Investment Committee Presentation
April 15, 2015
FIN 425
Professor David Brophy
Andy Dai, Logan Pitts, Richard Gu, Kevin Moses, Mark Terwilliger, Tony Clewlow, Brett Mizzi, Tiffany Kwon
Table of Contents
Page
1. Firm Overview
4
2. Industry Overview
6
3. Strengths, Risks, & Mitigation
7
4. Growth Strategy & Operational Initiatives
11
5. Transaction Overview
14
6. Exit Opportunities & Fund Fit
20
2
Andy Dai, Logan Pitts, Richard Gu, Kevin Moses, Mark Terwilliger, Tony Clewlow, Brett Mizzi, Tiffany Kwon
Executive Summary
Investment Thesis
•
•
Company Background
Kingston Décor’s compelling value proposition, recessionresistant product offerings, high but improvable margins, and successful and experienced management team make it a lucrative investment for Long Point Capital.
With a base case sponsor IRR of 20.2% and an upside return of 29.0%, the company comfortably surpasses fund hurdle rates. •
•
•
Transaction Overview
Sources:
1st Lien Term Loan
Revolver - Used at Purchase
Mezzanine
Existing Cash
Rollover Equity
Sponsor Equity
Total Sources
$26.0
11.5
15.0
(0.3)
20.0
30.9
$103.1
Kingston Décor is a fast-growing, full-service importer and wholesaler of over 8,000 home décor and furniture products.
The Company’s ability to provide a “One Stop Shopping
Center” product offering has attracted a diversified customer base: specialty retail stores, furniture stores, discount stores, distributors and non-traditional home decor retailers.
Kingston Decor currently sources its products from a wide vendor base located in China, India, Vietnam, Philippines,
Spain, Indonesia and Turkey.
Key Operational Improvements
Cum.
Leverage
1.9x
2.7x
3.8x
3.8x
% Total
25.2%
11.2%
14.5%
(0.3%)
19.4%
29.9%
100.0%
Term Loan: $2.5M Amortization, 8% Interest, 6 YR Term
Revolver: $23M, $11.5 funded at close, 8% Interest, 5YR Term
Subordinated Mezzanine: $15M, 12% Cash Interest, 3% PIK Interest, 2% Warrant, 7YR
•
•
Inventory Reduction: Company currently holds $31.7MM in inventory, representing a DIH of 250.6 days. Median of our comp set is 85.8 days, maximum 149.2 days. Staged inventory reduction will decrease holding costs and allow for greater debt pay down.
Hire Full Time CFO: Currently Mr. Woods acts as COO and
CFO. Hiring a fulltime CFO will allow for better cash management and financial reporting, while allowing Mr.
Woods to focus on improving operational inefficiencies and expansion into Asia.
3
Andy Dai, Logan Pitts, Richard Gu, Kevin Moses, Mark Terwilliger, Tony Clewlow, Brett Mizzi, Tiffany Kwon
Firm Overview
Value Proposition
•
Kingston Décor’s wide array of product offerings, large inventory, and >80% fill rate allows customers to purchase smaller order quantities more frequently, minimizing their own inventory holding costs and maximizing their “per square foot.” revenues, an important retail industry metric.
KD’s supply chain allows for customer-specific customizations such as pre-pricing, product and design, and price tagging, which allows the firm to better meet its customers’ unique and evolving needs.
0.120%
0.110%
Market Share
•
Market Share Growth
0.100%
0.090%
0.080%
0.070%
0.060%
0.050%
2004
Firm History
2005
2006
2007
Key Financials – UPDATE
($ in mm)
Revenue
% Growth
Time
Event
1973
Founded by Andy Boots
1981
Incorporated in Texas
Gross Margin
% of Sales
1995-1999
Expanded vendor relationships in China
EBITDA
% Growth
1999
Generated $35 MM in revenues
2000
Experienced strong growth and probability
2002
New vendors added from Spain, Turkey, Vietnam and Philippines
