BLUNTLY MEDIA: A PRIVATE COMPANY VALUATION

Case #1 ACF

 Paterson Publishing interested in acquiring BM (private direct marketing agency);

 Intern at Slatestone Group (that have as a client Bluntly Media) should prepare the deal
marketing material and assist the valuation assessment of Bluntly;

BM: COMPANY HISTORY AND OVERVIEW

 1990: Foundation; Private direct marketing agency; Provided print and digital marketing
solutions for a broad range of clients (retailers, banks, newspapers and magazines)
 1998: Acquisition Arrow Publishing (+media sales services)
 2010: Acquisition Digital Media Solutions (+ digital services) Exhibit 1
 Annual Revenue US$60 million
 Middle-market company positioned in a stable industry
 Shane Olson: founded the company but stepped down to be a vice-president of sales in
2011; Major influence in the strategic vision of the company Initiated the conversation
about selling BM;
 Vision of Olson: Operate independently while being part of a larger company and
leveraging its customer base and distribution network.
o Concern: Staff might not enjoy the transition; Problem because BM was a service-
based firm and the staff were its inventory;

POLITICAL ENVIRONMENT
 Uncertainty due to: US government shutdown + US debt ceiling
 Business and consumer confidence was at its lowest since the Financial Crisis (Exhibit 2)
 US markets were falling (Exhibit 3)
 Sentiment in de M&A markets was discouraging

US GOVERNAMENT SHUTDOWN
 2013: failure of congress to pass necessary funding measures for fiscal year 2014; Impact
on economic confidence;
 Concern with changes in the price of raising capital, including potential increases in legal
fees for merger parties if there were further delays (in the reopening of the government)
 Lack of conviction about the visibility of companies’ futures and their ability to project
corporate earnings for valuations to make deals;

US DEBT CEILING
 May 2013: US total debt reached $16.7 trillion, the maximum allowed by law; Potential
consequences of a US debt default that would create confusion and uncertainty among
global financial markets;

PAST INDUSTRY PERFORMANCE AND OUTLOOK:

 Direct Marketing Industry in the US was concentrated (50 largest firms owning 50% of the
industry’s revenue);
 DM industry had a proven track: companies had been forced to reduce marketing
budgets; Digital Marketing had become one of the fastest-growing parts of the broad
marketing and advertising industry;
DIRECT MARKETING INDUSTRY DURING RECESSION PERIODS:
 Financial crisis of 2007: Individual businesses and corporations had to reduce costs;
 Previously, marketing budgets were typically cut (seen as non-core business function) but
this perception was evolving as businesses attempted to turn adversity to their advantage;
 DIRECT MARKETING INDUSTRY: effect of the recession was less severe than experienced
by other sectors in marketing
 Channels of direct marketing often provided a less expensive and more targeted
alternative to other marketing methods like television advertising;

DIRECT MARKETING INDUSTRY MARKET OUTLOOK:

 DM accounted for 8.7% of US gross domestic product in 2012 and grow at a faster rate
than the overall US economy;
 DM sales grew 7,1% (vs 5.1% in overall sales in the US): Due to growth in digital channels,
Internet, email marketing, mobile marketing and social media)
 Growth expected to continue over the next year with expected growth of 3.2% in 2013

“Bluntly hoped that the proven track record and positive outlook in the attractive direct
marketing industry would support an elevated valuation”

PATERSON PUBLISHING CO.: UNOFFICIAL INTEREST

 Paterson Publishing Company -publishing and printing company- provides commercial
printing and integrated communications (…)
 Recent growth has been weaker when compared to his peers; It fell behind the curve with
its lack of adoption of digital and social investments;
 Corporate Strategy: Reduce its cost structure and improve its product quality to be a
leader in the industry
o Technological advances (…)
o Enhance its product quality through strategic acquisitions (28 since 1990) Exhibit 4
 July 2013: Interest in purchasing Bluntly due to its specialty in digital marketing and design
management and the potential synergies;

SALESTONE ADVISORY ROLE

 Salestone had the role to represent Bluntly, advise and facilitate its eventual sale to a
suitabl4e buyer at the right price.
 Targeted sell-side deal (already an interested buyer in play)
 Other potential buyers were being sought to create competitive tension

FINANCIALS:
 Intern had to prepare an initial standalone valuation; If the results were appropriate, they
will be used as basis for the Slatestones valuation assessment;

VALUATION:
 Valuation methods:
1. Estimating the Total Enterprise Value (TEV) and corresponding equity value
through an income approach, market approach and/or asset approach;
 2. Allocating Equity Value among different classes of equity through the current
value method, the probability-weighted expected return method and/or the
option pricing method;
 Financial statements and projections Exhibit 5
 Precedent transactions and comparable public companies Exhibit 7,8 and 9
 US corporate tax rate: 35%
 Rate of current 10-year US treasury bond: 2,69%

THE PRESENTATION
 Ferdi’s Questions:
o Impact of the US instability on the deal?
o How to ensure the highest possible price representation while maintaining a fair
assessment?
o Concern over staff leaving;