brinks presentation

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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


Activists





Valuation


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


Activists





Valuation


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


Activists





Valuation


Agenda

Valuation |

Publicly Traded Companies

Valuation |


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


Activists





Valuation


Agenda


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


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


BHS998.36021054.555BHS1183.6326471026.642


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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