appendixes growth strategies in tourism … · p ayne , bill , 2011. scorecard valuation...

A Work Project, presented as part of the requirements for the Award of a Masters Degree in Management from the NOVA – School of Business and Economics.

APPENDIXES

GROWTH STRATEGIES IN

TOURISM ENTERTAINMENT INDUSTRY

– A PRACTICAL APPLICATION –

FILIPA SILVA #791

MARIA ABECASIS #2066

RITA BONVALOT #1889

A Project carried out on the Management course, under the supervision of:

Prof. Miguel Muñoz Duarte and Dr. João Paiva Mendes (Boost Tourism Portugal)

January 8th 2016

2

APPENDIXES

I. BOOST TOURISM ........................................................................................................................ 3

APPENDIX 1.1: METHODOLOGY .................................................................................................... 3

APPENDIX 1.2: INTERNATIONAL TOURISM ................................................................................... 3

APPENDIX 1.3: TOURISM IN PORTUGAL ........................................................................................ 4

APPENDIX 1.4: TOURISM ENTERTAINMENT LISBON COMPANIES ................................................. 5

APPENDIX 1.5: BUSINESS MODEL CANVAS – BOOST TOURISM ................................................... 6

APPENDIX 1.6: VALUE PROPOSITION ............................................................................................ 7

APPENDIX 1.7: BOOST IN NUMBERS ............................................................................................. 8

II. M&A ............................................................................................................................................... 9

APPENDIX 2.1: METHODOLOGY STRATEGY I ............................................................................... 9

APPENDIX 2.2: STEP FOR M&A ................................................................................................... 9

APPENDIX 2.3: LITERATURE REVIEW STRATEGIC SECTION ........................................................ 10

APPENDIX 2.4: EXTERNAL DIMENSION OF STRATEGIC ANALYSIS .............................................. 11

APPENDIX 2.5: INTERNAL DIMENSION OF STRATEGIC ANALYSIS ............................................... 14

APPENDIX 2.6: EXPOSURE DIMENSION OF STRATEGIC ANALYSIS ............................................... 15

APPENDIX 2.7: PARTIAL DASHBOARD OF STRATEGIC ANALYSIS ................................................ 16

APPENDIX 2.8: LITERATURE REVIEW FINANCIAL SECTION ......................................................... 17

APPENDIX 2.9: VALUATION ........................................................................................................ 18

APPENDIX 2.10: DCF METHOD................................................................................................... 19

APPENDIX 2.11: COMPARABLES METHOD .................................................................................. 20

APPENDIX 2.12: BUSINESS VALUATION CALCULATOR ............................................................... 21

APPENDIX 2.13: COST APPROACH .............................................................................................. 21

APPENDIX 2.14: STEP FOR M&A INSTRUCTIONS TAB ............................................................... 23

III. NATIONAL EXPANSION .......................................................................................................... 24

APPENDIX 3.1: METHODOLOGY STRATEGY II ............................................................................ 24

APPENDIX 3.2: OPORTO’S BOOST COMPETITORS ....................................................................... 25

APPENDIX 3.3: BUSINESS MODEL CANVAS – BOOST OPORTO ................................................... 26

APPENDIX 3.4: CONGRESS RANKINGS ........................................................................................ 27

APPENDIX 3.5: DECISION MATRIX SCORE ATTRIBUTION............................................................ 30

APPENDIX 3.6: OPORTO – PRICES COMPARISON ........................................................................ 31

APPENDIX 3.7: BOOST’S OPORTO ORGANIZATIONAL STRUCTURE ............................................ 32

APPENDIX 3.8: BOOST’S OPORTO P&L ...................................................................................... 33

APPENDIX 3.9: BUDGET REQUIREMENTS .................................................................................... 33

IV. INTERNATIONAL EXPANSION .............................................................................................. 34

APPENDIX 4.1: METHODOLOGY STRATEGY III ........................................................................... 34

APPENDIX 4.2: BOOST MADRID IN NUMBERS ............................................................................. 34

APPENDIX 4.3: TOURISM IN MADRID .......................................................................................... 36

APPENDIX 4.4: PORTER’S FIVE FORCES ANALYSIS FOR MADRID .............................................. 36

APPENDIX 4.5: COMPETITION IN MADRID .................................................................................. 37

APPENDIX 4.6: ALTERNATIVE STRATEGIES PROS AND CONS ..................................................... 38

APPENDIX 4.7: DECISION MATRIX SCORE ATTRIBUTION............................................................ 39

APPENDIX 4.8: BUSINESS MODEL CANVAS FOR BOOST IN MADRID .......................................... 40

3

I. BOOST TOURISM

APPENDIX 1.1: Methodology

Figure 1: Project’s methodology (Source: Desk Research)

APPENDIX 1.2: International Tourism

Figure 2: International Tourists Arrival – By region forecast 2030 (Source: UNWTO)

4

APPENDIX 1.3: Tourism in Portugal

Figure 3: Weight of Tourism Revenues in the Portuguese GDP

Figure 4: Tourism direct contribution to GDP (%)

Figure 5: Total Guests in Portugal (2014)

Figure 6: Total Number of Hotel Establishments

3,8%4,0%4,2%4,4%4,6%4,8%5,0%5,2%5,4%5,6%5,8%6,0%6,2%6,4%

5000550060006500700075008000850090009500

100001050011000

Tourism Revenues

(millions €)

Weight of Tourism in

the GDP (%)

0%

1%

2%

3%

4%

5%

6%

7%

8%

Europe

World

Portugal

Forecast

3.000.000

5.000.000

7.000.000

9.000.000

11.000.000

13.000.000

15.000.000

17.000.000

Total Foreign

Total Portugal

Total Global

1.940

1.960

1.980

2.000

2.020

2.040

Total

Global

5

APPENDIX 1.4: Tourism entertainment Lisbon Companies

Table 1: Teambuilding and Corporate Events Competitors

COMPETITION Description

BOOST

PORTUGAL

Boost organizes team building or other events, providing diverse exclusive and

original activities, taking care of the entire process and guaranteeing the satisfaction

of its customers. Main attractions: Tuktuks, GoCar, Segway, Beetle, e- Buggies and

Scooters.

Tours For You

An Incoming Tour operator and DMC specialized in providing creative and personalized

travel planning and developing luxury and experiential travel services and special events.

The company also have provide adventurous tours for team-buildings and events as

canoeing, thematic events, ballooning, air tourism, BTT, slide, rappel, paintball and other

activities.

Equinócio

Three main operational areas: Corporate (organize outdoor events and team buildings),

Adventure (specialized in activities like Rafting, Canoeing, body board, trekking, slide,

rappel and other activities) and Kids (focused in young customers, planning anniversary

parties and summer camps.

BgBuilding Offer a large range of effective team building solutions, conference facilitators, corporate

entertainment and internal training and development of the company.

Kiss the Cook Specialists in team building and events around the table. Promote teamwork, collaboration,

creativity or competition through a hands-on attitude.

Lisbon secrets A company with a team of dynamic guides, committed to offering a personal and authentic

experience to its visitors. It organizes diverse tours and events combining many activities

from walking to wine tasting and boat tour.

Inside Lisbon Operates in two main areas: smaller private tours and corporations team-buildings. It can

be considered a Boost client since it outsources some of the company’s products.

Seaventy Focused in ocean activities, organizes team buildings, meetings & networking events and

business lunches. It provides this events aboard elegant and exclusive boats, creating a

unique and premium environment.

6

APPENDIX 1.5: Business Model Canvas – Boost Tourism

7

APPENDIX 1.6: Value Proposition

Table 2: Boost Prices in Lisbon

Individual Services – Prices

GoCar

Tour 1st hour: 29€/h

After 1st hour:

5€/h 4 hours: 60€ 8 hours: 89€

Segway 75min: 35€ 150 min: 55€ 120min: 50€ Buggy Combo:

50€

Bikes

and

company

Follow the

river: 29€

Up the hills

32€

Follow the

Sun:75€

Lisbon

by

beetle

135€ half day 180€ all day

Sintra

225€ all day

surf trip tour

290€ all day

when'n wine

Tuk tuk 50€/h 140€ half day

Buggy

Tour

25€/h

+5€/15min

(2pax)

40€/h

+8€/15min

(4pax)

Scooter

Solutions

40€

/day

75€

/2 days

110€

/3 days

140€

/4 days

170€

/5days

200€

/6days

215€

/7days

Escape

Hunt 35€ 2pax 50€ 3pax 60€ 4pax 50€ 5pax

Figure 7: Boost brands in Lisbon (Source: Desk research)

8

APPENDIX 1.7: Boost in Numbers

Figure 8: Sales Evolution

Figure 9: Groups 2014

Figure 10: Cost of services distribution

Figure 11: Capital Structure

Figure 12: Sales Distribution

Figure 13: Individuals 2014

Figure 14: EBITDA Evolution

Figure 15: Cost Structure

9

II. M&A

APPENDIX 2.1: Methodology Strategy I

Figure 16: Methodology followed in M&A chapter (Source: Desk research)

APPENDIX 2.2: STEP for M&A

Figure 17: STEP for M&A model cover

10

APPENDIX 2.3: Literature Review strategic section

Figure 18: Berkus Method (Source: Desk research)

Figure 19: Scorecard Valuation Methodology (Source: Desk research)

Figure 20: Seven Domains Framework (Source: Desk research)

Figure 21: Sources used to select strategic variables (Source: Desk research)

G ro s s m a n , Ma rk , How to valu e you r s tart u p for ven tu re cap ital

P o rte r, Mic h a e l , 1979. How com p etitive forces s h ap e s trateg y, 57(2), 137-145, Harvard Bu s in es s Review

Ag u illa r, F .J . , 1967. S can n in g th e b u s in es s en viron m en t, Macm illan

Mu llin s , W , J o h n , 2003. Th e n ew b u s in es s road tes t, P ren tic Hall Fin an cial T im es

P a y n e , B ill , 2011. S corecard valu ation m eth od olog y: Es tab lis h in g th e valu ation of p re-reven u e, s tart-u p com p an ies

Ka rls s o n , M, J e n n y , 2009. Valu ation u s in g th e an alytic h ierarch y p roces s : Tran s form in g q u alita tive ju d g em en ts in to q u an tita tive m eas u res , Un ivers ity of P itts b u rg h

Mu llin s , W , J o h n , 2003. Th e n ew b u s in es s road tes t, P ren tic Hall Fin an cial T im es

B o rd e n , H, Ne il , 1964. Th e con cep t of th e m arketin g m ix, J ou rn al of ad vertis in g res earch

P rivate eq u ity valu ation , Kap lan 2014

Hu d s o n , Ma ria n n e , 2014. S u cces s fu l exit s trateg ies s ecrets : Kn ow h ow to g et ou t b efore you g et in , Forb es

Ro b b in s , S te v e r , Exit s trateg ies for you r b u s in es s , En trep ren eu r on lin e

Ex

tern

al

Inte

rna

lE

xp

osu

re

Matching variables selected with the corresponding references

11

APPENDIX 2.4: External dimension of strategic analysis

Figure 22: STEP for M&A – Eco Tuk Tours macro environment analysis

Figure 23: STEP for M&A – Eco Tuk Tours market and industry analysis

Value Driver Classification Score Choose a weight Factor

Political

Political stability: What's the degree of stability? medium 2 5% 0.1

Government policies: What's the level of benefit for the country? medium 2 10% 0.2

Economic

National economy: What's the climate of national economy? growing 3 10% 0.3

Global economy: What's the climate of international economy? growing 3 10% 0.3

Social

Life style: What's the level of social life style? low 1 10% 0.1

Literacy: What's the educational level? medium 2 0% 0

Cultural issues: What's the influence of increasing relevance given to culture and history? high 3 10% 0.3

Demographics: What's the influence of demographics on the business? low 3 0% 0

Technological 0

Technological advances: What's the rate of technological change? low 3 0% 0

Legal

Bureaucracy: What's the degree of bureauscracy in processes? low 3 5% 0.15

Product regulations: What's the level of regulation constrains? low 1 15% 0.15

Environmental

Weather: What's the influence of weather conditions? high 3 5% 0.15

Waste disposal laws: What's the waste laws? high 3 5% 0.15

Environmental concerns: What's the level of environmental consciousness? high 3 15% 0.45

Specific driver: add other high 3 0% 0

Overall 2.35

Macroenvironment - PESTLE

Evaluate columns in light red according to your goals and perspective of each factor.


Market

Size of the market: What's the Current Market dimension (served available market)? medium 2 10% 0.20

Size of the opportunity: What's the potential universe (total available market)? high 3 10% 0.30

Market Evolution: What's the market evolution trend? growing 3 10% 0.30

Porter's Five Forces 0.00

Rivalry among existing competitors: What's the level of competition in the market? high 1 10% 0.10

Threat of new entrants: What's thelevel of efficiency of the barriers to entry? medium 2 5% 0.10

Threat of substitutes: What's the number of products/services with similar functions? medium 2 5% 0.10

Suppliers power: What's the level of pressure/power from suppliers? medium 2 15% 0.30

Buyers power: What's the level of pressure/power from Buyers? high 1 5% 0.05

Industry characteristics 0.00

Cyclicality: What's the level of cyclicality? high 1 5% 0.05

Seasonality: What's the level of seasonality? high 1 5% 0.05

Trendy: How trendy is this market? high 1 5% 0.05

Public attitude towards the product: What's the level of acceptance/interest? high 3 15% 0.45

Specific driver: add other high 3 0% 0.00

Overall 2.05

Market and industry

12

Figure 24: Tuk tuk – Eco Tuk Tours

Figure 25: Survey questions

13

Figure 26: Population survey results (Source: Desk research)

Figure 27: TAM, SAM & SOM detailed calculations (Source: Desk research)

14

APPENDIX 2.5: Internal dimension of strategic analysis

Figure 28: Existing brand

Figure 29: STEP for M&A – Eco Tuk Tours company analysis

Figure 30: STEP for M&A –Eco Tuk Tours marketing mix analysis



Team

Founders: What's the level of relevant experience? medium 2 0% 0.00

Management team: What's the level of expertise and know how? medium 2 0% 0.00

Sales team: How strong is the commercial team? strong 3 10% 0.30

Staff: What's the level of quality of the staff and team? high 3 5% 0.15

Intangible assets

Brand name: What's the level of awareness? medium 2 20% 0.4

Reputation: What's the level of credibility/reputation? strong 3 15% 0.45

Customer Portfolio: What's the level of quality of the portfolio? high 3 10% 0.3

Partnerships: How relevant are the partnerships? relevant 3 5% 0.15

Licenses/Patents: How relevant are the Licenses/Patents? irrelevant 2 0% 0

Tangible assets

Assets conditions: What's the level of necessary investment? low 3 10% 0.3

Synergies

Market share: What's the level of Market Share? medium 2 5% 0.1

Assembling process: How costly and time consuming to integrate? medium 2 20% 0.4


Overall 2.55

Company


Product

Product innovation: What's the level of innovation? low 1 5% 0.05

Scalability: What's the level of scalability? medium 2 5% 0.10

Product complementarity: What's the level of complementary with current offer? high 3 30% 0.90

Placement

Distribution channels: What's the level of Sales channels integration and synergies? medium 2 10% 0.20

Promotion

Communication tools: What's the level of synergies in communication and Promotion high 1 20% 0.20

Price

Value for money: How does Price compares to Value for Money? average 2 10% 0.20

Competitive price: How does Price compares to Competition? above average 3 10% 0.30

Cost: How does Price compares to Cost? average 2 10% 0.20


Overall 2.15

Marketing Mix - 4 P's

15

APPENDIX 2.6: Exposure dimension of strategic analysis

Figure 31: STEP for M&A – Eco Tuk Tours downside risks analysis

Figure 32: STEP for M&A – Eco Tuk Tours upside potential



Unquoted investment and liquidity risk high 1 10% 0.1

Capital risk low 3 5% 0.15

Regulatory risk high 1 40% 0.4

Tax risk high 1 25% 0.25

Valuation risk high 1 10% 0.1

Agency risk medium 2 5% 0.1

Competitive environment risk low 3 5% 0.15

Diversification risk low 3 0% 0

Market risk (interest rates, exchange rates) medium 2 0% 0


Overall 1.25

Downside Risks

Value Driver Classification Score Choose a weight FactorHorizontal integration

Domestic horizontal integration: What's the level of probability of a potential national competitor acquisition?low 1 0% 0

Vertical integration

Domestiv vertical integration:What's the level of probability of a supply-chain acquisition?medium 2 25% 0.5

Financial investors

Venture capital: What's the level of probability of venture capital interest and investment?medium 2 0% 0

Private equity: What's the level of probability of private equity interest and investment?medium 2 0% 0

IPO

IPO: What's the level of probability of IPO? low 1 0% 0

Liquidation

Tangible investment: What's the level of probability of selling assets?high 3 35% 1.05

Strategic alliance

Strategic alliance: What's the level of probability of corporate partnerhips or joint ventures?medium 2 35% 0.7

Follow-on investment

Investment attractive: high 3 5% 0.15


Overall 1.55

Upside potential

Exit

str

ate

gie

s

16

APPENDIX 2.7: Partial dashboard of strategic analysis

Figure 33: Graphs for each subgroup of the internal, external and exposure dimensions

17

APPENDIX 2.8: Literature review financial section

Table 3: Pros and cons of each valuation methodology (Source: Desk research)

Figure 34: Matrix relating the different methods applied (Source: A. Damodaran)

Table 4: Applicability of different valuation methods

18

APPENDIX 2.9: Valuation

Figure 35: Inputs and assumptions sheet

This sheet should contain the assumptions and inputs needed (values without VAT), fill in the light red cells and then click to see the results for each method

Deal structure assets purchase

Latest FY 2015

days in a year 360

select target's country (if not in the list select other) Portugal

if target's country is not in the list, enter the corporate tax rate:

inflation rate (click to input) inflation rate

1.5%

1-stage

Does the target have significant historical information? no

Is the target publicly traded?

Enter the market value of Equity

Enter the market value of Debt

Enter current cash amount 24293.7

Sales

Do you want to use the current sales as the base? no

if yes, what is the current amount of sales?

Bottom up Sales estimate

Forecast method (choose and then click) inflation Growth rate estimation

Are there any perspectives of price changes? no

If yes, click on the button to enter the expected changes Changes in price

Investment

Forecast method for capex (click on the button) Capex

What is the % of sales revenues that cost of sales represents? 5%

Fixed expenses with salaries, bonus, fringe Benefits 82 546

Variable expenses with salaries, bonus and fringe benefits (enter % of sales) 0

90 599

0

Operating government grants amount 40 000

Will it continue? If yes click on the button to enter an amount per year of the estimation period no Government subsidies

Other fixed operating income 0

Other variable operating income (enter % of sales) 0

Other fixed operating costs 1 614

Other variable operating costs (enter % of sales) 0%

Depreciation&amortization (click on the button) Calculations Map

Working capital

Days of accounts receivable 30

Days of accounts payable (suppliers, overhead costs…) 30

Inventories days 0

VAT days payable 45

VAT rate (%sales) 23%

Social security days payable 20

Social security rate (%payroll) 23.75%

Tax paid during the year (%) 85.00%

Discount rate estimation

Stable Growth Inputs

liquidation Terminal value estimation

Sensitivity analysis Sensitivity analysis DCF

Current Financial Information

Balance sheet

tangible fixed assets 103 542

accounts receivable 37 009

inventory 0

Other current assets 30592.12

Intangible assets 10047.17

Other relevant operating investments 0

0

Truth in Balance sheet information

Are fixed tangible assets fully depreciated? yes

if yes, what is the market value of the fixed tangible assets? 50 000

if no, what percentage of the book value represents the market value of those assets? 0%

if the company liquidated the inventory what % of its book vaue would it receive? 0%

if the company was liquidated what % of accounts receivable would be received? 100%

if the company was liquidated what % of other current assets would be received as cash? 100%

if the company was liquidated what % of intangible assets would be received as cash? 0%

Relative Valuation

If you want to do a relative valuation of your firm, enter these inputs and then click on the button Comparables

Costs

Company's growth

if 2-stages, enter growth rate for second stage

GDP real growth

If not, choose a method for estimating sales and then click on the respective button (see comments)

Fixed SG&A expenses

terminal value forecast method

Cost of capital (click on the button)

Variable SG&A expenses (enter % of sales)

Debt and other liabilities

DCF Method Cost Approach Relative Valuation

19

APPENDIX 2.10: DCF Method

Table 5: List of assumptions needed for performing the valuation of Eco Tuk Tours

Figure 36: DCF analysis – Eco Tuk Tours

360 days in a year

Future of the product and the market is predictable

Survey answers assumed to be reliable enough to estimate the current sales

Sales growing at inflation rate

The price is not expected to change in the upcoming years

Variable expenses grow as a fixed percentage of sales

Fixed expenses grow at inflation

No more government subsidies are expected

Boost won't buy more tuk tuks

The only expected capital expenditures concern the batteries and power chargers

Every 4 years the batteries and power chargers have to be substituted

Tuk tuks depreciate at a rate of 25% (vehicles - pwc tax guide 2015)

Batteries and power chargers depreciate at a rate of 20% (small machines - pwc tax guide 2015)

Constant risk (discount rate)

Liquidation value, though the most conservative, was used as the terminal value

Assumptions list

Base 1 2 3 4 5 5

2015 2016 2017 2018 2019 2020 2021

243 902 245 366 247 820 250 793 254 555 258 374

12 195 12 268 12 391 12 540 12 728 12 919

231 707 233 098 235 429 238 254 241 827 245 455

Gross sales margin % 95% 95% 95% 95% 95% 95%

Operating government grants 40 000 0 0 0 0 0

82 546 83 041 83 872 84 878 86 151 87 443

0 0 0 0 0 0

90 599 91 142 92 054 93 158 94 556 95 974

0 0 0 0 0 0

1 614 1 623 1 639 1 659 1 684 1 709

0 0 0 0 0 0

0 0 0 0 0 0

0 0 0 0 0 0

96 949 57 291 57 864 58 558 59 437 60 328

EBITDA margin% 40% 23% 23% 23% 23% 23%

43 071 43 071 25 150 15 250 5 000 5 000

53 878 14 220 32 714 43 308 54 437 55 328

Taxes 21% 11 314 2 986 6 870 9 095 11 432 11 619

42 564 11 234 25 844 34 213 43 005 43 709

43 071 43 071 25 150 15 250 5 000 5 000

10 000 5 000 10 000 0 0

6 666 10 586 12 856 15 249 15 494

6 666 3 921 2 269 2 393 244

37 639 42 073 37 194 45 612 48 465

65 494

- 31 366 29 218 21 524 21 996 19 477

26 320

149 901

Net Debt 0

Equity

Gross sales margin

Cost of sales

Sales and services rendered

Payroll expenses fixed

SG&A expenses fixed

Other operating expenses fixed

SG&A expenses variable

Payroll expenses variable

Present Value of FCFF

Present Value of Terminal Value

Terminal Value

Other operating expenses variable

Other operating income variable

EBIT(1-t)

EBIT

Depreciation&amortization

EBITDA

Other operating income fixed

Value of the firm

Depreciation&amortization

Capital Expenditures

WC requirements (if needed)

Change in NWC

Free Cash Flow

20

APPENDIX 2.11: Comparables Method

Figure 37: Issues that must be considered in the selection of peers (Source: Desk research)

Figure 38: Common trading multiples (Source: Desk research)

Figure 39: Data used for the multiples calculation

Figure 40: Trading multiples Eco Tuk Tours

Auxiliar calculations for this case

Peer Group selected EB/EBITDA EV/Sales market cap (b) size premium 20%

Avis 5.28 1.84 3.456 liquidity/marketability discount 40%

Ryder system 4.99 1.17 3.412

Amerco inc 4.36 1.35 3.848

Weighted average (market cap) 4.86 1.45

Target's 2.33 0.70

Source: Ycharts 5y average

Discounts

Multiple used

Lower bound Upper bound Lower bound Upper bound

EV/EBITDA peers 57 291 60 328 133 574 140 655

EV/Sales peers 245 366 258 374 170 859 179 917

EV/EBITDA theoretical 57 291 60 328 114 582 156 853

EV/Sales theoretical 245 366 258 374 122 683 206 699

Financial Metric Implied value

21

APPENDIX 2.12: Business valuation calculator

Figure 41: Value simulator – Hadley capital

APPENDIX 2.13: Cost Approach

Figure 42: Cost approach – Eco Tuk Tours

24294 Book value of fixed tangible assets 103 542

37009 Book value of intangible assets 10 047

Inventories 0 Other relevant operating investments 0

Other current assets 30592 113 589

Fixed tangible assets 50000

Intangible assets 0

141895

Liabilities 0

-

Adjusted book value (marked to market) Reproduction cost

Accounts receivable (net of questionable receivables)

Cash

Equity value

Enterprise value

Enterprise value

22

Figure 43: Value of the assets vs business value

23

APPENDIX 2.14: STEP for M&A instructions tab

Figure 44: STEP for M&A – introduction tab

About

Instructions

Valuation models considered

Caveats

The DCF method relies on the forecast of the expected annual post-tax free cash flows which are then discounted at a rate that reflects the investors’ required return to

arrive at a present value of the income stream. Within this generic approach it is possible to value debt and equity separately or the firm as a whole, but in the case of a

private company the second approach is simplest as it avoids the problem of determining debt and equity rates of return. The free cash flow measures the cash available to

secure financing after all operating expenses, taxes, and necessary investments in working capital and property, plant and equipment are paid. While it is the most

theoretically correct and it is fundamentals-driven, it fails to consider market perceptions, can be long and arduous and is highly sensitive to the inputs, like the hurdle rate

and growth rate used to find a proper terminal value.

2) Relative valuation

3) Cost approach

Relative valuation’s underlying principle is to estimate value by looking at comparables thus giving a pretty good indication of the price the market is willing to pay. It

comprehends two approaches: trading multiples and precedent transactions. Multiples are based on public information from traded companies. Here, the value comes from

the market price of companies engaged in similar business activities and that share similar risk-return characteristics. Likewise, recent transactions concerning similar or

equal assets may provide a good indication for value (Caselli & Gatti, 2004). Both approaches, though quick and straightforward, do not capture true intrinsic value and are

easy to manipulate. Sound judgement should drive its use.

Cost approach assesses the cost of recreating the business from scratch. Two methods were considered: reproduction cost which takes into account the book value of all the

assets needed to start a replica of the business and adjusted book value which analyses the market value of a company’s assets to determine the company’s value. Being

bottom-up methods, the quality depends on how the value of the whole relates to the sum of the parts. Although it may provide a reasonable estimate and can be useful as

a “sanity check” for other valuation methods, it fails to account for the future, rather it is based on the past.

B) Financial component

C) Recommendations

To appraise if a target’s acquisition is a commendable choice, distinct aspects have to be taken into account, both micro and macro. To scrutinize these elements and

materialize their influence on the decision, the strategic component was developed.

The value drivers were organized under three broad dimensions: internal, external and exposure, respectively. The first one includes the items related to the company’s

nature and procedures; the second one refers to the extrinsic conditions; and the last one regards other issues that may also have an impact. Then, for each dimension two

sub-groups were defined: company and marketing, market/industry and macro environment, and upside potential and downside risks.

Assign a classification (selected from a list of three options) and a weight to each value driver and then a weighted average score(1 the worst - 3 the best) per group is

automatically generated. In the “partial dashboard” sheet graphs, which facilitate the perception of the output, are presented and, this time, assign a weight to each group

which will then ponder in the strategic score.

This model is an interactive dynamic tool that was developed for m&a deals between public or private companies from different industries, sizes and life cycle stages. It is a

decision model divided into two major components: strategic and financial. The first one tries to analyse the suitability of the target according to distinct drivers while the

second focuses on the estimation of the fair value. There were two main goals behind the creation of this tool: 1) combine a financial perspective with other value drivers

that usually are not quantifiable and may be just as relevant factors for the decision and make it as flexible as possible so that it can be applied to a big variety of firms; and

2) simplify, automate and summarize the decision making process, making it perceptible for everyone, from probationers to experts

A) Strategic component

This part of the model entails two steps:

To begin with, you should understand which deal structure suits you better. For that purpose, you need to go through a shorten list of questions, selecting an option and

assigning a weight according to the relevance of each item for the case. A recommendation, not mandatory, is then automatically engendered.

The second step concerns the valuation itself. By filling the inputs tab, the enterprise value will be automatically computed in accordance with each valuation method and

the infamous football field graph is generated under the partial dashboard tab. Financial score valuation comes from a comparison of valuation results with the ask price.

General

Throughout the model there are some comments with hints and explanations to help you and one line of instructions per sheet. The input cells are the red ones. Non-input

cells should not be altered by inexperienced users.

In the final dashboard sheet you can find three graphs summarizing the analysis and you have to assign a weight to each component, financial and strategic, according to

your goals and the business features. The final decision algorithm is given by a weighted average of the strategic and financial scores.

1) Discounted Cash Flow

The model presents some caveats that must be recognized:

- garbage in garbage out, the output is totally dependent on the scepticism applied to inputs;

- it ignores the fact that one value that is currently 0 may be positive or negative in the future;

- it ignores the possible gains from the financing of the deal which can affect the decision (but never the valuation);

- discount rate assumed to be the same for every year of the projection period;

- equivocal comparibility of the peers selected;

- as every theoretical valuation, is fallible as it relies on future perspectives and forecasts

24

III. NATIONAL EXPANSION

APPENDIX 3.1: Methodology Strategy II

Figure 45: Methodology

25

APPENDIX 3.2: Oporto’s Boost Competitors

Table 6: Products diversity map (Source: Desk research)

Table 7: Groups’ competitors (Source: Desk research)

COMPETITION Walking Segway Sidecar Twizy Tuk tuk Bike e-Bike Scooter GocarClassic CarsBuguiesBoat VespaEscape

Games

Other

activities*

BOOST X X X X X X X X X

Inside Tours X** X** X** X

Blue Dragon X X X

E.Fun X X X X

Vieguini X X

North Road X X X X

L&L X X

Baja Bikes X

Fold’n Visit X X

Sportours X

Porto Rent a Bike X

Tuktour X

Tuking People X

SideRide X X

Rental Motorbike X X

Oporto share X

Classic Porto X

Scape Challenge X

Exit Games X

oPorto adventures X

CoolTouroPorto X X

Detours X

Latitude 41 X

Private

Tours

Corporate

activities Description

BOOST X X

Inside

Tours X X

Located in Lisbon but with a lot of services in Porto through

partnerships as Blue Dragon and Tuking People.

Blue

Dragon X X

The nº1 of 60 activities in Porto according trip advisor. Provides many

services and controls Porto Rent a Bike and Baja Bikes Porto. It has

many partnerships with online ticket sellers and promoters.

oPorto

adventures X X

Sell many radical experiences as canoeing, rappel, slide, trekking, and

rafting to particular or corporate events.

CoolTour

oPorto X X

Provides walking and van tours around the Porto and other nearby

cities. Organizes events, meetings, conferences and team buildings

(BTT, Paintball, slide, rappel, karts, peddy-paper and so on).

Latitude 41 X X

Organizes team buildings, events, meetings, conferences and private

tours. Main activities: BTT, Paintball, slide, rappel, karts, peddy-paper

and so on.

26

APPENDIX 3.3: Business Model Canvas – Boost Oporto

(Source: Desk research)

27

APPENDIX 3.4: Congress Rankings

Table 8: Worldwide Ranking - number of meetings per city (Source: ICCA Annual Report)

29

Table 9: European Ranking - number of meetings per city (Source: ICCA Annual Report)

30

APPENDIX 3.5: Decision Matrix score attribution

Table 10: Decision Matrix Score attribution (Source: Desk research)

Score attribution

INVESTMENT

<5000: 3

[5000;10000]: 2

>10000: 1

PEOPLE

When it needs no one apart from the client to operate: 3

When it needs a guide during the tours: 2

When it needs an employee person fully dedicated: 1

OPERATIONAL COMPLEXITY

When it is ready to be used when the customer arrives, needs low coordination efforts and usually do not

requires frequent maintenance: 3 - Segways and E-bikes do not need frequent maintenance, do not require

any driving license nor special coordination.

When it requires some preparation and coordination and regular maintenance: 2 - GoCars, Scooter, beetles

and buggies need driving licenses and require some maintenance. Tuk tuks and GoCars also need some

maintenance and require to organize tours.

When it requires frequent maintenance and high coordination efforts: 1 - escape hunt requires a lot of

maintenance and coordination of groups

DEMAND

Based in Lisbon's forecasts

- Segways, GoCars and bikes are those with higher demand in Lisbon

- Tuk tuks and beetles have regular demand. Scooters are not being rented in Lisbon but considering the

number of guests that asks for scooters in Lisbon and the number of operators in Oporto, the demand is

expected to be regular.

- Escape hunt, when looking for the online booking of Oporto operators is really low

- Buggy has low demand in Lisbon and is a product that is not innovative

PROFIT

Based in Lisbon's gross margins: Segway: 82%; GoCar: 92%; Tuk tuk: 61%; E-bike: 73%; Scooter: 94%;

Beetle: 65%; Buggy: 95%; Escape Hunt: 82%

FIT WITH OPORTO

The relation between each product and Oporto’s characteristics:

- geographical

- cultural

- legal

- weather

COMPETITION

Based in the analysis made to Oporto competitors - number of competitors operating in Oporto VS

dimension of the market

Segway: 1 (but big)

GoCar: 0

Tuk tuk: 2

E-bike: 6

Scooter: 5

Beetle: 1

Buggy: 0

Escape Hunt: 2

EASE OF IMPLEMENTATION

Average of resource requirements and Operational Complexity

EASE OF PENETRATION

Average of Expected Results and External threats

31

APPENDIX 3.6: Oporto – Prices Comparison

Table 11: Prices Comparison (Source: Desk Research)

Oporto comparing with Boost Prices

Service Competitors average

price p/hour

Boost

Price

Difference

(%) Description

Segway (p/hour) €19.17 €28.33 68% Prices in Porto are around 32%

lower than Boosts.

GoCar (p/hour) €13.32 €10.42 128% Prices of similar products are

around 28% higher in Porto.

Bikes (p/day) €25.00 €29.00 86% Prices of electric bikes in Porto are

around 14% lower in Porto.

Bike tour (p/hour) €7.45 €11.53 65% Prices in Porto are around 35%

lower but bikes are not electric.

Beetle (p/hour) €53.00 €9.11 582% Boost Prices are around 5.8 times

lower than similar tours in Porto.

Scooters (p/day) €33.39 €35.32 95% Prices in Porto are around 5%

lower in Porto

32

APPENDIX 3.7: Boost’s Oporto Organizational Structure

Figure 46: Boost’s Oporto Organigram (Source: Desk Research)

Boost CEO

Oporto Director

Store Manager

TourGuides

Store employee

Mechanic

Events Manager

Events staff

Financial Manager

33

APPENDIX 3.8: Boost’s Oporto P&L

Table 12: Boost’s Oporto P&L (Source: Desk Research)

APPENDIX 3.9: Budget requirements

Table 13: Budget requirements (Source: Desk Research)

Product Purchasing Price Units Budget

GoCar New: € 5,000.00 10

€ 60,000.00 Used: € 2,000.00 5

Segway New: € 7,500.00 5

€ 87,500.00 Used: 5,000.00 10

Bike New: € 1,200.00 20 € 24,000.00

Beetle Used + maintenance: € 6,000.00 10 € 60,000.00

Scooter New: € 1,500.00 20 € 30,000.00

Total € 261,500.00

2016 2017 2018 2019 2020 2021

ExpectedRevenues €266198,82 €487142,83 €508771,73 €537241,18 €545299,79 €553479,29

RevenuesIndividuals €69705,38 €126612,94 €133010,75 €140332,85 €142437,84 €144574,41

RevenuesEvents €196493,44 €360529,89 €375760,98 €396908,33 €402861,95 €408904,88

GOGS €72665,59 €134114,66 €140165,38 €147897,61 €150116,08 €152367,82

GOGSIndividuals €8431,43 €15317,43 €16194,14 €17031,43 €17286,90 €17546,20

COGSEvents €64234,16 €118797,23 €123971,24 €130866,19 €132829,18 €134821,62

Overheadcosts €18612,88 €56396,99 €57615,91 €59133,40 €60020,40 €60920,71

Personnelexpenses €77583,33 €133000,00 €133000,00 €133000,00 €134995,00 €137019,93

Marketingcosts €15528,26 €24357,14 €25438,59 €26862,06 €27264,99 €27673,96

EBITDA €81808,76 €139274,04 €152551,85 €170348,10 €172903,32 €175496,87

Depreciations €38583,33 €44583,33 €44583,33 €44583,33 €44583,33 €44583,33

Gocars €10000,00 €10000,00 €10000,00 €10000,00 €10000,00 €10000,00

Segways €14583,33 €14583,33 €14583,33 €14583,33 €14583,33 €14583,33

e-bikes €4000,00 €4000,00 €4000,00 €4000,00 €4000,00 €4000,00

Beetles €10000,00 €10000,00 €10000,00 €10000,00 €10000,00 €10000,00

Scooter €0,00 €6000,00 €6000,00 €6000,00 €6000,00 €6000,00

Amortizations €0,00 €0,00 €0,00 €0,00 €0,00 €0,00

EBIT €43225,43 €94690,71 €107968,52 €125764,77 €128319,99 €130913,54

Taxes(22,5%) €9725,72 €21305,41 €24292,92 €28297,07 €28872,00 €29455,55

NetIncome €33499,71 €73385,30 €83675,60 €97467,70 €99447,99 €101457,99

OCF €72083,04 €117968,63 €128258,93 €142051,03 €144031,33 €146041,33

CAPEX €231500,00 €74583,33 €44583,33 €44583,33 €44583,33 €44583,33

Gocars €60000,00 €0,00 €0,00 €0,00 €0,00 €0,00

Segways €87500,00 €0,00 €0,00 €0,00 €0,00 €0,00

e-bikes €24000,00 €0,00 €0,00 €0,00 €0,00 €0,00

Beetles €60000,00 €0,00 €0,00 €0,00 €0,00 €0,00

Scooter €0,00 €30000,00 €0,00 €0,00 €0,00 €0,00

NWC €16127,77 €13291,24 €1298,18 €1728,10 €486,68 €493,98

NWC €16127,77 €29419,01 €30717,20 €32445,30 €32931,98 €33425,96

IFCF €247627,77 €87874,58 €45881,51 €46311,43 €45070,01 €45077,31

FCF -€175544,73 €30094,05 €82377,42 €95739,59 €98961,31 €100964,01

34

IV. INTERNATIONAL EXPANSION

APPENDIX 4.1: Methodology Strategy III

Figure 47: Strategy III's Methodology

APPENDIX 4.2: Boost Madrid in numbers

Table 14: GoCar Madrid total sales, costs and EBITDA (Source: Boost)

2011 2012 2013 2014

January € 1,694.92 € 2,753.70 € 1,189.20 € 3,547.93

February € 3,389.83 € 6,686.95 € 649.79 € 1,823.50

March € 13,559.32 € 9,626.51 € 5,508.51 € 9,358.00

April € 18,644.07 € 11,116.27 € 11,518.42 € 10,398.39

May € 25,423.73 € 22,135.43 € 15,223.76 € 14,674.38

June € 25,423.73 € 13,344.99 € 12,008.04 € 5,832.05

July € 16,101.69 € 10,508.58 € 3,955.89 € 3,426.21

August € 13,559.32 € 5,961.30 € 2,108.77 € 811.30

September € 25,423.73 € 22,096.55 € 7,098.31 € 11,601.24

October € 25,423.73 € 9,191.36 € 5,270.14 € 14,341.89

November € 22,881.36 € 7,831.86 € 1,429.23 € 3,435.40

December € 3,389.83 € 1,608.15 € 2,767.60 € 776.03

TOTAL SALES € 194,915.25 € 122,861.65 € 68,727.66 € 80,026.33

Individuals € 104,237.29 € 63,015.73 € 15,403.36 € 10,271.40

Groups € 90,677.97 € 59,845.92 € 53,324.30 € 69,754.94

Total Costs € 180,767.82 € 146,420.18 € 59,145.59 € 74,443.80

EBITDA € 14,147.44 -€ 23,558.53 € 9,582.07 € 5,582.54

35

Figure 48: GoCar Madrid - Total Sales

Figure 49: GoCar Madrid - Total Costs

Figure 50: GoCar Madrid – EBITDA

36

APPENDIX 4.3: Tourism in Madrid

Table 15: Tourists, amount spent and average stay in Madrid’s Autonomous Community (Source: INE Spain)

2011 2012 2013 2014 2015*

International visitors 4,478,060 4,463,531 4,227,479 4,546,559 5,077,528

Domestic visitors 3,840,552 3,463,878 3,293,355 3,837,743 4,298,272

Total number of visitors 8,318,612 7,927,409 7,520,834 8,384,302 9,375,800

Total expenditure by tourists

(millions of €) 5,188 4,893 5,020 5,478 4,718

Total expenditure per tourist (€) 1,168 1,103 1,187 1,205 1,239

Average stay (nights)

7.4

7.3

7.3

7.2

7.1

APPENDIX 4.4: Porter’s Five Forces Analysis for Madrid

Figure 51: Porter’s Five Forces Analysis for Madrid (Source: Desk research)

37

APPENDIX 4.5: Competition in Madrid

Table 16: Tours operators’ map (Source: Desk Research)

Table 17: Major events agencies in Madrid (Source: Desk Research)

COMPETITIONPrivate

renting

Private

tours

Group

Tours

Corporate

activitiesWalking Gocar Segway Bike e-Bike B-bike Patines Scooter Buguies Vintage

Escape

Game

Tapas,

cook, …

BOOST PORTUGAL X X X X X X X X X X X

BOOST MADRID X X X X X

SANDEMANs X X X

Madrid Day Tours X X

Insider's Madrid X X X X

Show me Madrid X X X X

Gourmet Madrid X X X X

MadWay X X X X X X

Bravo Bike X X X X X X

Rent & Roll X X X X BIKES

BajaBikes Madrid X X X

Trixi Madrid Bike Tours X X X X X

Mobeo Smart Transport X X X

BearBike X X

Madrid2wheels: Segway tours X X X X X

URBAN MOVIL - Segway Trip X X X X X (Out) X (Out) X X (Out) X

MadSegs X X X

Madrid-Segway X X X X X

Funky Rider X X X X

Segway travel Madrid X X X

Seg City Tours X X X X

EnSegway Madrid X X X

EasyMobile (Segway Fun Es+Event Point) X X X X

Cooltra X X X X

Vintage Cars Tours X CAR

Madrid 600 X X CAR

EXIT Madrid X X X

BrainBreak Madrid X X X

The Rombo Code X X X

Enigma Expres X X X

The X-Door Madrid Gran Via X X X

Out.: Outsourcing

AGENCIES Private

renting

Private

tours

Group

Tours

Corporate

activities

Xvaganza X

Very Special Projects X

Best Day Eventos X

Dreams & Adventures X

Cititravel

TLC X

Eventíssimo X

38

APPENDIX 4.6: Alternative Strategies pros and cons

Table 18: Brief analysis of each alternative strategy (Source: Desk Reasearch)

Pros Cons

A. Maximize

GoCar Madrid’s

profits

Lower risk

Less costs (just have to buy tablets)

Synergies between Lisbon’s office,

workers and products

Few recruitment efforts needed

Slower growth

More conservative strategy with lower

financial potential

High dependence on procurement /

outsourcing suppliers

B. Operating

strategy similar

to Boost Lisbon

Company has knowhow in the tourism

entertainment industry

Founders and workers’ talent and

knowledge

Boost is the best in Portugal in logistics

and operations

Synergies between Lisbon’s office,

workers and products

Faster expansion

Easier to innovate

Mature and occupied market

High barriers to entry – Competitors and

prices are established

Higher risk – if the market doesn’t react the

investment made was huge

High Capital Requirements (> € 300,000)

Operates alone without previous experience

and market knowhow

C. Joint Venture

with strategic

partners

A big competitor becomes partner –

eliminates one competitor

Aligned interests between partners

Market consolidation

Gain good position in the market

Faster expansion

Shared risk among partners

Harder managerial decision making

Shared profits between partners

Different expectations from both parties can

result in JV’s failure

39

APPENDIX 4.7: Decision Matrix score attribution

Table 19: Decision Matrix score attribution (Source: Desk Research)

Resources

Investment

needed 8%

1: > €300,000

2: [€150,000 - €300,000]

3: < €150,000

Know-how

gained 10%

1: No know-how gains

2: No significant know-how gains

3: Significant know-how gains (e.g. local partner know-how)

HR needed 5% 1: When it needs an employee person fully dedicated

2: When it needs a guide during the tours

3: When it needs no one apart from the client to operate

Operational

Feasibility

Velocity 10% 1: The implementation and results are very slow

2: The implementation and results are observable, yet not fast

3: The implementation and results are fast

Complexity 8% 1: The implementation process is very complex

2: The implementation process require some operational efforts

3: The implementation is simple evolving few operational efforts

Potential

Market

Share 8%

1: Maintain market share

2: No significant increase of market share (+3%)

3: Significant increase of market share in a small time frame (+10%)

Sales 8% 1: No significant change in sales (< 25%)

2: Small increase in sales ([25%-50%])

3: Significant increase in sales (> 50%)

Growth 13% 1: The potential to accelerate grow is low

2: There is potential to grow and improve company’s performance

3: There is a huge potential to accelerate growth at a high rate

Risk

Operational 15% 1: High risk due to significantly high operational efforts evolved

2: Medium risk due to medium/high operational efforts evolved

3: Low risk due to not very high operational efforts evolved

Financial 15% 1: High financial risk due to significantly very high investment

2: Medium financial risk due to medium/high investment

3: Low financial risk due to not very high investment

40

APPENDIX 4.8: Business Model Canvas for Boost in Madrid

Figure 52: Business Model Canvas for Boost in Madrid (Source: Desk Research)

appendixes growth strategies in tourism … · p ayne , bill , 2011. scorecard valuation...

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