Apresentao do PowerPoint
Brinks Company: Activists push for a spin-offMasters in Finance | Applied Corporate Finance
April 20th 2015
Duarte Marques 989
Mafalda Oom Torres 948
Teresa Botelho Neves 1029
Francisco Vieira de Campos 960
Gonalo Pereira de Almeida 1034
Nova School of Business and Economics
1
Executive Summary
Industry Overview
Brinks Company
Conglomerate Discount
Activists
Issues being target my activists
Brinks is undervalued by the Markets
Alternatives to Spin-offs
Value created by Spin-offs
Valuation
Final Recommendation
Agenda
Executive Summary
Industry Overview
Brinks Company
Conglomerate Discount
Activists
Issues being target my activists
Brinks is undervalued by the Markets
Alternatives to Spin-offs
Value created by Spin-offs
Valuation
Final Recommendation
Agenda
Executive Summary
The decision of performing a spin-off follows pressure on the company from three activist shareholders who felt that Brinks has been chronically undervalued and separately it would be worth more than combined
Since Top Management and activist shareholders were not align in terms of what was best for the company, the case presents both sides. Moreover, an assessment of the arguments was performed
Nevertheless we have to bear in mind that Brinks Company is made of two different business that seem to share very few operational synergies, which may be explained by the conglomerate discount that the companies was under
Also alternatives to the spin-off were take into account, however we did not exploit in so detail as the spin-off, since it was the main issue in the case
Executive Summary
Industry Overview
Brinks Company
Conglomerate Discount
Activists
Issues being target my activists
Brinks is undervalued by the Markets
Alternatives to Spin-offs
Value created by Spin-offs
Valuation
Final Recommendation
Agenda
Industry Overview- Brinks Inc.
$14bn
Global market for security logistics
Projections to grow
35%
Market Share
United States
Largest competitor with 30% market share
Primary factors in attracting and retaining customers in the industry:
Reputation
Service Quality
Price
Globally
6
Global Market Share
Market Share
[PERCENTAGE][PERCENTAGE][PERCENTAGE][PERCENTAGE][PERCENTAGE]Brinks4SecuricorSecuritasProsegurSmaller Competitors0.170.140.130.060.5
Wages
Employee benefits
Overall level of security
Service Standards
Industry Overview Brinks Inc. industry
Cost structure
High quality and reliable insurance coverage as an important factor in attracting and retaining customers and risk management
Revenue growth for the industry
>
combined firm)
From as investors point of view, one advantage brought about by a spin-off is the ability to manage separately their exposure to different businesses
May not fit their investment policy thus lowering the initial price when selling
There is empirical evidence that both mother company and spun-of one, on average, increase in value after separation
How do they create value to shareholders?
Straightforward method to redeem the value embedded eliminate conglomerate discount
Increase of business/management focus restructuring opportunities
Variable compensation more linked to the units performance
Efficiency boost of the spun off unit more close supervision by shareholder of top management
Asymmetry of information between the conglomerates management team and the market
Seems a good solution to manage agency issues
Efficient capital allocation
But cost of capital will probably increase may offsets the efficiencies brought
Value Created by Spin-offs
So, why conglomerates still exists?
Crate value by exploiting synergies between the units they are made up of
What valuation could be expect at each company?
Since the company operates in 2 different businesses, we should do a sum-of-the-parts valuation
value them separately (value them differently or give them weights)
Based on publicly traded companies
These are multiples of comparable prices (on the stock)
reflect transactions without control (net of every control effect)
Based on precedent transaction
It may involves minorities, in other words, control premium
The market timing may affect the multiples used, which may drive to misleading results
Brinks Inc. and BHS may require different valuations as separate companies, given the discrepancy in M&A deals and trading multiples for these businesses
Executive Summary
Industry Overview
Brinks Company
Conglomerate Discount
Activists
Issues being target my activists
Brinks is undervalued by the Markets
Alternatives to Spin-offs
Value created by Spin-offs
Valuation
Final Recommendation
Agenda
Valuation |
Publicly Traded Companies
Valuation |
Publicly Traded Companies
Assuming the weighted average of all security companies multiples based on EBITDA weights
This valuation is based on 2006 and 2007 figures
The conglomerate multiples were weighted based on EBITDA
Clear evidence of a conglomerate discount
Sum-of-the-Parts have an implied multiple slightly > Conglomerate fair value
It seems that, in fact, there is a discount over the conglomerate and therefore the Sum-of-the-Parts is higher than Conglomerate market value
Valuation Publicly Traded Companies
From a Bottom-Up analysis, the BCO is trading at lower multiples than the industry...
... It seems that the main responsible, quantitatively, appears to be BHS given that is trading way below industry multiples in both years
Note the multiples among the two businesses are different and security services seem to have higher multiples. Then, we believe this is based on the industry fundamental and what is relevant to see which business if dragging the valuation down is the comparison of the implied multiple for each unit with the median and/or average of the relevant peers
Vs.
Valuation Precedent Transactions
Once again it is shown that the company is being undervalued
Only transactions after 2003 were considered, due to:
Potential impact of the Dot-Com Bubble on transaction multiples
Market Timing
Industry Median Multiples were chosen to perform the sum-of-the-parts valuation given its lower sensitivity to outliers
The monitoring industry transaction multiples seem to reflect some control premium
However, in the security services multiples may imply some sort of discount...
Executive Summary
Industry Overview
Brinks Company
Conglomerate Discount
Activists
Issues being target my activists
Brinks is undervalued by the Markets
Alternatives to Spin-offs
Value created by Spin-offs
Valuation
Final Recommendation
Agenda
Final Recommendation
Gains could be taken from a tax-free spin-on
Through the valuations performed, the split-up in two companies may be worth $80 to $85 per share
An increase between 30 to 40%
Securitas stock increased 21% from on month prior to the split
Given the trend of consolidation within Security Services, BCOs businesses are different in many ways and it would be more efficiently run separately
Even with some drawbacks, such as access and cost of capital to sponsor expansion growth, perceived different without the Brinks brand association (or Royalties fees)
We believe that there is only few synergies that do not offset the discount
Different geographic footprints
Different skillset required
Concluding, and after looking to other potential exit strategies, we believe the spin-off route to be the most appropriate one
Thank you for your attention.
April 20th 2015
Nova School of Business and Economics
Company
Price
31/12/2007EV 2007
20062007200620072006200720062007
Security Services (BHS)
Securitas11.88$ 5,122.04$ 0.64x0.64x9.87x11.61x14.30x18.16x75.35x24.29x
Group 4 Securicos1,280.71$ 6,214.85$ 0.59x0.70x8.52x10.13x13.05x15.80x18.43x21.28x
Prosegur3.59$ 2,215.31$ 0.93x0.81x11.97x8.52x16.86x11.07x26.28x15.25x
Median0.64x0.70x9.87x10.13x14.30x15.80x26.28x21.28x
Mean0.72x0.72x10.12x10.09x14.74x15.01x40.02x20.27x
Security Monitoring (Inc)
SECOM46.52$ 10,852.02$ 2.39x2.00x9.21x8.58x13.06x12.35x25.70x21.11x
Securitas Direct4.04$ 1,474.01$ 2.48x12.66x34.55x52.86x
Protection one11.89$ 300.90$ 0.82x0.80x7.03x7.63x25.12x51.19x
Median1.61x2.00x8.12x8.58x19.09x34.55x25.70x36.99x
Mean1.61x1.76x8.12x9.62x19.09x32.70x25.70x36.99x
All Securities Companies
Median0.82x0.81x9.21x9.36x14.30x16.98x25.99x21.28x
Mean1.07x1.24x9.32x9.86x16.48x23.85x36.44x26.96x
Brink's Company59.74$ 2,896.87$ 1.04x0.90x7.84x6.28x13.83x10.57x4.93x21.10x
Average of all securities companies
Implied BCO Price (Median)46.55$ 55.27$ 69.47$ 90.89$ 61.09$ 97.86$
Implied BCO Price (Mean)61.18$ 84.09$ 70.31$ 95.66$ 70.50$ 136.77$
Weighted average
Implied BCO Price (Median)83.02$ 121.74$ 66.20$ 88.91$ 74.48$ 161.41$
Implied BCO Price (Mean)83.75$ 108.34$ 66.92$ 95.07$ 75.15$ 152.95$
Implied Multiple (Median)1.45x1.80x8.78x9.15x17.40x28.21x
Implied Multiple (Mean)1.47x1.60x8.88x9.79x17.55x26.71x
Publicly Traded Companies
EV/RevenueEV/EBITDAEV/EBITP/E
$ in Millions20062007200620072006200720062007
Segment weight62.2%63.4%37.8%36.6%
Split-Up Valuation
Segmented EBITDA276.4332.9167.9191.9444.3524.8444.3524.8
Corporate-48-50-48-50-48-50
Legacy-27-14-27-14-27-14
Minority Interest-18.3-22.8-18.3-22.8-18.3-22.8
Adjusted EBITDA183.1246.1167.9191.9351438351438
52%56%48%44%
Trading Comp Multiples
(median)
8.1x8.6x9.9x10.1x8.96x9.3x8.8x9.1x
Implied EV1,486.77$ 2,111.54$ 1,657.17$ 1,943.95$ 3,143.95$ 4,055.49$ 3,082.24$ 4,006.29$
Net Debt33-83.833.00$ -83.80 $ 33-83.8
Shares48.548.448.548.448.548.448.548.4
Equity Value per Share30.045.434.240.264.185.562.984.5
Discount Over Conglomerate Average Share PRice19.24%39.48%16.88%37.82%
Discount Over Conglomerate Last price0.38%43.16%-1.61%41.46%
ConglomerateBrink's Inc.BHSSum-of-the-Parts
2006200720062007
Avg. Share Price 53.7961.32Last Price63.9059.74
EV2641.882883.95EV3132.152807.62
Implied Multiple7.5x6.6xImplied Multiple8.9x6.4x
INC1643.5191829.398INC1948.5173531780.974
Implied Multiple9.0x7.4xImplied Multiple10.6x7.2x
BHS998.36021054.555BHS1183.6326471026.642
Implied Multiple5.9x5.5xImplied Multiple7.0x5.3x
Bottom-Up AnalysisBottom-Up Analysis
20062007
Security Services (BHS)
Mean9.8710.13
Meadian10.1210.09
Security Monitoring (Inc)
Mean8.128.58
Meadian8.129.62
Market Multiples
BHS
DateTarget
Transaction
Value ($mm)Buyer
Implied
EV/EBITDA
Jan-06Lifeline Systems Inc738.8Koninklijke Philips Electronics Nv19
Jan-05Starpoint LP99.5Devcon International Corp33.4
feb-04Securicor plc1478.3Group 4 Securicor plc5.8
Jan-04Frisco Bay Industries ltd55.5Stanley works10.4
dec-03Protection One Inc.667.5Quandrangle Group Ltc10.4
dec-03Stanley Security Solutions - Europe Ltd190.6Than Stanley Works Ltd11.3
Nov-03Lane Security, Inc81.3Integrated Alarm Services Group24.8
Mean16.4
Median11.3
Inc.
DateTarget
Transaction
Value ($mm)Buyer
Implied
EV/EBITDA
aug-04Bomerang Tracking Inc.46.9LoJack Corp7.1
feb-04Securicor plc1478.3Group 4 Securicor pls5.8
oct-03Access Plus plc68.7TripleArc plc10.4
jun-03Chubb plc2021United Technologies Corp6.1
Mean7.4
Meadian6.6
Sum-of-the-PartsMultiple20062007Multiple20062007
Brink's Inc:4x12.91$ 20.04$ BHS:8x28.73$ 32.91$
5x16.69$ 25.12$ 9x32.20$ 36.87$
6x20.46$ 30.21$ 10x35.66$ 40.84$
7x24.24$ 35.29$ 11x39.12$ 44.80$
8x28.01$ 40.38$ 12x42.58$ 48.77$
9x31.79$ 45.46$ 13x46.04$ 52.73$
10x35.56$ 50.54$ 14x49.50$ 56.70$
Sum-of-the-Parts63.3680.09
Discount Over Avg. Price18%31%
Discount over Last Price-1%34%
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