,315
$8,716
$10,415
$12,161
$13,995
($8,315)
($8,716)
($10,415)
($12,161)
($13,995)
Sensitivity Analysis - 5-Year IRR and Purchase Premium vs. Exit Multiple
Exit Multiple:
% Debt:
16.7%
30.0%
35.0%
40.0%
45.0%
50.0%
55.0%
60.0%
65.0%
70.0%
Aardvark - More Advanced LBO Model
($ in Millions, Except Per Share Amounts in Dollars and Share Counts in Thousands)
Transaction Assumptions
Goodwill Calculation:
$207
($284)
$10,946
$327
$496
$734
$918
$1,073
$1,192
$1,299
$1,390
$35
$35
$35
$35
$35
$918
$1,073
$1,192
$1,299
$1,390
$35
$35
$35
$35
$35
Accounts Receivable:
$11,284
$13,469
$15,539
$17,757
$19,685
Revolver:
$0
$0
$0
$0
$0
($11,284)
($13,469)
($15,539)
($15,081)
$0
$0
($0)
($0)
$2,676
$19,685
$11,284
$13,469
$15,539
$17,757
$19,685
$0
$0
$0
$2,676
$22,361
Sensitivity Analysis - 5-Year IRR and Purchase Premium vs. Exit Multiple
Exit Multiple:
Sensitivity Analysis - 5-Year IRR and Purchase Premium vs. Leverage Ratio:
Leverage Ratio:
DCF Assumptions:
Model Uses “Base Case” Financial Projections
Mid-Year Convention Used For PV Of Cash Flows
AAPL-3-Statements
Aardvark - Financial Statements
($ in Millions, Except Per Share Amounts in Dollars and Share Counts in Thousands)
Assumptions & Valuation Overview
Basic Equity Value:
$327
$496
$734
$918
$1,073
$1,192
$1,299
$1,390
$24.17
$34.56
$47.17
$61.94
$78.98
$97.70
$118.76
$327
$496
$734
$918
$1,073
$1,192
$1,299
$1,390
Accounts Receivable:
$377
$757
$270
$0
$0
$0
$0
$0
$0
$0
$0
$1,000
$0
$0
$0
$0
($3)
($124)
($82)
$0
$0
$0
$0
$0
Valuation Summary - Aardvark
($ in Millions, Except Per Share Amounts in Dollars and Share Counts in Thousands)
Valuation Statistics - Aardvark
25th
75th
Applicable
25th
75th
Minimum
Pecentile
Median
Pecentile
Maximum
Aardvark
Minimum
Pecentile
Median
Pecentile
Maximum
$ 163.88
$ 182.19
$ 201.98
$ 223.36
$ 246.46
$ 163.88
$ 182.19
$ 201.98
$ 223.36
$ 246.46
$ 163.88
$ 18.31
$ 19.79
$ 21.38
$ 23.10
Comparable Companies - US-Based Hardware & Networking Companies with Over $20 Billion Revenue
($ in Millions, Except Per Share Amounts in Dollars and Share Counts in Thousands)
Operating Statistics
M&A-Comps
Networking & Hardware M&A Transactions Over $1 Billion with US-Based Sellers Since 1/1/2008
($ in Millions, Except Per Share Amounts in Dollars and Share Counts in Thousands)
Aardvark - Comparable M&A Transactions
Operating Metrics
Valuation Multiples
Discounted Cash Flow Analysis - Aardvark
($ in Millions, Except Per Share Amounts in Dollars and Share Counts in Thousands)
Aardvark - Cash Flow Projections
Aardvark - DCF Assumptions & Output
$56,296
$2,136
$1,815
$1,374
$1,248
$1,058
$12,064
$ 11,971
$ 11,332
$ 10,811
$ 10,119
11.6%
6.5%
7.3%
5.3%
Discount Rate
Discount Rate
WACC Analysis - Aardvark
($ in Millions, Except Per Share Amounts in Dollars and Share Counts in Thousands)
Discount Rate Calculation - Assumptions
Levered
Equity
Unlevered
Name
Beta
Debt
Value
Unlevered
Equity
Levered
Beta
Debt
Value
12.50%
15.37%
WACC
12.50%
Merger-Model
Merger Model - Aardvark and Research in Motion Limited
($ in Millions, Except Per Share Amounts in Dollars and Share Counts in Thousands)
Transaction Assumptions
Goodwill Calculation:
$147
($174)
$2,225
$22
$22
($1,291)
($1,291)
Sensitivity Analysis - Year 1 EPS Accretion/Dilution and Purchase Price vs. Operating Expense Synergies:
Expense Synergies % Seller OpEx:
Sensitivity Analysis - Year 1 EPS Accretion/Dilution and Purchase Price vs. Revenue Synergies:
Revenue Synergies % Seller Revenue:
Merger Model - Seller Diluted Share Count & Combined Balance Sheets
($ in Millions, Except Per Share Amounts in Dollars and Share Counts in Thousands)
Diluted Share & Enterprise Value Calculations - Seller
Company Name:
Assets:
Buyer
Seller
Adjustments
Combined
Aardvark - Basic LBO Model
($ in Millions, Except Per Share Amounts in Dollars and Share Counts in Thousands)
Transaction Assumptions
5.4%
5.5%
1.7%
4.0%
2.9%
2.0%
1.6%
1.3%
$327
$496
$734
$918
$1,073
$1,192
$1,299
$1,390
$918
$1,073
$1,192
$1,299
$1,390
$2,136
$1,815
$1,374
$1,248
$1,058
$8,315
$8,716
$10,415
$12,161
$13,995
($8,315)
($8,716)
($10,415)
($12,161)
($13,995)
Sensitivity Analysis - 5-Year IRR and Purchase Premium vs. Exit Multiple
Exit Multiple:
% Debt:
16.7%
30.0%
35.0%
40.0%
45.0%
50.0%
55.0%
60.0%
65.0%
70.0%
Aardvark - More Advanced LBO Model
($ in Millions, Except Per Share Amounts in Dollars and Share Counts in Thousands)
Transaction Assumptions
Goodwill Calculation:
$207
($284)
$10,946
$327
$496
$734
$918
$1,073
$1,192
$1,299
$1,390
$35
$35
$35
$35
$35
$918
$1,073
$1,192
$1,299
$1,390
$35
$35
$35
$35
$35
Accounts Receivable:
$11,284
$13,469
$15,539
$17,757
$19,685
Revolver:
$0
$0
$0
$0
$0
($11,284)
($13,469)
($15,539)
($15,081)
$0
$0
$0
$0
$2,676
$19,685
$11,284
$13,469
$15,539
$17,757
$19,685
$0
$0
$0
$2,676
$22,361
Sensitivity Analysis - 5-Year IRR and Purchase Premium vs. Exit Multiple
Exit Multiple:
Sensitivity Analysis - 5-Year IRR and Purchase Premium vs. Leverage Ratio:
Leverage Ratio:
Aardvark - Financial Statements
($ in Millions, Except Per Share Amounts in Dollars and Share Counts in Thousands)
Assumptions & Valuation Overview
Basic Equity Value:
$327
$496
$734
$918
$1,073
$1,192
$1,299
$1,390
$24.17
$34.56
$47.17
$61.94
$78.98
$97.70
$118.76
$327
$496
$734
$918
$1,073
$1,192
$1,299
$1,390
Accounts Receivable:
$377
$757
$270
$0
$0
$0
$0
$0
$0
$0
$0
$1,000
$0
$0
$0
$0
($3)
($124)
($82)
$0
$0
$0
$0
$0
Valuation Summary - Aardvark
($ in Millions, Except Per Share Amounts in Dollars and Share Counts in Thousands)
Valuation Statistics - Aardvark
25th
75th
Applicable
25th
75th
Minimum
Pecentile
Median
Pecentile
Maximum
Aardvark
Minimum
Pecentile
Median
Pecentile
Maximum
$ 163.88
$ 182.19
$ 201.98
$ 223.36
$ 246.46
$ 163.88
$ 182.19
$ 201.98
$ 223.36
$ 246.46
$ 163.88
$ 18.31
$ 19.79
$ 21.38
$ 23.10
Comparable Companies - US-Based Hardware & Networking Companies with Over $20 Billion Revenue
($ in Millions, Except Per Share Amounts in Dollars and Share Counts in Thousands)
Operating Statistics
M&A-Comps
Networking & Hardware M&A Transactions Over $1 Billion with US-Based Sellers Since 1/1/2008
($ in Millions, Except Per Share Amounts in Dollars and Share Counts in Thousands)
Aardvark - Comparable M&A Transactions
Operating Metrics
Valuation Multiples
Discounted Cash Flow Analysis - Aardvark
($ in Millions, Except Per Share Amounts in Dollars and Share Counts in Thousands)
Aardvark - Cash Flow Projections
Aardvark - DCF Assumptions & Output
$56,296
$2,136
$1,815
$1,374
$1,248
$1,058
$12,064
$ 11,971
$ 11,332
$ 10,811
$ 10,119
11.6%
6.5%
7.3%
5.3%
Discount Rate
Discount Rate
WACC Analysis - Aardvark
($ in Millions, Except Per Share Amounts in Dollars and Share Counts in Thousands)
Discount Rate Calculation - Assumptions
Levered
Equity
Unlevered
Name
Beta
Debt
Value
Unlevered
Equity
Levered
Beta
Debt
Value
12.50%
15.37%
WACC
12.50%
Merger-Model
Merger Model - Aardvark and Research in Motion Limited
($ in Millions, Except Per Share Amounts in Dollars and Share Counts in Thousands)
Transaction Assumptions
Goodwill Calculation:
$147
($174)
$2,225
$22
$22
($1,291)
($1,291)
Sensitivity Analysis - Year 1 EPS Accretion/Dilution and Purchase Price vs. Operating Expense Synergies:
Expense Synergies % Seller OpEx:
Sensitivity Analysis - Year 1 EPS Accretion/Dilution and Purchase Price vs. Revenue Synergies:
Revenue Synergies % Seller Revenue:
Merger Model - Seller Diluted Share Count & Combined Balance Sheets
($ in Millions, Except Per Share Amounts in Dollars and Share Counts in Thousands)
Diluted Share & Enterprise Value Calculations - Seller
Company Name:
Assets:
Buyer
Seller
Adjustments
Combined
Aardvark - Basic LBO Model
($ in Millions, Except Per Share Amounts in Dollars and Share Counts in Thousands)
Transaction Assumptions
5.4%
5.5%
1.7%
4.0%
2.9%
2.0%
1.6%
1.3%
$327
$496
$734
$918
$1,073
$1,192
$1,299
$1,390
$918
$1,073
$1,192
$1,299
$1,390
$2,136
$1,815
$1,374
$1,248
$1,058
$8,315
$8,716
$10,415
$12,161
$13,995
($8,315)
($8,716)
($10,415)
($12,161)
($13,995)
Sensitivity Analysis - 5-Year IRR and Purchase Premium vs. Exit Multiple
Exit Multiple:
% Debt:
16.7%
30.0%
35.0%
40.0%
45.0%
50.0%
55.0%
60.0%
65.0%
70.0%
Aardvark - More Advanced LBO Model
($ in Millions, Except Per Share Amounts in Dollars and Share Counts in Thousands)
Transaction Assumptions
Goodwill Calculation:
$207
($284)
$10,946
$327
$496
$734
$918
$1,073
$1,192
$1,299
$1,390
$35
$35
$35
$35
$35
$918
$1,073
$1,192
$1,299
$1,390
$35
$35
$35
$35
$35
Accounts Receivable:
$11,284
$13,469
$15,539
$17,757
$19,685
Revolver:
$0
$0
$0
$0
$0
($11,284)
($13,469)
($15,539)
($15,081)
$0
$0
($0)
($0)
$2,676
$19,685
$11,284
$13,469
$15,539
$17,757
$19,685
$0
$0
$0
$2,676
$22,361
Sensitivity Analysis - 5-Year IRR and Purchase Premium vs. Exit Multiple
Exit Multiple:
Sensitivity Analysis - 5-Year IRR and Purchase Premium vs. Leverage Ratio:
Leverage Ratio:
Goldman Stanley
Potential Acquisitions
Goldman Stanley
Potential Acquisitions
Given Aardvark’s large cash balance, it could make a wide variety of acquisitions – ranging from small “tuck-in” deals to acquire technology and IP to larger deals driven by customer or market share acquisition
Tier 1 Potential Acquisitions
“Tier 1” acquisition candidates are worth over $1 billion and would significantly boost Aardvark’s market share or result in substantial revenue or cost synergies
Leading candidates include ARM, for its chipset technology and integration with Aardvark’s existing products, and Research in Motion – to capture additional share in the corporate smartphone market
Tier 2 Potential Acquisitions
“Tier 2” acquisition candidates are worth less than $1 billion and would enhance Aardvark’s core technology and fill in gaps in existing products
Potential acquisitions include specialized chipset and semiconductor companies as well as Web 2.0, social media, and mobile software companies
Goldman Stanley
Company Profile: ARM
ARM Holdings is a supplier of semiconductor intellectual property and components of digital electronic products. It designs and licenses intellectual property rather than manufacturing and selling semiconductor chips, and it licenses its IP to a wide network of hardware, mobile, and networking companies. It also provides tools to optimize system-on-chip designs.
Products:
Processors – ARM provides 32-bit embedded microprocessors based on a common architecture that delivers high-performance, power efficiency, and reduced system cost.
System IP – Serves as the connection between processors, memory, and peripherals to ensure optimum performance.
Multimedia – ARM provides graphics processors that enable embedded graphics, audio, and video applications.
Physical IP – Provides SoC integrated circuits and logic, embedded memory, and interface IP.
Tools – ARM subsidiaries provide compilers, debuggers, simulators, and other optimization tools for a wide variety of chip and processor families.
Key Partners:
Headquarters: Cambridge, UK
Company Profile: Research In Motion
Research In Motion designs the BlackBerry smartphone and creates solutions for the worldwide mobile communications market, including a variety of software for the BlackBerry device. In addition to its line of BlackBerry devices, the company also provides enterprise server software to support businesses using the device.
Products:
BlackBerry Pearl 3G – Provides Trackpad and dedicated media keys as well as SureType technology and 3G network support.
BlackBerry Bold – Provides extended battery life as well as GPS, Wi-Fi, and 3G network support.
BlackBerry Curve 8500 – Includes Trackpad and dedicated media keys, easy media sharing, and 2.0 MP camera.
BlackBerry Tour 9630 – Provides GPS, worldwide compatibility, and 3.2 MP camera.
BlackBerry Storm – Features Wi-Fi, SurePress technology, and 3G network support.
BlackBerry Curve 8900 – Features thin, lightweight design as well as GPS and Wi-Fi support and 3.2 MP camera.
Key Partners:
AT&T, Brightstar, Digital China, GPXS, Hewlett-Packard, IBM, Skype, Sprint, Tata Indicom, T-Mobile, Verizon, Virgin, and Vodafone,
Headquarters: Waterloo, ON
Financial Information:
Management Team:
Goldman Stanley
Process Recommendations
Goldman Stanley
Key Recommendations
We recommend engaging in targeted discussions with the Tier 1 acquisition candidates and assessing their receptiveness to M&A discussions
At the same time, Goldman Stanley will reach out to Tier 2 candidates and introduce Aardvark as a potential acquirer
M&A process with Tier 1 candidates will take significantly longer due to the scale of the companies, so we recommend conducting both processes simultaneously
Depending on responses from Tier 1 and Tier 2 candidates, Goldman Stanley and Aardvark may do additional research to determine other potential acquisitions and then approach them
Targeted Buy-Side M&A
Broad Buy-Side M&A
Ranges from 10 to hundreds of companies
6 months to 1 year
Time required is highly variable
Close-ended
Aardvark - Financial Statements
($ in Millions, Except Per Share Amounts in Dollars and Share Counts in Thousands)
Assumptions & Valuation Overview
Basic Equity Value:
$327
$496
$734
$918
$1,073
$1,192
$1,299
$1,390
$24.17
$34.56
$47.17
$61.94
$78.98
$97.70
$118.76
$327
$496
$734
$918
$1,073
$1,192
$1,299
$1,390
Accounts Receivable:
$377
$757
$270
$0
$0
$0
$0
$0
$0
$0
$0
$1,000
$0
$0
$0
$0
($3)
($124)
($82)
$0
$0
$0
$0
$0
Valuation Summary - Aardvark
($ in Millions, Except Per Share Amounts in Dollars and Share Counts in Thousands)
Valuation Statistics - Aardvark
25th
75th
Applicable
25th
75th
Minimum
Pecentile
Median
Pecentile
Maximum
Aardvark
Minimum
Pecentile
Median
Pecentile
Maximum
$ 163.88
$ 182.19
$ 201.98
$ 223.36
$ 246.46
$ 163.88
$ 182.19
$ 201.98
$ 223.36
$ 246.46
$ 163.88
$ 18.31
$ 19.79
$ 21.38
$ 23.10
Comparable Companies - US-Based Hardware & Networking Companies with Over $20 Billion Revenue
($ in Millions, Except Per Share Amounts in Dollars and Share Counts in Thousands)
Operating Statistics
M&A-Comps
Networking & Hardware M&A Transactions Over $1 Billion with US-Based Sellers Since 1/1/2008
($ in Millions, Except Per Share Amounts in Dollars and Share Counts in Thousands)
Aardvark - Comparable M&A Transactions
Operating Metrics
Valuation Multiples
Discounted Cash Flow Analysis - Aardvark
($ in Millions, Except Per Share Amounts in Dollars and Share Counts in Thousands)
Aardvark - Cash Flow Projections
Aardvark - DCF Assumptions & Output
$56,296
$2,136
$1,815
$1,374
$1,248
$1,058
$12,064
$ 11,971
$ 11,332
$ 10,811
$ 10,119
11.6%
6.5%
7.3%
5.3%
Discount Rate
Discount Rate
WACC Analysis - Aardvark
($ in Millions, Except Per Share Amounts in Dollars and Share Counts in Thousands)
Discount Rate Calculation - Assumptions
Levered
Equity
Unlevered
Name
Beta
Debt
Value
Unlevered
Equity
Levered
Beta
Debt
Value
12.50%
15.37%
WACC
12.50%
Merger-Model
Merger Model - Aardvark and Research in Motion Limited
($ in Millions, Except Per Share Amounts in Dollars and Share Counts in Thousands)
Transaction Assumptions
Goodwill Calculation:
$147
($174)
$2,225
$22
$22
($1,291)
($1,291)
Sensitivity Analysis - Year 1 EPS Accretion/Dilution and Purchase Price vs. Operating Expense Synergies:
Expense Synergies % Seller OpEx:
Sensitivity Analysis - Year 1 EPS Accretion/Dilution and Purchase Price vs. Revenue Synergies:
Revenue Synergies % Seller Revenue:
Merger Model - Seller Diluted Share Count & Combined Balance Sheets
($ in Millions, Except Per Share Amounts in Dollars and Share Counts in Thousands)
Diluted Share & Enterprise Value Calculations - Seller
Company Name:
Assets:
Buyer
Seller
Adjustments
Combined
Aardvark - Basic LBO Model
($ in Millions, Except Per Share Amounts in Dollars and Share Counts in Thousands)
Transaction Assumptions
5.4%
5.5%
1.7%
4.0%
2.9%
2.0%
1.6%
1.3%
$327
$496
$734
$918
$1,073
$1,192
$1,299
$1,390
$918
$1,073
$1,192
$1,299
$1,390
$2,136
$1,815
$1,374
$1,248
$1,058
$8,315
$8,716
$10,415
$12,161
$13,995
($8,315)
($8,716)
($10,415)
($12,161)
($13,995)
Sensitivity Analysis - 5-Year IRR and Purchase Premium vs. Exit Multiple
Exit Multiple:
% Debt:
16.7%
30.0%
35.0%
40.0%
45.0%
50.0%
55.0%
60.0%
65.0%
70.0%
Aardvark - More Advanced LBO Model
($ in Millions, Except Per Share Amounts in Dollars and Share Counts in Thousands)
Transaction Assumptions
Goodwill Calculation:
$207
($284)
$10,946
$327
$496
$734
$918
$1,073
$1,192
$1,299
$1,390
$35
$35
$35
$35
$35
$918
$1,073
$1,192
$1,299
$1,390
$35
$35
$35
$35
$35
Accounts Receivable:
$11,284
$13,469
$15,539
$17,757
$19,685
Revolver:
$0
$0
$0
$0
$0
($11,284)
($13,469)
($15,539)
($15,081)
($0)
$0
$0
($0)
$2,676
$19,685
$11,284
$13,469
$15,539
$17,757
$19,685
$0
$0
$0
$2,676
$22,361
Sensitivity Analysis - 5-Year IRR and Purchase Premium vs. Exit Multiple
Exit Multiple:
Sensitivity Analysis - 5-Year IRR and Purchase Premium vs. Leverage Ratio:
Leverage Ratio:
Aardvark - Financial Statements
($ in Millions, Except Per Share Amounts in Dollars and Share Counts in Thousands)
Assumptions & Valuation Overview
Basic Equity Value:
$327
$496
$734
$918
$1,073
$1,192
$1,299
$1,390
$24.17
$34.56
$47.17
$61.94
$78.98
$97.70
$118.76
$327
$496
$734
$918
$1,073
$1,192
$1,299
$1,390
Accounts Receivable:
$377
$757
$270
$0
$0
$0
$0
$0
$0
$0
$0
$1,000
$0
$0
$0
$0
($3)
($124)
($82)
$0
$0
$0
$0
$0
Valuation Summary - Aardvark
($ in Millions, Except Per Share Amounts in Dollars and Share Counts in Thousands)
Valuation Statistics - Aardvark
25th
75th
Applicable
25th
75th
Minimum
Pecentile
Median
Pecentile
Maximum
Aardvark
Minimum
Pecentile
Median
Pecentile
Maximum
$ 163.88
$ 182.19
$ 201.98
$ 223.36
$ 246.46
$ 163.88
$ 182.19
$ 201.98
$ 223.36
$ 246.46
$ 163.88
$ 18.31
$ 19.79
$ 21.38
$ 23.10
Comparable Companies - US-Based Hardware & Networking Companies with Over $20 Billion Revenue
($ in Millions, Except Per Share Amounts in Dollars and Share Counts in Thousands)
Operating Statistics
M&A-Comps
Networking & Hardware M&A Transactions Over $1 Billion with US-Based Sellers Since 1/1/2008
($ in Millions, Except Per Share Amounts in Dollars and Share Counts in Thousands)
Aardvark - Comparable M&A Transactions
Operating Metrics
Valuation Multiples
Discounted Cash Flow Analysis - Aardvark
($ in Millions, Except Per Share Amounts in Dollars and Share Counts in Thousands)
Aardvark - Cash Flow Projections
Aardvark - DCF Assumptions & Output
$56,296
$2,136
$1,815
$1,374
$1,248
$1,058
$12,064
$ 11,971
$ 11,332
$ 10,811
$ 10,119
11.6%
6.5%
7.3%
5.3%
Discount Rate
Discount Rate
WACC Analysis - Aardvark
($ in Millions, Except Per Share Amounts in Dollars and Share Counts in Thousands)
Discount Rate Calculation - Assumptions
Levered
Equity
Unlevered
Name
Beta
Debt
Value
Unlevered
Equity
Levered
Beta
Debt
Value
12.50%
15.37%
WACC
12.50%
Merger-Model
Merger Model - Aardvark and Research in Motion Limited
($ in Millions, Except Per Share Amounts in Dollars and Share Counts in Thousands)
Transaction Assumptions
Goodwill Calculation:
$147
($174)
$2,225
$22
$22
($1,291)
($1,291)
Sensitivity Analysis - Year 1 EPS Accretion/Dilution and Purchase Price vs. Operating Expense Synergies:
Expense Synergies % Seller OpEx:
Sensitivity Analysis - Year 1 EPS Accretion/Dilution and Purchase Price vs. Revenue Synergies:
Revenue Synergies % Seller Revenue:
Merger Model - Seller Diluted Share Count & Combined Balance Sheets
($ in Millions, Except Per Share Amounts in Dollars and Share Counts in Thousands)
Diluted Share & Enterprise Value Calculations - Seller
Company Name:
Assets:
Buyer
Seller
Adjustments
Combined
Aardvark - Basic LBO Model
($ in Millions, Except Per Share Amounts in Dollars and Share Counts in Thousands)
Transaction Assumptions
5.4%
5.5%
1.7%
4.0%
2.9%
2.0%
1.6%
1.3%
$327
$496
$734
$918
$1,073
$1,192
$1,299
$1,390
$918
$1,073
$1,192
$1,299
$1,390
$2,136
$1,815
$1,374
$1,248
$1,058
$8,315
$8,716
$10,415
$12,161
$13,995
($8,315)
($8,716)
($10,415)
($12,161)
($13,995)
Sensitivity Analysis - 5-Year IRR and Purchase Premium vs. Exit Multiple
Exit Multiple:
% Debt:
16.7%
30.0%
35.0%
40.0%
45.0%
50.0%
55.0%
60.0%
65.0%
70.0%
Aardvark - More Advanced LBO Model
($ in Millions, Except Per Share Amounts in Dollars and Share Counts in Thousands)
Transaction Assumptions
Goodwill Calculation:
$207
($284)
$10,946
$327
$496
$734
$918
$1,073
$1,192
$1,299
$1,390
$35
$35
$35
$35
$35
$918
$1,073
$1,192
$1,299
$1,390
$35
$35
$35
$35
$35
Accounts Receivable:
$11,284
$13,469
$15,539
$17,757
$19,685
Revolver:
$0
$0
$0
$0
$0
($11,284)
($13,469)
($15,539)
($15,081)
$0
$0
($0)
($0)
$2,676
$19,685
$11,284
$13,469
$15,539
$17,757
$19,685
$0
$0
$0
$2,676
$22,361
Sensitivity Analysis - 5-Year IRR and Purchase Premium vs. Exit Multiple
Exit Multiple:
Sensitivity Analysis - 5-Year IRR and Purchase Premium vs. Leverage Ratio:
Leverage Ratio:
Aardvark - Financial Statements
($ in Millions, Except Per Share Amounts in Dollars and Share Counts in Thousands)
Assumptions & Valuation Overview
Basic Equity Value:
$327
$496
$734
$918
$1,073
$1,192
$1,299
$1,390
$24.17
$34.56
$47.17
$61.94
$78.98
$97.70
$118.76
$327
$496
$734
$918
$1,073
$1,192
$1,299
$1,390
Accounts Receivable:
$377
$757
$270
$0
$0
$0
$0
$0
$0
$0
$0
$1,000
$0
$0
$0
$0
($3)
($124)
($82)
$0
$0
$0
$0
$0
Valuation Summary - Aardvark
($ in Millions, Except Per Share Amounts in Dollars and Share Counts in Thousands)
Valuation Statistics - Aardvark
25th
75th
Applicable
25th
75th
Minimum
Pecentile
Median
Pecentile
Maximum
Aardvark
Minimum
Pecentile
Median
Pecentile
Maximum
$ 163.88
$ 182.19
$ 201.98
$ 223.36
$ 246.46
$ 163.88
$ 182.19
$ 201.98
$ 223.36
$ 246.46
$ 163.88
$ 18.31
$ 19.79
$ 21.38
$ 23.10
Comparable Companies - US-Based Hardware & Networking Companies with Over $20 Billion Revenue
($ in Millions, Except Per Share Amounts in Dollars and Share Counts in Thousands)
Operating Statistics
M&A-Comps
Networking & Hardware M&A Transactions Over $1 Billion with US-Based Sellers Since 1/1/2008
($ in Millions, Except Per Share Amounts in Dollars and Share Counts in Thousands)
Aardvark - Comparable M&A Transactions
Operating Metrics
Valuation Multiples
Discounted Cash Flow Analysis - Aardvark
($ in Millions, Except Per Share Amounts in Dollars and Share Counts in Thousands)
Aardvark - Cash Flow Projections
Aardvark - DCF Assumptions & Output
$56,296
$2,136
$1,815
$1,374
$1,248
$1,058
$12,064
$ 11,971
$ 11,332
$ 10,811
$ 10,119
11.6%
6.5%
7.3%
5.3%
Discount Rate
Discount Rate
WACC Analysis - Aardvark
($ in Millions, Except Per Share Amounts in Dollars and Share Counts in Thousands)
Discount Rate Calculation - Assumptions
Levered
Equity
Unlevered
Name
Beta
Debt
Value
Unlevered
Equity
Levered
Beta
Debt
Value
12.50%
15.37%
WACC
12.50%
Merger-Model
Merger Model - Aardvark and Research in Motion Limited
($ in Millions, Except Per Share Amounts in Dollars and Share Counts in Thousands)
Transaction Assumptions
Goodwill Calculation:
$147
($174)
$2,225
$22
$22
($1,291)
($1,291)
Sensitivity Analysis - Year 1 EPS Accretion/Dilution and Purchase Price vs. Operating Expense Synergies:
Expense Synergies % Seller OpEx:
Sensitivity Analysis - Year 1 EPS Accretion/Dilution and Purchase Price vs. Revenue Synergies:
Revenue Synergies % Seller Revenue:
Merger Model - Seller Diluted Share Count & Combined Balance Sheets
($ in Millions, Except Per Share Amounts in Dollars and Share Counts in Thousands)
Diluted Share & Enterprise Value Calculations - Seller
Company Name:
Assets:
Buyer
Seller
Adjustments
Combined
Aardvark - Basic LBO Model
($ in Millions, Except Per Share Amounts in Dollars and Share Counts in Thousands)
Transaction Assumptions
5.4%
5.5%
1.7%
4.0%
2.9%
2.0%
1.6%
1.3%
$327
$496
$734
$918
$1,073
$1,192
$1,299
$1,390
$918
$1,073
$1,192
$1,299
$1,390
$2,136
$1,815
$1,374
$1,248
$1,058
$8,315
$8,716
$10,415
$12,161
$13,995
($8,315)
($8,716)
($10,415)
($12,161)
($13,995)
Sensitivity Analysis - 5-Year IRR and Purchase Premium vs. Exit Multiple
Exit Multiple:
% Debt:
16.7%
30.0%
35.0%
40.0%
45.0%
50.0%
55.0%
60.0%
65.0%
70.0%
Aardvark - More Advanced LBO Model
($ in Millions, Except Per Share Amounts in Dollars and Share Counts in Thousands)
Transaction Assumptions
Goodwill Calculation:
$207
($284)
$10,946
$327
$496
$734
$918
$1,073
$1,192
$1,299
$1,390
$35
$35
$35
$35
$35
$918
$1,073
$1,192
$1,299
$1,390
$35
$35
$35
$35
$35
Accounts Receivable:
$11,284
$13,469
$15,539
$17,757
$19,685
Revolver:
$0
$0
$0
$0
$0
($11,284)
($13,469)
($15,539)
($15,081)
$0
$0
$0
$0
$2,676
$19,685
$11,284
$13,469
$15,539
$17,757
$19,685
$0
$0
$0
$2,676
$22,361
Sensitivity Analysis - 5-Year IRR and Purchase Premium vs. Exit Multiple
Exit Multiple:
Sensitivity Analysis - 5-Year IRR and Purchase Premium vs. Leverage Ratio:
Leverage Ratio:
AAPL-3-Statements
Aardvark - Financial Statements
($ in Millions, Except Per Share Amounts in Dollars and Share Counts in Thousands)
Assumptions & Valuation Overview
Basic Equity Value:
$327
$496
$734
$918
$1,073
$1,192
$1,299
$1,390
$24.17
$34.56
$47.17
$61.94
$78.98
$97.70
$118.76
$327
$496
$734
$918
$1,073
$1,192
$1,299
$1,390
Accounts Receivable:
$377
$757
$270
$0
$0
$0
$0
$0
$0
$0
$0
$1,000
$0
$0
$0
$0
($3)
($124)
($82)
$0
$0
$0
$0
$0
Valuation Summary - Aardvark
($ in Millions, Except Per Share Amounts in Dollars and Share Counts in Thousands)
Valuation Statistics - Aardvark
25th
75th
Applicable
25th
75th
Minimum
Pecentile
Median
Pecentile
Maximum
Aardvark
Minimum
Pecentile
Median
Pecentile
Maximum
$ 163.88
$ 182.19
$ 201.98
$ 223.36
$ 246.46
$ 163.88
$ 182.19
$ 201.98
$ 223.36
$ 246.46
$ 163.88
$ 18.31
$ 19.79
$ 21.38
$ 23.10
Comparable Companies - US-Based Hardware & Networking Companies with Over $20 Billion Revenue
($ in Millions, Except Per Share Amounts in Dollars and Share Counts in Thousands)
Operating Statistics
M&A-Comps
Networking & Hardware M&A Transactions Over $1 Billion with US-Based Sellers Since 1/1/2008
($ in Millions, Except Per Share Amounts in Dollars and Share Counts in Thousands)
Aardvark - Comparable M&A Transactions
Operating Metrics
Valuation Multiples
Discounted Cash Flow Analysis - Aardvark
($ in Millions, Except Per Share Amounts in Dollars and Share Counts in Thousands)
Aardvark - Cash Flow Projections
Aardvark - DCF Assumptions & Output
$56,296
$2,136
$1,815
$1,374
$1,248
$1,058
$12,064
$ 11,971
$ 11,332
$ 10,811
$ 10,119
11.6%
6.5%
7.3%
5.3%
Discount Rate
Discount Rate
WACC Analysis - Aardvark
($ in Millions, Except Per Share Amounts in Dollars and Share Counts in Thousands)
Discount Rate Calculation - Assumptions
Levered
Equity
Unlevered
Name
Beta
Debt
Value
Unlevered
Equity
Levered
Beta
Debt
Value
12.50%
15.37%
WACC
12.50%
Merger-Model
Merger Model - Aardvark and Research in Motion Limited
($ in Millions, Except Per Share Amounts in Dollars and Share Counts in Thousands)
Transaction Assumptions
Goodwill Calculation:
$147
($174)
$2,225
$22
$22
($1,291)
($1,291)
Sensitivity Analysis - Year 1 EPS Accretion/Dilution and Purchase Price vs. Operating Expense Synergies:
Expense Synergies % Seller OpEx:
Sensitivity Analysis - Year 1 EPS Accretion/Dilution and Purchase Price vs. Revenue Synergies:
Revenue Synergies % Seller Revenue:
Merger Model - Seller Diluted Share Count & Combined Balance Sheets
($ in Millions, Except Per Share Amounts in Dollars and Share Counts in Thousands)
Diluted Share & Enterprise Value Calculations - Seller
Company Name:
Assets:
Buyer
Seller
Adjustments
Combined
Aardvark - Basic LBO Model
($ in Millions, Except Per Share Amounts in Dollars and Share Counts in Thousands)
Transaction Assumptions
5.4%
5.5%
1.7%
4.0%
2.9%
2.0%
1.6%
1.3%
$327
$496
$734
$918
$1,073
$1,192
$1,299
$1,390
$918
$1,073
$1,192
$1,299
$1,390
$2,136
$1,815
$1,374
$1,248
$1,058
$8,315
$8,716
$10,415
$12,161
$13,995
($8,315)
($8,716)
($10,415)
($12,161)
($13,995)
Sensitivity Analysis - 5-Year IRR and Purchase Premium vs. Exit Multiple
Exit Multiple:
% Debt:
16.7%
30.0%
35.0%
40.0%
45.0%
50.0%
55.0%
60.0%
65.0%
70.0%
Aardvark - More Advanced LBO Model
($ in Millions, Except Per Share Amounts in Dollars and Share Counts in Thousands)
Transaction Assumptions
Goodwill Calculation:
$207
($284)
$10,946
$327
$496
$734
$918
$1,073
$1,192
$1,299
$1,390
$35
$35
$35
$35
$35
$918
$1,073
$1,192
$1,299
$1,390
$35
$35
$35
$35
$35
Accounts Receivable:
$11,284
$13,469
$15,539
$17,757
$19,685
Revolver:
$0
$0
$0
$0
$0
($11,284)
($13,469)
($15,539)
($15,081)
$0
$0
($0)
($0)
$2,676
$19,685
$11,284
$13,469
$15,539
$17,757
$19,685
$0
$0
$0
$2,676
$22,361
Sensitivity Analysis - 5-Year IRR and Purchase Premium vs. Exit Multiple
Exit Multiple:
Sensitivity Analysis - 5-Year IRR and Purchase Premium vs. Leverage Ratio:
Leverage Ratio:
EV / EV / EV /
Cisco Systems, Inc.Starent Networks10/13/20092,777 2,386 288 320 154 110 8.3 x7.5 x15.5 x
Emerson Electric Co.Avocent10/6/20091,114 1,147 611 542 105 93 1.9 x2.1 x10.9 x
EMC CorporationData Domain7/8/20092,362 2,085 301 375 53 64 6.9 x5.6 x39.7 x
Oracle CorporationSun Microsystems4/20/20097,075 5,392 13,256 12,462 623 559 0.4 x0.4 x8.7 x
Brocade Communication Systems, Inc.Foundry Networks7/21/20082,899 2,063 621 633 156 125 3.3 x3.3 x13.2 x
Maximum7,075$ 5,392$ 13,256$ 12,462$ 623$ 559$ 8.3 x7.5 x39.7 x
75th Percentile3,110 2,632 1,104 1,075 155 121 6.0 x5.0 x17.3 x
Median2,838$ 2,235$ 616$ 587$ 153$ 110$ 2.7 x2.7 x14.4 x
25th Percentile2,466 2,068 378 417 117 97 1.9 x2.1 x11.5 x
Minimum1,114 1,147 288 320 53 64 0.4 x0.4 x8.7 x
Aardvark - Net Present Value Sensitivity - Terminal EBITDA Multiples
Discount Rate
Terminal EBITDA
Revenue:$53,63162,749$ 69,651$ 75,919$ 81,234$
EBITDA:$16,48019,282$ 21,403$ 23,329$ 24,962$
Less: Taxes($4,391)($5,140)($5,709)($6,228)($6,665)
Plus: Depreciation$918$1,073$1,192$1,299$1,390
Plus: Amortization$40$37$28$13$10
Less: Capital Expenditures($1,430)($1,673)($1,857)($2,024)($2,166)
Present Value of Free Cash Flow$12,06411,971$ 11,332$ 10,811$ 10,119$
Income Statement
Revenue:$24,578$37,491$42,905$53,631$62,749$69,651$75,919$81,234
Amortization of Intangibles:$0$0$0$40$37$28$13$10
Operating StatisticsCapitalizationProjected
Hewlett-Packard Company47.07$ 114,779$ 124,430$ 114,552$ 124,179$ 16,433$ 18,186$ 3.14$ 3.87$ 8.4%14.3%14.6%
Dell Inc.12.90 25,241 15,080 51,430 55,380 3,426 4,129 0.79 1.18 7.7%6.7%7.5%
Cisco Systems, Inc.22.47 131,739 106,671 34,807 41,163 10,076 12,774 0.97 1.38 18.3%28.9%31.0%
Intel Corporation19.40 107,224 92,786 32,784 39,941 12,708 18,332 0.41 1.17 21.8%38.8%45.9%
Motorola, Inc.6.15 14,239 10,665 23,457 22,056 926 1,927 (1.70) 0.14 (6.0%)3.9%8.7%
Maximum47.07$ 131,739$ 124,430$ 114,552$ 124,179$ 16,433$ 18,332$ 3.14$ 3.87$ 21.8%38.8%45.9%
75th Percentile22.47 114,779 106,671 51,430 55,380 12,708 18,186 0.97 1.38 18.3%28.9%31.0%
Median19.40$ 107,224$ 92,786$ 34,807$ 41,163$ 10,076$ 12,774$ 0.79$ 1.18$ 8.4%14.3%14.6%
25th Percentile12.90 25,241 15,080 32,784 39,941 3,426 4,129 0.41 1.17 7.7%6.7%8.7%
Minimum6.15 14,239 10,665 23,457 22,056 926 1,927 (1.70) 0.14 (6.0%)3.9%7.5%
Aardvark192.06$ 176,796$ 141,401$ $42,90553,631$ $13,184$16,480$9.0811.59$ 25.0%30.7%30.7%
Valuation StatisticsCapitalizationEnterprise Value / Enterprise Value /
ShareEquityEnterpriseRevenueEBITDA
(2)
(1)
ValueValue20092010E20092010E20092010E
Hewlett-Packard Company47.07$ 114,779$ 124,430$ 1.1 x1.0 x7.6 x6.8 x15.0 x12.2 x
Dell Inc.12.90 25,241 15,080 0.3 x0.3 x4.4 x3.7 x16.4 x10.9 x
Cisco Systems, Inc.22.47 131,739 106,671 3.1 x2.6 x10.6 x8.4 x23.1 x16.3 x
Intel Corporation19.40 107,224 92,786 2.8 x2.3 x7.3 x5.1 x47.2 x16.6 x
Motorola, Inc.6.15 14,239 10,665 0.5 x0.5 x11.5 x5.5 xNM44.6 x
Maximum47.07$ 131,739$ 124,430$ 3.1 x2.6 x11.5 x8.4 x47.2 x44.6 x
75th Percentile22.47 114,779 106,671 2.8 x2.3 x10.6 x6.8 x29.1 x16.6 x
Median19.40$ 107,224$ 92,786$ 1.1 x1.0 x7.6 x5.5 x19.7 x16.3 x
25th Percentile12.90 25,241 15,080 0.5 x0.5 x7.3 x5.1 x16.1 x12.2 x
Minimum6.15 14,239 10,665 0.3 x0.3 x4.4 x3.7 x15.0 x10.9 x
Aardvark192.06$ 176,796$ 141,401$ 3.3 x2.6 x10.7 x8.6 x21.2 x16.6 x
Discount Rate Calculation - Assumptions
LeveredEquityUnlevered
Cisco Systems, Inc.1.23 10,273 131,739 22.0%1.16
Intel Corporation1.17 2,224 107,224 33.0%1.15
Motorola, Inc.1.87 3,925 14,239 34.0%1.58
Median1.23 1.16
UnleveredEquityLevered
Cost of Equity Based on Historical Beta:15.37%
WACC12.50%
Min to 25th25th to MedianMedian to 75th75th to Max
Public Company ComparablesPrecedent TransactionsDiscounted Cash Flow Analysis