FIN 425 Equity Presentation vF Essay

Submitted By bmizzi
Words: 8883
Pages: 36

Kingston Decor
Long Point Capital

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

2002

Generated $61 MM in revenues

74% increase in revenue over three years

2007A

2008E

2009E

2010E

2011E

2012E

$77.0

$74.7
-3.0%

$76.9
3.0%

$80.0
4.0%

$85.2
6.5%

$90.6
6.3%

30.8
40.0%

29.9
40.0%

30.8
40.0%

32.0
40.0%

34.1
40.0%

36.2
40.0%

$13.8

$12.5
-9.3%

$13.1
4.6%

$13.8
5.3%

$18.3
32.8%

$20.0
9.1%

$7.7

$6.7

$7.2

$9.9

$11.6

Free Cash Flow
Equity…