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PubCo Valuation

Alan Zhu
250855838
Comparable Company Analysis Assumptions
Current % of Enterprise Value / LTM Total
• Comparable companies were judged primarily from the
Company Ticker
Share
Price
52-wk.
High
Equity
Value
Enterprise
Value
LTM
Sales
2019E
Sales
2020E LTM 2019E 2020E
Sales EBITDA EBITDA EBITDA
LTM
EBIT
2019E
EBIT
2020E EBITDA Debt/
EBIT Margin EBITDA publishing industry
PubCo NA - NA $ 9.54 NA 1.3x NA NA NA NA NA NA NA NA 15% 2.0.x • Specific education companies were a priority ahead of
generic publishing book companies
Tier I: Large-Cap
Pearson plc PSON $ 11.94 89% $ 9,259.80 $ 10,442.60 1.9x 1.9x 1.9x 13.x 10.7x 10.x 21.6x 13.4x 12.2x 13.1% 2.1x • Publishing companies were then narrowed through
John, Wiley & Sons, Inc.
Meredith Corporation
JW.A
MDP
$
$
51.56
53.09
72%
85%
$ 2,977.20
$ 2,426.10
$ 3,395.60
$ 5,779.10
0.9x
2.2x
NA
1.9x
NA
1.9x
7.0x
11.9x
6.6x
7.8x
6.2x
6.1x
8.4x
18.8x
7.9x
13.9x
7.4x
8.9x
13.2%
18.8%
1.9x
6.0x
geography.
Scholastic Corporation SCHL $ 41.89 87% $ 1,481.90 $ 1,137.30 0.7x 0.7x 0.7x 10.0x 7.0x 6.7x 14.6x 14.8x 12.9x 6.9% 0.1x • Europe and North America were picked as appropriate
McGraw-Hill Education Inc. NA NA NA $1,257.00 $ 3,293.20 2.0x NA NA 22.9x NA NA 88.5x NA NA 8.9% 15.1x geographies as, PubCo’s revenue came from both North
Mean 2.2x 1.7x 1.7x 19.0x 9.2x 8.1x 43.3x 14.8x 12.1x 11.9% 5.7x
America and the UK
Median 2.2x 1.7x 1.7x 19.0x 7.8x 6.7x 43.3x 14.8x 12.1x 11.9% 5.7x
• Comparable companies were grouped into large cap
Tier II: Mid-Cap (>1bn), mid-cap (100mm-999mm), and small cap
Future plc FUTR $ 7.26 93% $ 621.40 $ 644.50 4.0x 2.7x 2.7x 31.1x 14.0x 13.0x 51.2x 15.7x 14.4x 12.8% 1.5x (<100mm)
Tribune TPCO $ 10.39 48% $ 386.30 $ 335.20 0.2x 0.3x 0.4x 3.2x 3.5x 4.0x 4.5x NA NA 6.6% 0.1x
Bloomsbury Publishing plc
IDW Media Holdings, Inc.
BMY
IDWM
$
$
3.02
31.50
91%
58%
$
$
219.90
192.10
$
$
197.90
202.80
0.9x
3.5x
1.0x
NA
0.9x
NA
11.0x
NA
9.9x
NA
8.9x
NA
16.2x
NA
14.3x
NA
12.6x
NA
8.5%
NA
0.0x
NA
• McGraw-Hill was the only company that was private,
Gyldendal A/S GLYD B $ 65.73 88% $ 107.80 $ 116.80 0.9x 0.9x 0.8x 0.9x NA NA 14.8x NA NA 5.9% 1.7x but still had sufficient company fundamentals and
information to be a comparable company
Mean 1.9x 1.2x 1.2x 11.6x 9.1x 8.6x 21.7x 15.0x 13.5x 8.5% 0.8x
Median 0.9x 0.9x 0.9x 7.1x 9.9x 8.9x 15.5x 15.0x 13.5x 7.6% 0.8x • In final evaluation, heavier weights were given towards
Tier III: Small-Cap mid cap and small caps as large cap were not as
The McClatchy Company MNI $ 5.85 55% $ 45.70 $ 786.10 0.9x NA NA 8.9x NA NA 74.8x NA NA 1.1% 8.3x representative of the small and illiquid PubCo.
Haynes Publishing Group plc HYNS $ 2.65 82% $ 40.00 $ 36.60 0.8x 0.8x 0.8x 10.0x 2.3x 2.2x 19.1x 7.2x 6.6x 8.0% 0.9x
Dods Group plc DODS $ 0.10 53% $ 33.20 $ 24.10 0.9x 0.9x NA 8.0x 12.4x NA 11.8x NA NA 11.1% 0.0x • P/E and other price multiples were not considered
Bastei Lubbe AG BST $ 1.80 46% $ 24.20 $ 69.00 0.7x 0.6x 0.6x NA 7.9x 6.5x NA 100.6x 11.4x -2.7% NA
throughout this valuation as Enterprise value of PubCo
The Quarto Group, Inc. QRT $ 0.85 34% $ 17.90 $ 89.90 0.6x NA NA 8.7x NA NA 10.3x NA NA 6.6% 7.5x
are currently being evaluated, and there are only 2
Mean 0.8x 0.8x 0.7x 8.9x 7.5x 4.3x 29.0x 53.9x 9.0x 4.8% 4.2x common shares outstanding of PubCo
Median 0.8x 0.8x 0.7x 8.8x 7.9x 4.3x 15.5x 53.9x 9.0x 6.6% 4.2x

Overall

Mean 1.7x 1.3x 1.3x 14.0x 8.7x 7.5x 33.0x 23.5x 11.7x 9% 3.9x
Median 0.9x 0.9x 0.8x 8.8x 8.9x 6.5x NA 15.5x 15.0x 12.0x 9% 1.6x

High 4.0x 2.7x 2.7x 31.1x 14.0x 13.0x 74.8x 100.6x 14.4x 19% 15.1x
Low 0.2x 0.3x 0.4x 0.9x 2.3x 2.2x 4.5x 7.2x 6.6x -3% 0.0x

1
Precedent Transaction Analysis Enterprise Value / LTM
Date Transaction Purchase Equity Enterprise LTM LTM LTM EBITDA
Announced Acquirer Target Type Consideration Value Value Sales EBITDA EBIT Margin
2017-11-26 Meredith Corp. Time Inc. Public / Public Cash $ 1,901.56 $ 2,805.39 1.00x 7.20x 10.40x 13.5%

2017-11-08 School Speciality, Inc. Triumph Learning, LLC Public / Private Cash $ 18.11 $ 19.58 0.80x N/A N/A N/A

2017-07-11 Bertelsmann SE & Co. Penguin Random House Sponsor / Public Cash $ 968.00 $ 1,034.00 1.30x 8.40x 10.00x 15.7%
KGaA LLC
2016-06-22 Mathias Dopfner Axel Springer SE Sponsor / Public Cash $ 650.00 $ 875.00 1.10x 7.12x 8.06x 15.4%

2016-05-16 InvestIndustrial, Pirelli & RCS Media Group Sponsors / Public Cash $ 521.82 $ 949.42 0.90x 9.50x 22.40x 9.8%
C. S.p.A., etc. S.p.A
2015-10-07 Gannett Co., Inc. Journal Media Group, Public / Public Cash $ 299.62 $ 279.26 0.70x 12.00x 60.00x 5.4%
Inc.
2015-02-04 Kingdom Holdings News Corporation Public / Public Cash $ 9,736.26 $ 7,995.26 0.90x 9.70x 19.20x 9.5%
Company
2014-05-02 HarperCollins Harlequin Enterprises Private / Public Cash $ 455.00 $ 453.60 1.10x 8.10x N/A 14.1%
Publishing L.L.C.
2012-11-26 Apollo Global McGraw-Hill Sponsor / Public Cash $ 2,400.00 $ 2,548.00 1.10x 6.90x 8.30x 16.7%
Management, LLC Education, Inc.
2012-08-21 Dex One Corp. SuperMedia LLC Public / Public Stock $ 43.62 $ 1,477.62 1.00x 2.70x 3.60x 36.5%

Mean 0.99x 7.96x 17.75x 15.2%


Median 1.00x 8.10x 10.20x 14.1%

High 1.30x 12.00x 60.00x 36.5%


Assumptions Low 0.70x 2.70x 3.60x 5.4%

• Precedent Transactions were also screened primarily based on the publishing industry and the North American/European geography.
• More weight was given to specific education publishing companies (e.g. Triumph Learning and McGraw-Hill)
• Precedents were ordered on a time basis with the most recent transactions coming first, but it’s noticed that most of the transactions still
generated similar ratios
• The comparable company analysis and precedent transaction analysis were consistently in USD, however has no material effect on the
CAD valuation of PubCo, as the USD values were used to generate multiples and evaluated based on PubCo’s CAD numbers

2
WACC Calculation for DCF Analysis
Assumptions
WACC Calculation Comparable Companies Unlevered Beta • Although only 2 common shares present
Target Capital Structure Predicted Market Market Debt/ Marginal Unlevered in PubCo, included shareholder loan as a
Debt-to-Total Capitalization 61.38% Company Levered Beta(4) Value of Debt Value of Equity Equity Tax Rate Beta portion of equity as it was a source of
Equity-to-Total Capitalization 38.62% Meredith Corporation 1.12 $2,937.4 $2,458.8 54.4% 38.0% 0.84 drawing from owners.
Pearson plc 0.62 1,526.8 9,332.2 16.4% 18.7% 0.55
Gyldendal A/S 0.22 13.7 107.8 12.7% 30.0% 0.20 • Cost of Debt assumed to be the 1.5%
Cost of Debt The McClatchy Company 0.28 744.8 45.7 94.2% 37.4% 0.18 above prime rate (3.95%) in notes from
Cost of Debt 5.45% The Quarto Group, Inc. 0.26 78.3 17.9 81.4% 20.0% 0.16 financial statements
Tax Rate 22.33%
After-tax Cost of Debt 4.23% Mean 0.50 51.8% 0.38 • Due to wide variances in adjustments in
Median 0.28 54.4% 0.20 the effective tax rate as per the notes, an
average of tax rates from the last 7 years
Cost of Equity ValueCo Relevered Beta was taken to determine 22.33% as
Risk-free Rate(1) 2.65% Mean Target Target marginal tax rate
Market Risk Premium (2) 5.99% Unlevered Debt/ Marginal Relevered
Levered Beta 0.86 Beta Equity Tax Rate Beta • Picked 5 best comparable companies
Illiquidity Premium 30.00% Relevered Beta 0.38 158.9% 22.3% 0.86 based on similar capital structure and
Size Premium (3) 6.00% industry relevance to find the mean beta
Cost of Equity 41.52% WACC Sensitivity Analysis unlevered of respective capital structures
Pre Tax Cost of Debt and were then relevered based on PubCo’s
0.186 4.45% 4.95% 5.45% 5.95% 6.45% capital structure of 61.38% D/V
Capitalization
Debt-to-Total

WACC 18.6% 41.4% 25.3% 25.1% 25.1% 25.3% 25.6%


51.4% 28.8% 28.7% 28.7% 28.8% 29.0% • Market Risk Premium of ~6%
61.4% 28.8% 28.7% 28.7% 28.8% 29.0% determined based on S&P500 returns in
71.4% 25.3% 25.1% 25.1% 25.3% 25.6% 2019 (8.65%) subtracted by the risk-free
81.4% 18.2% 17.9% 17.9% 18.2% 18.6% rate of 2.65%
• 30% illiquidity and 6% small cap size
premiums were added onto the cost of
equity.
• Sensitivity was conducted based on pre-
tax cost of debt and debt to total
capitalization

3
DCF Analysis – Base Case Historical Period CAGR Projection Period CAGR
Assumptions
• Revenue growth was based on a 7%
2015 2016 2017 ('14 - '16) 2018 2019E 2020E 2021E 2022E 2023 ('17 - '22) (Average revenue growth from the past 7
Sales
% growth
$7,371,027.0
(6.0%)
$8,788,285.0
23.5%
$9,378,320.0
5.7%
12.8% $7,941,433.0
7.5%
$8,498,431.8
7.5%
$9,096,510.8
7.5%
$9,738,725.8
7.5%
$10,428,360.9
7.5%
$11,168,945.6
7.5%
7.1% years)
COGS 1,894,302.0 2,286,538.0 2,657,014.0 2,278,313.0 2,275,154.5 2,445,269.7 2,628,104.5 2,824,610.0 3,035,808.4
Gross Profit $5,476,725.0 $6,501,747.0 $6,721,306.0 10.8% $5,663,120.0 $6,223,277.3 $6,651,241.1 $7,110,621.3 $7,603,750.9 $8,133,137.2 7.5%
• COGS, SG&A and D&A were taken as an
% margin 74.3% 74.0% 71.7% 71.3% 73.2% 73.1% 73.0% 72.9% 72.8% average % of revenue from the past 7 years
SG&A 4,253,641.0 4,739,284.0 5,014,937.0 4,803,326.0 4,741,222.5 5,074,887.1 5,433,174.8 5,817,918.0 6,231,085.6 (resulted in 29%, 53.4%, 12.3%
EBITDA $1,223,084.0 $1,762,463.0 $1,706,369.0 18.1% $1,027,507.0 $1,751,632.4 $1,845,931.7 $1,947,024.1 $2,055,410.5 $2,171,629.2 16.1%
% margin 16.6% 20.1% 18.2% 12.9% 20.6% 20.3% 20.0% 19.7% 19.4%
respectively)
Depreciation & Amortization 865,668.0 830,972.0 944,046.0 1,049,279.0 1,048,585.1 1,122,379.4 1,201,619.6 1,286,710.7 1,378,088.3
EBIT $357,416.0 $931,491.0 $762,323.0 46.0% ($21,772.0) $703,047.4 $723,552.2 $745,404.5 $768,699.8 $793,540.9 105.3% • As per notes, currency hedging instruments
% margin 4.8% 10.6% 8.1% (0.3%) 8.3% 8.0% 7.7% 7.4% 7.1% were not used and thus, 90% of revenue is
Taxes 64,334.9 167,668.4 137,218.1 (3,919.0) 126,548.5 130,239.4 134,172.8 138,366.0 142,837.4
NOPAT $293,081.1 $763,822.6 $625,104.9 46.0% ($25,691.0) $576,498.8 $593,312.8 $611,231.7 $630,333.8 $650,703.6 90.9%
exposed to FX fluctuations.
Plus: Depreciation & Amortization 865,668.0 830,972.0 944,046.0 1,049,279.0 1,048,585.1 1,122,379.4 1,201,619.6 1,286,710.7 1,378,088.3 • Due to unpredictability of currency, an
Less: Capital Expenditures (650,422.0) (977,494.0) (1,246,880.0) (1,209,022.0) (1,031,563.7) (1,031,563.7) (1,031,563.7) (1,031,563.7) (1,031,563.7) average of past 7 years’ Gain/Loss (84,733
Less: Increase in Net Working Capital 948,662.1 (487,550.3) (523,783.2) (562,719.2) (604,560.3)
gain ) on FX was included in the operating
Unlevered Free Cash Flow $1,542,182.3 $196,578.3 $257,504.4 $322,761.7 $392,667.8 cost structure (EBIT)
WACC 18.8%
Discount Period 1.0 2.0 3.0 4.0 5.0
Discount Factor 0.84 0.71 0.60 0.50 0.42 • Capital Expenditures was determined from
Present Value of Free Cash Flow $1,298,025.4 $139,261.3 $153,542.0 $161,983.9 $165,868.0 an average of the past 7 expenditures and
kept consistent for the 5 years of forecast
Enterprise Value Perpetuity Growth Rate
Cumulative Present Value of FCF $1,918,680.6 Terminal Year Free Cash Flow (2023E) $392,667.8 • Tax rate (22.3%) were also based on a 7
WACC 18.8% year past average (See WACC slide)
Terminal Value Terminal Value $2,433,085.1

Perpetuity Growth Rate 2.3%


• The perpetuity growth rate (2.3%) was
Terminal Value $2,433,085.1 based on current GDP growth rate
Discount Factor 0.42
Present Value of Terminal Value $1,027,767.0
Enterprise Value
Perpetuity Growth Rate
• Sensitivity analysis was done based on
% of Enterprise Value 34.9%
2,946,447.7 1.90% 2.10% 2.30% 2.50% 2.70% changes to WACC and Perpetuity Growth
Enterprise Value $2,946,447.7
16.8% 3,052,289 3,035,089 3,035,089 3,052,289 3,088,112 rate to find the high and low
17.8% 2,981,037 2,965,789 2,965,789 2,981,037 3,012,713
WACC

18.8% 2,918,212 2,904,590 $2,904,590 2,918,212 2,946,448


19.8% 2,862,403 2,850,149 2,850,149 2,862,403 2,887,751
20.8% 2,812,497 2,801,407 2,801,407 2,812,497 2,835,397

4
Net Working Capital – Base Case
Assumptions
Historical Period Projection Period
• Change in Net Working Capital was
2015 2016 2017 2018 2019 2020 2021 2022 2023
primarily a function of assumptions
Sales $7,371,027.0 $8,788,285.0 $9,378,320.0 $7,941,433.0 $8,498,431.8 $9,096,510.8 $9,738,725.8 $10,428,360.9 $11,168,945.6 regarding day sales outstanding, days
Cost of Goods Sold 1,894,302.0 2,286,538.0 2,657,014.0 2,278,313.0 2,275,154.5 2,445,269.7 2,628,104.5 2,824,610.0 3,035,808.4
inventory held, etc.
Current Assets • To get a good idea of a good idea of
Accounts Receivable 2,646,596.0 3,511,592.0 3,896,807.0 3,298,821.0 3,051,395.1 3,266,137.7 3,496,727.5 3,744,343.7 4,010,253.5 ratios, best historical ratios were used
Inventories 4,918,868.0 4,918,590.0 4,759,204.0 4,998,627.0 4,075,222.9 4,379,930.7 4,707,421.7 5,059,399.4 5,437,694.8
Prepaid Expenses and Other 2,619,172.0 2,579,672.0 2,346,913.0 2,251,324.0 2,126,722.1 2,276,390.6 2,437,104.1 2,609,684.4 2,795,014.8
as they are good representations of
Total Current Assets $10,184,636.0 $11,009,854.0 $11,002,924.0 $10,548,772.0 $9,253,340.1 $9,922,459.0 $10,641,253.2 $11,413,427.5 $12,242,963.2
what management has achieved in the
past and could achieve in the future
Current Liabilities
Accounts Payable 496,315.0 683,323.0 794,998.0 636,627.0 596,099.9 640,670.8 688,574.3 740,059.6 795,394.4 • The Net Working Capital as a % of sales can
Accrued Liabilities - - - - - - - - - be expected to stay within the 79-80% range
Other Current Liabilities 2,708,940.0 2,524,802.0 2,148,225.0 2,252,918.0 1,946,675.3 2,083,673.0 2,230,780.6 2,388,750.4 2,558,390.9
Total Current Liabilities $3,205,255.0 $3,208,125.0 $2,943,223.0 $2,889,545.0 $2,542,775.2 $2,724,343.8 $2,919,354.9 $3,128,810.0 $3,353,785.3

Net Working Capital $6,979,381.0 $7,801,729.0 $8,059,701.0 $7,659,227.0 $6,710,564.9 $7,198,115.2 $7,721,898.4 $8,284,617.6 $8,889,177.9
% sales 94.7% 88.8% 85.9% 96.4% 79.0% 79.1% 79.3% 79.4% 79.6%

(Increase) / Decrease in NWC ($822,348.0) ($257,972.0) $400,474.0 $948,662.1 ($487,550.3) ($523,783.2) ($562,719.2) ($604,560.3)

Assumptions
Days Sales Outstanding 131.1 145.8 151.7 151.7 131.1 131.1 131.1 131.1 131.1
Days Inventory Held 947.8 785.2 653.8 653.8 653.8 653.8 653.8 653.8 653.8
Prepaids and Other CA (% of sales) 35.5% 29.4% 25.0% 25.0% 25.0% 25.0% 25.0% 25.0% 25.0%

Days Payable Outstanding 95.6 109.1 109.2 109.2 95.6 95.6 95.6 95.6 95.6
Accrued Liabilities (% of sales) -% -% -% -% -% -% -% -% -%
Other Current Liabilities (% of sales) 36.8% 28.7% 22.9% 22.9% 22.9% 22.9% 22.9% 22.9% 22.9%

5
DCF Analysis – Bull Case Assumptions
Historical Period CAGR Projection Period CAGR • In the bull case, many growth
2015 2016 2017 ('14 - '16) 2018 2019E 2020E 2021E 2022E 2023 ('17 - '22) assumptions were adjusted upwards
Sales $7,371,027.0 $8,788,285.0 $9,378,320.0 12.8% $7,941,433.0 $8,701,918.3 $9,536,869.7 $10,453,657.7 $11,460,386.1 $12,565,965.2 9.6%
% growth (6.0%) 23.5% 5.7% 7.5% 9.6% 9.6% 9.6% 9.6% 9.6%
• Revenue growth was adjusted to
COGS 1,894,302.0 2,286,538.0 2,657,014.0 2,278,313.0 2,247,468.3 2,472,215.1 2,719,436.6 2,991,380.3 3,290,518.3 9.6% based on 10% sales growth,
Gross Profit $5,476,725.0 $6,501,747.0 $6,721,306.0 10.8% $5,663,120.0 $6,454,450.0 $7,064,654.6 $7,734,221.0 $8,469,005.8 $9,275,446.9 10.4%
5% government revenue growth,
% margin 74.3% 74.0% 71.7% 71.3% 74.2% 74.1% 74.0% 73.9% 73.8%
and 3% rights revenue growth
SG&A 4,253,641.0 4,739,284.0 5,014,937.0 4,803,326.0 4,394,576.6 4,816,237.4 5,279,226.7 5,787,637.0 6,345,968.1
EBITDA $1,223,084.0 $1,762,463.0 $1,706,369.0 18.1% $1,027,507.0 $2,329,451.0 $2,517,994.8 $2,724,571.9 $2,950,946.4 $3,199,056.3 25.5%
• Cost assumptions as a % of sales
% margin 16.6% 20.1% 18.2% 12.9% 26.8% 26.4% 26.1% 25.7% 25.5% were adjusted downwards to
Depreciation & Amortization 865,668.0 830,972.0 944,046.0 1,049,279.0 1,073,692.4 1,176,713.4 1,289,832.0 1,414,047.9 1,550,460.5 represent a potential for scale
EBIT
% margin
$357,416.0
4.8%
$931,491.0
10.6%
$762,323.0
8.1%
46.0% ($21,772.0)
(0.3%)
$1,255,758.6
14.4%
$1,341,281.3
14.1%
$1,434,740.0
13.7%
$1,536,898.5
13.4%
$1,648,595.8
13.1%
137.6%
• COGS was adjusted to 28% of
Taxes 64,334.9 167,668.4 137,218.1 (3,919.0) 226,036.6 241,430.6 258,253.2 276,641.7 296,747.2
revenue
NOPAT $293,081.1 $763,822.6 $625,104.9 46.0% ($25,691.0) $1,029,722.1 $1,099,850.7 $1,176,486.8 $1,260,256.7 $1,351,848.5 120.9% • SG&A was adjusted to ~48% of
Plus: Depreciation & Amortization 865,668.0 830,972.0 944,046.0 1,049,279.0 1,073,692.4 1,176,713.4 1,289,832.0 1,414,047.9 1,550,460.5 revenue
Less: Capital Expenditures
Less: Increase in Net Working Capital
(650,422.0) (977,494.0) (1,246,880.0) (1,209,022.0) (1,031,563.7)
913,625.7
(1,031,563.7)
(661,160.3)
(1,031,563.7)
(726,645.7)
(1,031,563.7)
(798,649.3)
(1,031,563.7)
(877,821.4)
• D&A was adjusted to ~13% of
revenue
Unlevered Free Cash Flow $1,985,476.4 $583,840.1 $708,109.4 $844,091.7 $992,924.0
WACC 18.8% • As per notes, currency hedging instruments
Discount Period
Discount Factor
1.0
0.84
2.0
0.71
3.0
0.60
4.0
0.50
5.0
0.42
were not used and thus, 90% of revenue is
Present Value of Free Cash Flow $1,671,137.6 $413,608.0 $422,223.9 $423,623.0 $419,424.1
exposed to FX fluctuations.
• Due to unpredictability of currency, an
average of past 7 years’ Gain/Loss
Enterprise Value Perpetuity Growth Rate
(84,733 gain ) on FX was included in
Cumulative Present Value of FCF $3,350,016.5 Terminal Year Free Cash Flow (2023E) $992,924.0 the operating cost structure (EBIT)
WACC 18.8%
Terminal Value Terminal Value $6,152,448.4
• Capital Expenditures was determined
Perpetuity Growth Rate 2.3%
from an average of the past 7
Terminal Value $6,152,448.4
expenditures
Discount Factor 0.42
Present Value of Terminal Value $2,598,874.8 Enterprise Value
• Tax Rate, perpetuity growth rate, and
% of Enterprise Value 43.7% Perpetuity Growth Rate
sensitivity analysis were consistent
5,948,891.4 2.10% 2.20% 2.30% 2.40% 2.50%
with the base case
Enterprise Value $5,948,891.4 16.8% 6,261,205 6,238,716 6,238,716 6,261,205 6,307,113
17.8% 6,075,895 6,056,001 6,056,001 6,075,895 6,116,454
WACC

18.8% 5,912,765 5,895,025 $5,895,025 5,912,765 5,948,891


19.8% 5,768,058 5,752,126 5,752,126 5,768,058 5,800,468
20.8% 5,638,819 5,624,421 5,624,421 5,638,819 5,668,082

6
Net Working Capital – Bull Case
Assumptions
Historical Period Projection Period
2015 2016 2017 2018 2019 2020 2021 2022 2023
• Keeping consistent with the base case,
Sales $7,371,027.0 $8,788,285.0 $9,378,320.0 $7,941,433.0 $8,701,918.3 $9,536,869.7 $10,453,657.7 $11,460,386.1 $12,565,965.2
with the only changes from sales and
Cost of Goods Sold 1,894,302.0 2,286,538.0 2,657,014.0 2,278,313.0 2,247,468.3 2,472,215.1 2,719,436.6 2,991,380.3 3,290,518.3 COGS
Current Assets • Net Working Capital can be seen
Accounts Receivable 2,646,596.0 3,511,592.0 3,896,807.0 3,298,821.0 3,124,457.7 3,424,250.3 3,753,426.6 4,114,896.3 4,511,858.8 to have increased a larger amount
Inventories
Prepaid Expenses and Other
4,918,868.0
2,619,172.0
4,918,590.0
2,579,672.0
4,759,204.0
2,346,913.0
4,998,627.0
2,251,324.0
4,025,631.8
2,177,644.3
4,428,195.0
2,386,589.9
4,871,014.5
2,616,014.9
5,358,116.0
2,867,947.5
5,893,927.6
3,144,617.3
than the base case
Total Current Assets $10,184,636.0 $11,009,854.0 $11,002,924.0 $10,548,772.0 $9,327,733.9 $10,239,035.1 $11,240,456.0 $12,340,959.7 $13,550,403.7

Current Liabilities
Accounts Payable 496,315.0 683,323.0 794,998.0 636,627.0 588,846.0 647,730.6 712,503.7 783,754.1 862,129.5
Accrued Liabilities - - - - - - - - -
Other Current Liabilities 2,708,940.0 2,524,802.0 2,148,225.0 2,252,918.0 1,993,286.5 2,184,542.8 2,394,544.9 2,625,149.1 2,878,396.2
Total Current Liabilities $3,205,255.0 $3,208,125.0 $2,943,223.0 $2,889,545.0 $2,582,132.5 $2,832,273.5 $3,107,048.7 $3,408,903.1 $3,740,525.7

Net Working Capital $6,979,381.0 $7,801,729.0 $8,059,701.0 $7,659,227.0 $6,745,601.3 $7,406,761.6 $8,133,407.3 $8,932,056.6 $9,809,878.0
% sales 94.7% 88.8% 85.9% 96.4% 77.5% 77.7% 77.8% 77.9% 78.1%

(Increase) / Decrease in NWC ($822,348.0) ($257,972.0) $400,474.0 $913,625.7 ($661,160.3) ($726,645.7) ($798,649.3) ($877,821.4)

Assumptions
Days Sales Outstanding 131.1 145.8 151.7 151.7 131.1 131.1 131.1 131.1 131.1
Days Inventory Held 947.8 785.2 653.8 653.8 653.8 653.8 653.8 653.8 653.8
Prepaids and Other CA (% of sales) 35.5% 29.4% 25.0% 25.0% 25.0% 25.0% 25.0% 25.0% 25.0%

Days Payable Outstanding 95.6 109.1 109.2 109.2 95.6 95.6 95.6 95.6 95.6
Accrued Liabilities (% of sales) -% -% -% -% -% -% -% -% -%
Other Current Liabilities (% of sales) 36.8% 28.7% 22.9% 22.9% 22.9% 22.9% 22.9% 22.9% 22.9%

7
DCF Analysis – Bear Case Assumptions
• In the bear case, the sales growth was
Historical Period CAGR Projection Period CAGR
adjusted to less than 3% (3% sales growth,
2015 2016 2017 ('14 - '16) 2018 2019E 2020E 2021E 2022E 2023 ('17 - '22)
2% gov’t revenue growth, -1% rights
Sales
% growth
$7,371,027.0
(6.0%)
$8,788,285.0
23.5%
$9,378,320.0
5.7%
12.8% $7,941,433.0
6.7%
$8,171,078.8
2.9%
$8,407,528.1
2.9%
$8,650,982.4
2.9%
$8,901,649.4
2.9%
$9,159,742.6
2.9%
2.9%
revenue growth)
COGS 1,894,302.0 2,286,538.0 2,657,014.0 2,278,313.0 2,329,924.1 2,399,821.8 2,471,816.5 2,545,971.0 2,622,350.1 • This was to see what the value of the
Gross Profit $5,476,725.0 $6,501,747.0 $6,721,306.0 10.8% $5,663,120.0 $5,841,154.6 $6,007,706.2 $6,179,165.9 $6,355,678.4 $6,537,392.5 2.9% company would be if growth slows
% margin 74.3% 74.0% 71.7% 71.3% 71.5% 71.5% 71.4% 71.4% 71.4% down tremendously and is essentially
SG&A 4,253,641.0 4,739,284.0 5,014,937.0 4,803,326.0 4,587,079.1 4,719,817.0 4,856,487.4 4,997,206.7 5,142,095.1 projecting a matured company and
EBITDA $1,223,084.0 $1,762,463.0 $1,706,369.0 18.1% $1,027,507.0 $1,523,653.1 $1,557,466.8 $1,592,256.1 $1,628,049.2 $1,664,875.0 10.1% would grow slightly faster than
% margin 16.6% 20.1% 18.2% 12.9% 18.6% 18.5% 18.4% 18.3% 18.2% Canada’s GDP
Depreciation & Amortization 865,668.0 830,972.0 944,046.0 1,049,279.0 1,008,194.4 1,037,368.8 1,067,407.6 1,098,336.3 1,130,181.4
EBIT $357,416.0 $931,491.0 $762,323.0 46.0% ($21,772.0) $515,458.7 $520,098.0 $524,848.5 $529,712.9 $534,693.6 89.7% • The COGS, SG&A, and D&A as a % of
% margin 4.8% 10.6% 8.1% (0.3%) 6.3% 6.2% 6.1% 6.0% 5.8% sales were adjusted downwards to see the
Taxes 64,334.9 167,668.4 137,218.1 (3,919.0) 92,782.6 93,617.6 94,472.7 95,348.3 96,244.8 impact of increasing costs on the company
NOPAT $293,081.1 $763,822.6 $625,104.9 46.0% ($25,691.0) $422,676.2 $426,480.3 $430,375.8 $434,364.5 $438,448.8 76.4% value. (29.5%, 63.2%, 13% respectively)
Plus: Depreciation & Amortization 865,668.0 830,972.0 944,046.0 1,049,279.0 1,008,194.4 1,037,368.8 1,067,407.6 1,098,336.3 1,130,181.4
Less: Capital Expenditures (650,422.0) (977,494.0) (1,246,880.0) (1,209,022.0) (1,031,563.7) (1,031,563.7) (1,031,563.7) (1,031,563.7) (1,031,563.7) • As per notes, currency hedging instruments
Less: Increase in Net Working Capital 160,595.4 (221,429.1) (228,036.0) (234,840.1) (241,847.2) were not used and thus, 90% of revenue is
Unlevered Free Cash Flow $559,902.3 $210,856.4 $238,183.7 $266,297.1 $295,219.2 exposed to FX fluctuations.
WACC 18.8% • Due to unpredictability of currency, an
Discount Period 1.0 2.0 3.0 4.0 5.0 average of past 7 years’ Gain/Loss
Discount Factor 0.84 0.71 0.60 0.50 0.42 (84,733 gain ) on FX was included in
Present Value of Free Cash Flow $471,259.0 $149,376.3 $142,021.6 $133,646.1 $124,704.5 the operating cost structure (EBIT)

Enterprise Value Perpetuity Growth Rate


• CapX, Tax rate, and perpetuity growth rate
Cumulative Present Value of FCF $1,021,007.6 Terminal Year Free Cash Flow (2023E) $295,219.2
remained the same as base case to compare
WACC 18.8%
the impact of changes in assumptions of
Terminal Value Terminal Value $1,829,264.9 operations on the overall company value
Perpetuity Growth Rate 2.3%
• Sensitivity analysis was done based on
Terminal Value $1,829,264.9
perpetuity growth rate and WACC to find
Discount Factor 0.42 the enterprise value high of 1,900,221 and
Present Value of Terminal Value $772,705.5 Enterprise Value
a low of 1,684,667
% of Enterprise Value 43.1% Perpetuity Growth Rate
1,793,713.1 1.90% 2.10% 2.30% 2.50% 2.70%
Enterprise Value $1,793,713.1 16.8% 1,873,288 1,860,356 1,860,356 1,873,288 1,900,221
17.8% 1,819,718 1,808,254 1,808,254 1,819,718 1,843,533
WACC

18.8% 1,772,485 1,762,243 $1,762,243 1,772,485 1,793,713


19.8% 1,730,526 1,721,313 1,721,313 1,730,526 1,749,583
20.8% 1,693,005 1,684,667 1,684,667 1,693,005 1,710,222

8
Net Working Capital – Bear Case
Assumptions
Historical Period Projection Period
2015 2016 2017 2018 2019 2020 2021 2022 2023
• For Net Working Capital, a more
Sales $7,371,027.0 $8,788,285.0 $9,378,320.0 $7,941,433.0 $8,171,078.8 $8,407,528.1 $8,650,982.4 $8,901,649.4 $9,159,742.6 pessimistic view of the
Cost of Goods Sold 1,894,302.0 2,286,538.0 2,657,014.0 2,278,313.0 2,329,924.1 2,399,821.8 2,471,816.5 2,545,971.0 2,622,350.1 management was taken
Current Assets • Instead of the historically lowest
Accounts Receivable 2,646,596.0 3,511,592.0 3,896,807.0 3,298,821.0 3,247,298.9 3,341,267.1 3,438,019.2 3,537,637.7 3,640,207.5
Inventories 4,918,868.0 4,918,590.0 4,759,204.0 4,998,627.0 4,852,150.5 4,997,715.0 5,147,646.4 5,302,075.8 5,461,138.1
of assumption ratios, an average
Prepaid Expenses and Other 2,619,172.0 2,579,672.0 2,346,913.0 2,251,324.0 2,347,890.5 2,415,832.2 2,485,786.8 2,557,813.8 2,631,974.7 was taken of the past 3 years to
Total Current Assets $10,184,636.0 $11,009,854.0 $11,002,924.0 $10,548,772.0 $10,447,339.9 $10,754,814.3 $11,071,452.4 $11,397,527.3 $11,733,320.3 see how lower ratios would
Current Liabilities impact the change in NWC
Accounts Payable 496,315.0 683,323.0 794,998.0 636,627.0 675,249.8 695,507.3 716,372.5 737,863.7 759,999.6
Accrued Liabilities - - - - - - - - -
Other Current Liabilities 2,708,940.0 2,524,802.0 2,148,225.0 2,252,918.0 2,273,458.5 2,339,246.3 2,406,983.2 2,476,726.9 2,548,536.8
Total Current Liabilities $3,205,255.0 $3,208,125.0 $2,943,223.0 $2,889,545.0 $2,948,708.3 $3,034,753.6 $3,123,355.7 $3,214,590.6 $3,308,536.4

Net Working Capital $6,979,381.0 $7,801,729.0 $8,059,701.0 $7,659,227.0 $7,498,631.6 $7,720,060.7 $7,948,096.7 $8,182,936.7 $8,424,783.9
% sales 94.7% 88.8% 85.9% 96.4% 91.8% 91.8% 91.9% 91.9% 92.0%

(Increase) / Decrease in NWC ($822,348.0) ($257,972.0) $400,474.0 $160,595.4 ($221,429.1) ($228,036.0) ($234,840.1) ($241,847.2)

Assumptions
Days Sales Outstanding 131.1 145.8 151.7 151.7 145.1 145.1 145.1 145.1 145.1
Days Inventory Held 947.8 785.2 653.8 653.8 760.1 760.1 760.1 760.1 760.1
Prepaids and Other CA (% of sales) 35.5% 29.4% 25.0% 25.0% 28.7% 28.7% 28.7% 28.7% 28.7%

Days Payable Outstanding 95.6 109.1 109.2 109.2 105.8 105.8 105.8 105.8 105.8
Accrued Liabilities (% of sales) -% -% -% -% -% -% -% -% -%
Other Current Liabilities (% of sales) 36.8% 28.7% 22.9% 22.9% 27.8% 27.8% 27.8% 27.8% 27.8%

9
Asset Value
BV of Assets MV - Low MV - High
Current Assets
Cash $ - $ - $ -
Accounts Receivable $ 3,257,490.0 $ 2,443,117.5 $ 2,768,866.5
Government remittances receivable $ 41,331.0 $ 35,131.4 $ 39,264.5
Inventory $ 4,998,627.0 $ 3,199,862.7 $ 3,399,725.4
Prepaid expenses $ 2,251,324.0 $ - $ -
Total Current Assets $ 10,548,772.0 $ 5,678,111.6 $ 6,207,856.4

Property Plant and Equipment $ 73,674.0 $ 7,367.4 $ 14,734.8


Pre-publication costs $ 1,642,115.0 $ 1,000,000.0 $ 1,642,115.0
TOTAL ASSETS $ 12,264,561.0 $ 6,685,479.0 $ 7,864,706.2

Assumptions
• Only replacement value of assets were considered as liabilities were outside the scope of this portion of the valuation
• There currently is no cash present on the balance sheet.
• The replacement value of A/R was estimated 75% for the low scenario and 85% for the high scenario
• Due to the nature of government remittances, higher percentages were assumed (85% for low, 95% for high)
• 3mm of the inventory is assumed to turn actively while 2 million of the inventory liquidation was assumed for 10% in the low scenario and 20% in the high
scenario
• Prepaid expenses were assumed to have no residual value
• PP&E liquidation value was estimated to be 10% int the low scenario and 20% in the high scenario
• The fair market value of the Pre-publication assets were assumed to be 1mm in the low scenario and the full value in the high scenario
• Could have been estimated to been 2mm in the high scenario, but took book value to remain conservative

10
Summary of Valuation Analysis
PubCo Football Field
Public Comparables
LTM EV/Revenue
2019E EV/Revenue

LTM EV/EBITDA
2019E EV/EBITDA

LTM EV/EBIT
2019E/EBIT

Precedent Transaction
LTM EV/Revenue
LTM EV/EBITDA
LTM EV/EBIT

Discounted Cash Flow Analysis


Base Case
Bull Case
Bear Case

NAV
- 2,000,000 4,000,000 6,000,000 8,000,000 10,000,000 12,000,000 14,000,000 16,000,000

• Due to conservatism, more emphasis was placed on precedent transactions and DCF analysis.
• We can see that the majority of precedent transactions regardless of time, were based on fair Enterprise Value multiples
• We can also determine that the majority of public comparable are currently overvalued and trading at a premium
• There was also a larger weight placed on the LTM multiples as it is more accurate to be evaluate PubCo based on current market conditions rather than using forward looking multiples
• Although the growth assumptions varying from base, bull, bear case were fair, there was a larger emphasis placed on the bull and base case of PubCo rather than the bull case to be more conservative
• The Asset Value didn’t take into account liabilities, the replacement value is highly overstated and optimistic, therefore not a lot of weight was given to the NAV valuation method

• The fair bid price should be around $4 million, however it is recommended that the starting bid price should be under $3 million as, we have determined that most companies within the publishing
industry is trading at a premium.
• The illiquidity discount and size premium has been factored in the public comparables and precedent transactions through the multiples and DCF through the WACC

• From a broad glance, the D/V capital structure for PubCo is relatively high, however we must keep in mind, the illiquidity and small price would make the financing through equity very expensive and
difficult.

11