Tourism Holdings Limited Independent Report
In relation to the:
Acquisition of the businesses and assets of United Vehicle Rentals Limited
Acquisition of the businesses and assets of Kea Campers (New Zealand) Limited
And other Minor Components
STRICTLY PRIVATE AND CONFIDENTIAL 24 September 2012
TOURISM HOLDINGS LIMITED – INDEPENDENT REPORT
Table of Contents
Abbreviations and Definitions ...... 4
Executive Summary ...... 6
Background ...... 6
Transaction summary ...... 6
Transaction assessment ...... 7 1. Summary of the Transaction and Scope of Report ...... 11
1.1. Background ...... 11
1.2. Summary of the Transaction ...... 11
1.3. Regulatory Requirements and Scope of Report ...... 14 2. The Transaction ...... 16
2.1. Sector Background / Business Environment ...... 16
2.2. Rationale for the Transaction ...... 24
2.3. Alternatives to the Transaction...... 25
2.4. Transaction Details ...... 25 3. Transaction Valuation ...... 37
3.1. Valuation Methodology ...... 37
3.2. Status Quo and Post-Transaction Enterprise Valuation ...... 38
3.3. Transaction Value to thl Shareholders and Vendors ...... 41 4. Transaction Assessment ...... 45
4.1. Transaction rationale ...... 45
4.2. Synergies ...... 46
4.3. Fleet rationalisation ...... 46
4.4. Capital structure ...... 47
4.5. Valuation ...... 48 Appendix 1 – Qualifications, Declarations and Consents ...... 52
Declarations ...... 52
Qualifications ...... 52
Independence ...... 52
Disclaimer and restrictions on the Scope of Our Work ...... 52 Appendix 2 – Information Sources ...... 53
Appendix 3 – Redeemable Shares ...... 54
Appendix 4 – Trading Comparables ...... 56
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Table of Figures and Tables Figure A – Transaction consideration and funding sources ...... 7 Figure B – DCF Transaction bridge ...... 9 Figure 1.1 – Transaction elements, parities and key principals ...... 12 Figure 1.2 – Consideration ...... 13 Figure 1.3 – Indicative timetable ...... 14 Figure 1.4 – Cameron Partners approach ...... 15 Figure 2.1 – thl segment revenue and EBITDA ...... 16 Figure 2.2 – thl historical financial performance ...... 17 Figure 2.3 – thl NZ Rental Business ...... 18 Figure 2.4 – Historical and forecast visitor arrivals to New Zealand ...... 18 Figure 2.5 – Historical visitor arrivals to NZ by type ...... 20 Figure 2.6 – thl NZ Rentals fleet utilisation (FY11A, FY12A & FY13E, assuming no transaction) ...... 21 Figure 2.7 – NZ industry fleet size and visitor spend ...... 22 Figure 2.8 – Sector share by estimated volume before and after proposed transaction ...... 24 Figure 2.9 – Strategic options and considerations ...... 25 Figure 2.10 – Kea fleet and consideration ...... 27 Figure 2.11 – United fleet and consideration ...... 28 Figure 2.12 - Consideration ...... 29 Figure 2.13 – thl shareholding composition (12 September 2012) ...... 30 Figure 2.14 – thl shareholding composition post-transaction ...... 31 Figure 2.15 – Funding sources ...... 31 Figure 2.16 – Capex and opex benefits ...... 33 Figure 2.17 – Cost synergies ...... 33 Figure 2.18 – Total transaction benefits ...... 34 Figure 2.19 – Statement of financial performance (Status Quo and Post-Transaction) ...... 34 Figure 2.20 – Pro-forma statement of financial position, (Pre-Transaction and Post-Transaction) ...... 35 Figure 2.21 – Pro-forma capital structure and gearing (Pre-Transaction and Post-Transaction) ...... 36 Figure 3.1 – Valuation assumptions ...... 38 Figure 3.2 – Comparable company metrics...... 39 Figure 3.3 – thl enterprise value bridge ...... 41 Figure 3.4 – Transaction benefits analysis ...... 43 Figure 3.5 – DCF transaction bridge ...... 43 Figure 4.1 – Dis-synergies and mitigants ...... 46 Figure 4.2 – Debt ratios (Pre-Transaction and Post-Transaction)...... 47 Figure 4.3 – Transaction benefits analysis (discounted) ...... 49 Figure 4.4 – DCF Transaction bridge (31 August 2012 share price discount to Status Quo valuation) 50
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Abbreviations and Definitions
2B 2 berth motorhome 2BTS 2 berth motorhome with toilet and shower 4B 4 berth motorhome 6B 6 berth motorhome Agreed Price Price of the fleet assets acquired as agreed by thl and the Vendors Assessed Value Market value of the fleet assets acquired as assessed by thl CAGR Compound Annual Growth Rate Cameron Partners Cameron Partners Limited Companies Act Companies Act 1993 DCF Discounted Cash Flow Deferred Consideration Withholding by thl of transaction consideration - paid as fleet assets are sold (see section 2.4.3) DPS Dividend per share EBIT Earnings before interest and tax – in this report this is the equivalent of operating profit/(loss) before financing costs as disclosed in the Income Statement contained within thl’s audited financial statements EBITDA Earnings before interest, tax, depreciation & amortisation – in this report this is the equivalent of EBIT plus Depreciation and Amortisation EV Enterprise Value FCF Free Cash Flow FY Financial Year Kea Kea Campers (New Zealand) Limited Kea Manufacturing Kea Manufacturing (New Zealand) Limited Listing Rules NZX listing rules applicable to the transaction LTM Last twelve months Minor Component RVMGLP acquire the intellectual property assets owned by Supreme Motorhome Manufacturing Limited (Supreme) in relation to its campervan and motorhome manufacturing business NPAT Net Profit After Tax NPBT Net Profit Before Tax NTA Net Tangible Assets NZSX The main board equity security market, operated by NZX NZX NZX Limited RV Recreational Vehicle RVMGGP R V Manufacturing Group GP Limited RVMGLP R V Manufacturing Group Limited Partnership
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thl Tourism Holdings Limited Transaction The acquisition of the businesses and assets of Kea and United plus the Minor Components United United Vehicle Rentals Limited Vendors Kea and United VWAP Volume weighted average price – the average share price weighted to the volume of shares traded at each price for the relevant period
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Executive Summary
Background
Tourism Holdings Limited (“thl”) is New Zealand’s largest motorhome rental operator. In New Zealand, thl also operates a tourism business and a motorhome manufacturing joint venture. In Australia thl operates a motorhome and car rental business and in the United States a recreational vehicle rental business. thl is listed on the main board equity security market (“NZSX”) operated by NZX Limited (“NZX”).
On 3 September 2012, thl announced it had entered into a conditional agreement to acquire the business and assets of two New Zealand motorhome rental operators; Kea Campers (New Zealand) Limited (“Kea”) and United Vehicle Rentals Limited (“United”) (collectively “the Vendors”) and further minor transactions between parties related to these businesses. The agreements are conditional on thl obtaining shareholder approval and bank financing.
This report has been prepared to assist thl shareholders in assessing the merits of the transaction and should be read in its entirety.
Transaction summary
The transaction essentially involves thl acquiring the businesses and assets of Kea and United:
Kea is a privately owned company specialising in the rental and sale of motorhomes in New Zealand. Kea’s vehicle fleet comprises ~364 vehicles an estimated share of the total New Zealand motorhome rental fleet of 7%. United is a privately owned company with motorhome rental operations in New Zealand under three brands - United Motorhomes; Alpha Motorhomes and Econo Campers. United’s vehicle fleet comprises ~634 vehicles and an estimated share of the total New Zealand motorhome rental fleet of 11%. thl currently has ~1,543 motorhomes in New Zealand and an estimated sector share of 27% and immediately post-transaction this will increase to 2,541 and an estimated sector share of 45%.
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The price to be paid for the United and Kea businesses and assets is approximately $69.5 million. The consideration and funding for the transaction is structured as follows:
Figure A – Transaction consideration and funding sources Consideration for the transaction (NZ$ million) thl funding sources for the transaction
Vendors’ debt repaid 50.9 New thl debt
Cash - paid to meet cash obligations of the 3.2 thl cash reserves Vendors crystallised by the transaction
Deferred consideration – paid over four years; 8.0 Repayment made as cash is realised from sales of interest rate 3% margin over 90 day BKBM the Kea and United fleet vehicles
thl shares issued - 12.0 million at 6 month VWAP 7.4 thl shares issued - 12.0 million at 6 month VWAP $0.619 per share $0.619 per share
Total consideration 69.5 Total funding
Transaction assessment
Transaction rationale
The thl Board and management have reviewed thl’s strategic options and are of the view that industry consolidation is the highest value option available. The industry consolidation achieved under the transaction has two main benefits – it enables:
Fleet capacity rationalisation.
Various operating cost synergies to be realised. In our view, the strategic rationale to reduce sector over-capacity and to achieve potential cost synergies is compelling.
Fleet rationalisation
There is considerable over-capacity in the New Zealand motorhome sector – this is reflected in surplus assets; high operating costs (maintenance, depreciation etc); low utilisation and lower returns (due to both lower operating margins and higher asset base).
The transaction will enable an efficient approach to fleet management, addressing sector over- capacity and rebalancing of the 2B; 2BTS; 4B and 6B mix within thl to optimise fleet utilisation. Fleet capacity rationalisation will be achieved through reduced vehicle purchases over a two year period rather than increased vehicle sales. In this respect thl has considerable “control” over the extent and timing of the rationalisation and freeing up of cashflow. In addition, forecast vehicle sales and assumed prices are in line with historical levels.
Cost synergies
The Kea and United businesses will be fully integrated into thl, enabling various operating cost synergies through reducing duplication and improved economies of scale – i.e.:
Consolidation of leases.
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Elimination of surplus back office costs.
Superior purchasing terms.
Reduced personnel.
We believe thl shareholders can have a high level of confidence regarding the cost synergy realisation and note:
A comprehensive analysis has been undertaken by thl’s management and the Vendors to estimate the potential synergies from the transaction.
The synergies are reduced capex and costs. Both of these can be forecasted with relative certainty compared to market based or revenue based assumptions.
The transaction structure involves an asset purchase with various liabilities remaining with the Vendors. Consequently many of the cost synergies are immediate (labour, lease costs and overheads) with others (back office) achievable in a very short timeframe.
Furthermore we believe that the risk of dis-synergies resulting from the transaction is low and manageable given the comprehensive integration plan of management.
Capital structure / nature of consideration
The transaction impacts on thl’s capital structure through:
Issuance of new thl shares which dilutes existing thl shareholders’ voting and economic rights. In this regard we note that there is no material change in control caused by the issue of new thl shares. Any dilution needs to be assessed in context with the value created by the transaction and as outlined below there is potentially material equity value created for current thl shareholders.
Increased debt which has an impact on a range of gearing measures in the short-term and associated financial risk. In this regard, thl is arranging new bank facilities that include new financial covenant thresholds which provide more leeway for thl immediately post-transaction (although all covenants revert to original levels within approximately 9 months). Financial forecasts indicate comfortable compliance with all financial covenants, due to cash generated from fleet rationalisation and improved operating cashflows.
Consideration
The nature of the consideration provides support to the transaction price:
A material proportion of the consideration is tied to the future performance of thl (e.g. shares and deferred consideration).
The deferred consideration underpins a significant percentage of the purchase price as it is only paid following sales of the fleet assets acquired from Kea and United once agreed prices have been achieved.
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Valuation
Cameron Partners’ approach to the analysis is to:
1. Establish the Status Quo enterprise value of thl (i.e. without the transaction).
2. Establish the enterprise value of thl post-transaction.
3. Calculate our assessment of the current equity value of thl.
4. Overlay the proposed capital structure (including the new debt and thl share issue) on the post-transaction enterprise value to establish the change in equity value to thl’s current shareholders.
This analysis is summarised in the bullets and following graph below:
Figure B – DCF Transaction bridge
350
300 27
250 28 Share Share price: 54 161 price: 200 $0.97 $1.27
NZ$m 150 96 301 15 246 100 192 140 140 125 50 95
0 Equity Non-equity Status Vendor value thl fleet Synergies Post- Non-equity Vendor equity THL securities Quo contribution rationalisation Transaction securities value shareholder EV EV equity
Source: thl management forecasts and Cameron Partners analysis
Our Status Quo enterprise value of thl is $192 million and equity value $95 million or $0.97 per share and post-transaction enterprise value of thl is $301 million and implied equity value $140 million or $1.27 per share. This implies:
A material increase in value for thl’s current shareholders of $0.30 per share.
That the value created by the transaction is $109 million and based on assumptions set out in the body of the report this amount can be divided into Vendor value contribution $54 million, thl fleet rationalisation savings $28 million and synergies $27 million.
Share of value between thl shareholders and the Vendors
Given the split of value between the Vendor value contribution and the fleet rationalisation and synergy benefits, a material proportion of the total value created by the transaction is being shared with the Vendors through the:
Aggregate price being paid to acquire the assets and businesses (which is at a premium).
Issue of shares that:
Is at a price below our assessed value of thl.
Allows the Vendors to share in the synergy value created.
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Under our analysis we have estimated that thl shareholders are benefitting from the transaction by an estimated $30 million and through the premium being paid to acquire the businesses (above the Vendor value contribution) and the issue of shares, the Vendors are benefitting by $23 million. In this regard we note that it is not unusual for a price premium to be paid in control transactions and in this case it is not unreasonable for the Vendors to seek to share in the resulting benefits of the industry consolidation occurring under the transaction. Furthermore, the consideration being offered (which includes the premium), reflects the strong view of thl that the price negotiated with the Vendors is approximately equal to the potential next best alternative available (liquidation) and is the lowest price at which the transaction could be achieved.
Conclusion
We consider the strategic rationale for the transaction to be strong and the fleet rationalisation and synergy benefits to be achievable. The increased debt to fund the transaction should be repaid quickly as fleet rationalisation occurs.
There is potentially material value created by the transaction for both the Vendors and current thl shareholders. A significant proportion of this value goes to Vendors but this is not unreasonable in a transaction of this nature, where businesses are combining to achieve benefits and where the Vendors have a high value alternative.
In any event, it is the view of the thl Board and management, that:
Any offer below the price negotiated will not be acceptable for the Vendors.
There is no scope for a transaction under different terms and there are only two outcomes to be considered by current thl shareholders – either:
Approve the transaction on the terms proposed; or
Decline the transaction.
On this basis, there is no opportunity for thl shareholders to obtain the benefits of the transaction at a lower price. Accordingly, thl shareholders should focus on the expected value uplift accruing to them from the transaction and whether this is sufficiently material given the risks of the transaction.
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1. Summary of the Transaction and Scope of Report
1.1. Background thl is New Zealand’s largest motorhome rental operator. In New Zealand thl also operates a tourism business and a motorhome manufacturing joint venture. In Australia thl operates a motorhome and car rental business and in the United States a recreational vehicle rental business.
In the financial year ending 30 June 2012 (FY2012), thl had revenues of $200.0 million, EBITDA of $60.7 million and NPAT of $4.5 million; total assets of $295.1 million and shareholders funds of $156.0 million. thl is listed on the NZSX operated by NZX and at 31 August 2012 (immediately prior to the announcement of the proposed transaction) had a share price of $0.57 per share, a market capitalisation of $56.0 million and enterprise value of $151.5 million.
On 3 September 2012, thl announced it had entered into a conditional agreement to acquire the business and assets of Kea and United and further minor transactions between parties related to these businesses. The transaction is defined as a major transaction under the NZX listing rules (but not under the Companies Act) and consequently thl requires shareholder approval (by ordinary resolution) to proceed with the transaction. This report has been prepared to assist shareholders in assessing the merits of the transaction.
1.2. Summary of the Transaction
1.2.1. The Transaction
The transaction can be divided into major and minor components.
The major components of the transaction are the acquisition by thl of two motorhome rental businesses and their assets, namely:
Kea; and
United
The minor components of the transaction (“Minor Components”) are:
thl transferring its caravan brands “Ci Munro” and “Oxford” to Supreme Motorhomes (and becoming a dealer for those caravans that are manufactured by Supreme Motorhomes).
Supreme Motorhomes selling certain motorhome manufacturing assets to R V Manufacturing Group Limited Partnership (“RVMGLP”).
Supreme Motorhomes buying certain caravan manufacturing assets from RVMGLP.
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thl making a loan to Kea (of whom Grant Brady is a shareholder and also the 100% shareholder in Kea Manufacturing (New Zealand) Limited (“Kea Manufacturing”)) of $1.67 million.
Supreme is owned by an entity associated with Kay Howe (a shareholder in United). Supreme currently manufactures motorhomes for United.
RVMGLP was formed as a limited partnership in early 2012 by thl and Kea Manufacturing (New Zealand) Limited (“Kea Manufacturing”) when each transferred their respective motorhome and caravan manufacturing operations to RVMGLP. RVMGLP manufactures motorhomes for thl and Kea. thl and Kea Manufacturing are equal limited partners in RVMGLP. In addition, each partner holds 50% of the shares in RV Manufacturing Group GP Limited (RVMGGP), the general partner of RVMGLP.
The rationale for these parts of the transaction is that the manufacture of caravans is not core business for either RVMGLP or thl, but is an area in to which Supreme Motorhomes wishes to expand.
The loan to Kea is to assist funding Kea creditor obligations. It is made on arms length, commercial terms and the loan is secured by a charge over Kea’s thl shares and deferred consideration (covered below).
The diagram below sets out the elements of the transaction, the various parties and key principals.
Figure 1.1 – Transaction elements, parities and key principals
Kay Howe and Grant Brady Kay Howe and Grant Brady Glenn Howe and others others (as Trustees) Loan 100% 100% 100% 100%
Kea Supreme thl Kea United Manufacturing Motorhomes
Assets Caravan Brands Assets and IP Assets Limited Limited Partner Partner RVMGLP
50% 50% General Partner Major components
RVMGGP Minor Components
Source: Cameron Partners
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The consideration involved in the Minor Components of the transaction is a net payment of ~$0.65 million from RVMGLP to Supreme and there is a negligible value impact. In addition, the transaction is contingent on only the major components being completed. Given the de minimis nature of this consideration and value impact and the incidental nature of the Minor Components to the transaction, this report focuses solely on the major components, “the Transaction”.
The total consideration being paid for the Transaction is approximately $69.5 million – comprised as follows:
Figure 1.2 – Consideration Consideration Amount (NZ$ million)
Repayment of Vendors’ debt 50.9
Deferred consideration (par value)* 8.0
Cash 3.2
Issue of thl shares (12,019,000 shares or 10.9% of total shares post issue) 7.4
Total consideration 69.5
* The deferred consideration represents a payment that is dependent on the value ultimately received by thl for the sale of the fleet acquired from Kea and United. This amount (and the total consideration) may be less in the event that prices achieved for the fleet are less than the assessed value (depreciated to the time of sale) plus any refurbishment costs. The deferred consideration is explained in more detail in Section 2.4.3.
The total consideration $69.5 million is based on the estimated financial position of the Vendors at completion of the Transaction at 31 October 2012. The total consideration may vary if the actual assets acquired at completion vary from the estimated financial position. In the case of a purchase price adjustment the amount of Vendor debt to be repaid and/or cash will adjust accordingly.
Transaction costs are estimated at $1.2 million plus $0.5 million of synergy realisation costs.
1.2.2. Transaction Conditions
On 2 September 2012, thl formally committed to progress the Transaction by signing the relevant transaction documents relating to the Transaction. Among other things, the Transaction documents set out the terms of the Transaction and the steps and conditions required to implement it, including (but not limited to) obtaining:
Shareholder approval to the extent required under the NZX Listing Rules (see section 1.3.1 below).
thl securing debt finance from Westpac and ANZ on terms acceptable to thl to enable it to repay the Vendors’ existing debt of $50.9 million. thl has received a detailed terms sheet from Westpac and ANZ to provide additional debt facilities to thl for this purpose. thl is currently finalising the terms of these new debt arrangements.
If the Transaction does not proceed due to conditions not being satisfied a “break fee” payment of $0.25 million is payable to the Vendors.
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1.2.3. Indicative Timetable
The indicative timeline and steps to complete the Transaction are outlined below.
Figure 1.3 – Indicative timetable Indicative Date Action
3 September (Mon) Transaction announced 28 September (Fri) Notice of Special Meeting, Independent Report and Annual Report sent to Shareholders
19 October (Fri) – 2pm Special Meeting held 25 October (Thurs) Transaction conditions satisfied 31 October (Wed) Transaction completed
1.3. Regulatory Requirements and Scope of Report
1.3.1. NZX Listing Rules Requirements
As noted above, the Listing Rules requires the Transaction to be approved by an ordinary resolution of thl’s shareholders.
While not a requirement under the Listing Rules, Cameron Partners has been engaged by thl to prepare an independent report (“IR”) to assist thl to meet its obligations under the Listing Rules to provide: “such information, reports, valuations and other materials as are necessary to enable the holders of Securities to appraise the implications of the transaction..”
1.3.2. Reliance on this Report
The report represents one source of information that thl’s shareholders may wish to consider when forming their own view on the Transaction. Cameron Partners draws the recipients’ attention to the Qualifications, Declarations and Consents notice in Appendix 1.
1.3.3. Primary Sources of Information and Limitations
The sources of information that we have relied on in preparing this report are set out in Appendix 2.
This report is subject to all of the limitations and restrictions set out in the Qualifications, Declarations and Consents notice. In particular, in preparing this report, Cameron Partners has relied on information supplied by thl and other third parties and has assumed the honesty and accuracy of this information. Cameron Partners accepts no responsibility for inaccurate information supplied by thl.
Our assessment is reliant on a number of key assumptions that are set out or implied by their context in this report. Should any of these assumptions not be accurate, our assessment and our conclusions could be materially affected.
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1.3.4. Basis of Assessment and Cameron Partners’ Approach
Cameron Partners’ assessment is of the merits of the Transaction as a whole and its impact on current thl shareholder value.
Our broad approach to the analysis is to:
Establish the enterprise value of thl without the Transaction (“Status Quo”).
Establish the enterprise value of thl post-Transaction.
Overlay the relevant capital structure to establish the value of the Transaction to thl’s current shareholders as outlined in the following diagram.
Consider the extent to which the value expected to be created by the Transaction will be shared between thl shareholders and the Vendors.
Assess the risks of the Transaction and achieving the value expected of the Transaction to thl shareholders.
Figure 1.4 – Cameron Partners approach (Not to scale)
New Debt
Current Debt
Deferred Consideration
Redeemable Shares
Current Debt New Equity ? Redeemable Shares
Current Current Shareholder Shareholder Equity Equity
Status Quo Post-Transaction Enterprise Value Enterprise Value
Source: Cameron Partners
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2. The Transaction
2.1. Sector Background / Business Environment
2.1.1. Tourism Holdings Limited thl is a New Zealand based, publicly listed company engaging primarily in the supply of motorhome rentals in New Zealand and Australia. thl has been a significant participant in the New Zealand tourism industry since the 1980s, first emerging as a helicopter tourism company and subsequently diversifying its tourism offerings through strategic investments and acquisitions.
In 2007, thl commenced a significant strategic alignment to change the asset mix of the group with a focus on the motorhome rentals business. Motorhome rentals now constitute the backbone of thl’s operations.
In 2010, thl acquired Road Bear RV Rentals and Sales, a recreational vehicle rental business in the USA.
Currently, thl’s operations are categorised under four segments:
NZ Rentals: motorhome and vehicle rental operations, offering 2B, 2BTS, 4B and 6B motorhomes from three locations around the country; Auckland, Christchurch and Queenstown. NZ Tourism Group: operation of the Waitomo Glowworm caves, associated tourism activities and Kiwi Experience; a youth oriented bus operation providing price competitive and flexible itineraries. Australian Rentals: motorhome and vehicle rental operations, offering 2B, 2BTS, 4B and 6B motorhomes from eleven locations all around Australia. USA Rentals: premium RV rentals across the USA, operating from five locations.
Figure 2.1 – thl segment revenue and EBITDA
Revenue by segment (FY12A) EBITDA by segment (FY12A)
US rentals US rentals 17% NZ rentals 16% 28% NZ rentals 32%
AUS NZ tourism AUS rentals 11% rentals NZ tourism 44% 44% 8%
Source: thl FY12 Annual Report
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Additionally, thl is a 50% partner in a manufacturing joint venture with Kea Manufacturing called RVMGLP. RVMGLP manufactures motorhomes and other agreed vehicles for thl and Kea and also owns Action Motor Bodies, a Hamilton based specialist vehicle manufacturer (which amongst other things manufactures ambulances for St John Ambulances). The vehicles RVMGLP supplies to thl and Kea are primarily used for thl and Kea’s rental businesses, but a small number of vehicles are supplied to private customers. thl supplies second-hand motorhomes through its sales division, Motek, and a very small number of new motorhomes.
The table below sets out a summary of position of the financial performance and financial position of thl over the last three financial years.
Figure 2.2 – thl historical financial performance thl Summary Statements of Financial Performance NZ$ million FY10 FY11 FY12 Revenue 182 196 200 Expenses (132) (148) (139) EBITDA 50.0 47.4 60.7 Operating EBIT 11.4 4.3 16.3 Reported EBIT 9.5 (21.8)* 16.1 Reported NPAT 4.6 (27.3) 4.3 *FY11 includes non-cash goodwill write-off $26.1 million in relation to the New Zealand and Australian rentals businesses (as detailed in thl’s 2011 audited financial statements). Source: thl Annual Reports
Given that the Transaction has a direct impact on thl’s New Zealand rentals business only (“NZ Rentals”), we have focused our industry analysis around this segment.
Currently, thl’s NZ Rentals business operates a fleet of 1,543 vehicles, holding a ~27% share of the domestic sector.
The NZ Rentals operations trade under three key brands across New Zealand:
Maui: thl’s premier motorhome range offering late model 2BTS, 4B or 6B motorhomes with additional specifications. thl’s focus with the Maui range is to provide high-end motorhomes with a specific focus on design, aesthetic and comfort.
Britz: Offers 2B, 2BTS, 4B or 6B motorhomes and allows customers to customise the services required. For example, a customer will choose a motorhome and then choose additional items if required (e.g. bicycles, GPS equipment or DVD players).
Mighty Cars and Campers: thl’s budget motorhome range. Mighty Cars and Campers offer 2B, 2BTS, 4B or 6B motorhomes and cater for backpackers and budget conscious travellers.
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The table below sets out the key data for thl’s NZ Rentals business (FY12A).
Figure 2.3 – thl NZ Rental Business thl’s NZ Rental Business FY12A
Fleet 1,543 units
Total asset value $88.7 million
Total net assets $81.2 million
Asset value per vehicle $57,516
Sector share (by units) ~27%
Revenue (incl. vehicle sales) $56.5 million
EBITDA $19.6 million
EBIT $5.5 million
Note: Net assets defined as total assets less segment non-interest bearing liabilities and cash on hand Source: thl’s FY12 annual report
2.1.2. The New Zealand tourism industry
The performance of thl's NZ Rentals business is correlated with the general state of the New Zealand tourism industry.
Tourism is a key component of the New Zealand economy, contributing approximately 3.8% of GDP. There were 2.59 million visitors to New Zealand in 2011 and 1.25 million in the first 6 months of 2012 (2.8% higher than same period in 2011). Visitor numbers are forecast to increase to 2.99 million in 2016 (2011 – 2016 CAGR of 2.9%), driven mainly by an increase in Australian and Chinese tourists.
Figure 2.4 – Historical and forecast visitor arrivals to New Zealand
3.5 4.0% 3.5% 3.0
3.0%
2.5 2.5%
2.0 2.0% 1.5% 1.5
1.0% (%) y growth
-
o
- y Visitors (million) Visitors 1.0 0.5% 0.0% 0.5 -0.5% 0.0 -1.0% 2005 2006 2007 2008 2009 2010 2011 2012f 2013f 2014f 2015f 2016f
Australia United Kingdom United States China Japan Germany Other y-o-y growth
Source: Ministry of Economic Development The outlook for visitors to New Zealand, and the tourism industry, is generally positive.
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2.1.3. Tourism and thl - drivers and outlook
Although forecasts of inbound tourism numbers are a good indicator of tourism activity generally, thl’s NZ Rentals business is strongly driven by the number of inbound western tourists with mid-to-long term holiday plans (2+ weeks) and the expenditure patterns of these visitors.
The main drivers that affect the outlook for this segment are:
Global economic conditions (which currently are combining to suppress demand growth):
The current Eurozone economic downturn and the continued poor outlook for recovery.
Generally stable conditions in the North America economy underpinned by a slow recovery.
Strong growth from Australia but a significant proportion visiting friends and family and of short-duration with low transport spend.
The current high level of the NZ$ which makes New Zealand less attractive as a destination.
The current high level of the A$ which given New Zealand and Australia’s status as a dual destination also negatively affects New Zealand’s tourism industry.
The negative impact of specific / isolated disruptive events (both globally and in New Zealand) such as:
The Japanese earthquake and consequent tsunami in 2011.
The Christchurch earthquakes.
Volcanic ash episodes hindering international flights.
International terrorist activity.
Others factors that create volatility:
Airline pricing, capacity and airport reach.
Tourism destination preferences.
The specific trends and outlook for key markets is as follows:
Australia: Visitors are expected to grow at an annual rate of 2.3% post 2012, underpinned by New Zealand’s transition from a destination that “Australians would like to visit to one they intend to visit soon” (Tourism New Zealand). Additionally, positive currency conditions and repeated visitation will assist in sustaining this growth rate.
United Kingdom: Visitors are forecasted to decline at an annual rate of 1.7% due to the state of the Eurozone and the maturity of the UK market. UK visitors are an important part of thl’s motorhome business as they represent the longer staying tourists (averaging 29.2 days), with the majority coming to New Zealand for holiday or visiting friends or relatives.
United States: This is New Zealand’s third largest tourism market with long term growth opportunities. The average American visitor spends 18.9 days in New Zealand and is more likely to go beyond main tourist centres to the regions; characteristics that match with thl’s target customer. Visitors forecast expected to grow at 1.0% per annum.
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Germany: Germany is the second largest visitor market in Europe behind the UK. Germany represents a key tourist market for domestic motorhome operators as German visitors tend to be independent travellers that appreciate the country’s cultural attractions as well as its natural wonders. Additionally, average spend and length of stay are both high compared to other markets. Even though economic conditions have not improved dramatically, German outbound market experienced a 1% growth over the last year, with over 70% of Germans planning an extensive holiday in 2012.
China: China is currently the fourth largest tourist market by visitor numbers. Visitor numbers are expected to grow on average by 11.8% over the next five years, surpassing visitor numbers from the UK and United States. Visitor growth is sustained by a growing middle class with increasing disposable income. Even though the number of Chinese visitors is increasing, this is unlikely to have a material impact on thl’s operations in the medium term as most Chinese tourists currently come as part of previously organised “end-to-end” tours and they are less likely to rent a motorhome compared to other major tourist markets.
While the 10 year CAGR to June 2012 for total visitors has been 3.0%, visitors stating “Holidays” as their principal reason for travelling to New Zealand has only grown on average by 2.0%. Importantly, for the same period, data shows an average yearly decline of 0.2% for holiday visitors staying in the country for over 2 weeks.
Figure 2.5 – Historical visitor arrivals to NZ by type
3.00
2.50
2.00
1.50
Visitors (million) Visitors 1.00
0.50
0.00 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Holiday visitors (2+ week stay) Holiday visitors Total visitors
Source: Ministry of Tourism New Zealand, Statistics New Zealand
The outlook for the New Zealand tourism industry sectors that drive motorhome usage is characterised by recent downturn and a sluggish recovery. This is highly correlated to the general global economy but more so to the particular economic conditions in key markets such as Australia, USA, Germany and UK and exchange rates.
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2.1.4. Industry characteristics
The New Zealand motorhome sector is characterised by:
A high degree of fragmentation, with the top 10 players holding an approximate 83.4% share of the sector. Over-capacity, which negatively affects total fleet utilisation and return on assets. Relatively low barriers to entry given the ability to obtain high levels of debt financing for vehicle acquisition.
Fleet utilisation (defined as actual hire days divided by available hire days) is a key measure and driver of the performance of the motorhome businesses.
The recent downturn in motorhome tourists combined with the above industry factors has resulted in reduced fleet utilisation across the industry. This trend is evident in thl’s NZ rental fleet utilisation as outlined in the graph below:
Figure 2.6 – thl NZ Rentals fleet utilisation (FY11A, FY12A & FY13E, assuming no transaction)
100%
90%
80%
70%
60%
50%
40% Utilisation (%) Utilisation 30%
20%
10%
0%
Jul 10 Jul 11 Jul 12 Jul
Jan 13 Jan Jan 11 Jan 12 Jan
Mar 11 Mar 12 Mar 13 Mar
Nov 11 Nov Sep 10 Sep 10 Nov 11 Sep 12 Sep 12 Nov
May 12 May 13 May May 11 May
Note: March 2011 and September 2011 are outliers: March utilisation of 98% reflects the impact of bookings for Christchurch residents after the earthquake and September reflects the one-off associated with the Rugby World Cup
Source: thl
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The table below further highlights the current trends of declining spend on motorhome rentals and high levels of industry capacity. The table shows that despite a steady decline in total international visitor spend (especially across the key markets for the motorhome sector), the number of rental motorhomes in New Zealand has continued to grow.
Figure 2.7 – NZ industry fleet size and visitor spend (NZ$ million unless otherwise stated) 2009 2011 Change Total international visitor spend in New Zealand 6,187 5,763 (7%)
Total visitor spend from origins key to motorhome sector Australia 1,776 1,639 (8%) Germany 293 261 (11%) United Kingdom 812 670 (17%) Weighted total spend 1,011 899 (11%)
Vehicles in the NZ motorhome rental sector Estimated number of units 5,480 5,770 5% Note: Weighting of total spend based on 2009 campervan revenue by origin Source: MED Tourism Forecasts, thl estimates
2.1.5. Industry composition
Besides thl (with an estimated sector share of 27%), the main industry players are: United (sector share of ~11%)
United is a privately owned company with motorhome rental operations in New Zealand. The business offers 2B, 2BTS, 4B and 6B motorhomes for rental and sale under three brands: United Motorhomes: Premier brand offering fitted Mercedes Benz vehicles.
Alpha Motorhomes: Budget brand offering refurbished models drawn from the premier fleet.
Econo Campers: Budget brand targeting the value conscious and backpacker segment.
Apollo Motorhomes
Apollo is an Australian owned company providing a range of 2B, 2BTS, 4B and 6B motorhomes. The business operates in New Zealand from a total of two depots in Auckland and Christchurch. As well as New Zealand and Australia, Apollo has motorhome rental operations in Canada and the USA. Apollo has a portfolio of different companies and brands such as Star RV, Hippie Camper and Cheapa Campa. These target different segments of the sector and complement the primary Apollo brand.
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Jucy
Jucy is a privately owned, business with motorhomes and car rental operations in New Zealand, Australia and the USA. In New Zealand, Jucy provides a range of 2B and 4B motorhomes and operates a total of 4 national depots in Auckland, Christchurch, Queenstown and Dunedin. Additionally, Jucy has hotel operations in Auckland and Queenstown and provides boat and bus services at Milford Sound.
Kea (sector share of ~7%)
Founded in 1995, Kea is a privately owned company specialising in the rental and sale of motorhomes. The business supplies late model 2B, 2BTS, 3B, 4B and 6B motorhomes. Kea operates in New Zealand from two major vehicle depots in Auckland and Christchurch. In addition, Kea has an independent licensed agent operating under the Kea brand in South Africa.
Pacific Horizon
Pacific Horizon is a privately owned company providing a range of 2B, 2BTS, 4B and 6B vehicles for rental. The business has been part of the New Zealand rental motorhome sector for almost 25 years and currently operates from four vehicle depots in Auckland, Wellington, Picton and Christchurch. The business sources most of its fleet from third party manufacturers.
Spaceships
Spaceships is a privately owned company supplying motorhome rentals in New Zealand, Australia and the UK. Spaceships offers 2B and 4B motorhomes and operates depots in Auckland and Christchurch. The company also operates a total of 28 “Spacestations” which serve as a network system for customers to meet and obtain local advice on deals, accommodation and activities.
In addition to the companies listed above, the New Zealand motorhome sector has an array of smaller, third tier operators. These include:
Escape Rentals Wicked Campers Wendekreisen Travel Iconic Motorhomes New Zealand
Rentamotorhome NZ Adventure Deluxe Motorhomes Others
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The table below sets out an estimate of the relevant share of the major industry participants before and after the proposed Transaction. Under the Transaction, thl’s share of the total New Zealand fleet increases from ~27% to ~45%.
Figure 2.8 – Sector share by estimated volume before and after proposed transaction Pre-transaction Post-transaction Industry player Volume Sector share Industry player Volume Sector share thl 1,543 27% MergeCo 2,541 45% United 634 11% Kea 364 7% Others 3,163 55% Others 3,163 55% Total 5,704 100% Total 5,704 100% Source: thl, Parties, Covec sector estimates
2.2. Rationale for the Transaction
The Transaction reflects the view of the thl Board and management that industry consolidation is the highest value strategic option available to thl for the NZ rentals business.
As set out in section 2.1.4, there is considerable over-capacity in the New Zealand motorhome sector. This has resulted in:
Low utilisation.
Lower returns (lower operating margins on a high asset base). thl observes, that based on experience to date, it is unlikely the over-capacity in the sector will be rectified naturally without a transaction that consolidates the industry. thl also observes that in the absence of a material fleet reduction, minor adjustments to fleet size do not produce a significant benefit as it is not possible to make any meaningful reductions in overheads and back-office expenses.
The Transaction will enable management to implement a material reduction in fleet size addressing over-capacity and low utilisation. In addition the Vendors’ businesses will be fully integrated into thl enabling various operating cost synergies through removing duplication of overheads and back-office costs, and through improved economies of scale – these benefits include:
Consolidation of property leases.
Elimination of surplus back office costs.
Reduction in personnel.
Superior purchasing terms.
The benefits of the Transaction are quantified in section 2.4.4. In our view, the strategic rationale to reduce over-capacity and obtain potential cost synergies is strong.
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2.3. Alternatives to the Transaction
Prior to selecting industry consolidation as the preferred option, the thl Board and management identified and considered five strategic options. These are summarised in the table below.
Figure 2.9 – Strategic options and considerations Strategic option Considerations
1. Industry consolidation Addresses industry over-capacity Significant potential capital and operational cost synergies
2. Status quo Limited further standalone improvements available Doesn’t address NZ industry capacity issues
3. Liquidation High execution costs and risks:
thl’s fleet is a sizeable proportion of the NZ motorhome sector and based on current vehicle sales would take 5+ years to fully liquidate
There are significant overheads that cannot be reduced smoothly in line with a downsizing of fleet capacity but rather make “step changes”, consequently profitability through this period would be profoundly negatively affected
The experience of other operators seeking to exit suggests significant revenue impact as the sector becomes aware of the downsizing
There are high holding costs once the operating business becomes unviable
4. Downsizing Reduces competitive positioning and strategic options High operating leverage restricts margin improvements. The ability to commensurately reduce overheads in line with fleet reductions is limited Doesn’t address NZ industry capacity issues
5. Further expansion (offshore) Limited opportunities although provides scope to leverage head office overheads Doesn’t address NZ industry capacity issues
We are advised by thl that, if the Transaction does not proceed, thl will likely continue with the Status Quo option and to explore growth opportunities in other parts of the business (and most likely offshore).
2.4. Transaction Details
This section summarises the Transaction and is set out as follows:
Overview of the Transaction.
The businesses being acquired and the price being paid.
The consideration.
The proposed benefits (additional earnings, capex savings and synergies) arising from the Transaction.
Funding of the Transaction.
The implications for the financial performance and financial position of thl.
Section 3 analyses the value implications for thl shareholders.
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2.4.1. Overview of the Transaction
The key summary facts of the Transaction are as follows:
thl has entered into agreements with the Vendors to acquire the businesses and assets of Kea and United subject to thl shareholder approval and bank financing.
thl currently has 1,543 motorhomes and through the transaction will be acquiring 998 more, increasing its fleet post-Transaction to 2,541.
The price to be paid for the businesses and assets is approximately $69.5 million.
A common methodology to establish the Transaction price has been applied by thl to both Kea and United. This methodology involved agreeing the market value of the fleet assets being acquired (the “Assessed Value”) and applying a discount to obtain the price of these fleet assets (“Agreed Price’). In addition a small amount of other assets are included in the Transaction Price.
The Assessed Value to which the discount applies reflects the expected realisable value of the fleets and was established by thl on a unit by unit basis. thl states the Assessed Value reflects an estimate of the next best alternative to the Transaction available to the Vendors and the discount to this is the lowest price that thl has been able to negotiate. The Assessed Value of the fleet being acquired is $74.9 million and the fleet Agreed Price is $67.9 million (plus $1.6 million for non-fleet assets).
The consideration and funding for the Transaction is structured as follows: Consideration (NZ$ million) Repayment of Vendors’ debt 50.9 Deferred consideration 8.0 Cash 3.2 New thl equity issued 7.4 Total 69.5
Funding Mechanism (NZ$ million) Increasing debt 50.9 Funding the deferred consideration from fleet sales 8.0 Using cash 3.2 Issuing new equity to the Vendors (approximately 12,019,000 shares at $0.619) 7.4 Total 69.5
The deferred consideration represents a withholding on the Transaction price that will be paid out as the acquired fleet is sold. To the extent that the prices achieved for the fleet sales is less than the Assessed Value, the deferred consideration will be reduced.
thl expects the following financial benefits to arise from the Transaction: Savings (NZ$ million) Assumption of the existing EBITDA of the Vendors’ businesses (FY13 annualised) ~ 7.6 pa Annual cost savings (EBITDA) ~ 4.2 pa Annual cost savings in vehicle operating expenditure from fleet rationalisation ~1.2 pa Savings in capital expenditure arising from thl fleet rationalisation (one-off spread ~ 30.2 over approximately two years)
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2.4.2. Businesses and assets being acquired and price paid
Kea Founded in 1995, Kea is a privately owned company specialising in the rental and sale of motorhomes. The business supplies late model 2B, 2BTS, 3B, 4B and 6B motorhomes.
Kea operates in New Zealand from two major vehicle depots in Auckland and Christchurch. It additionally has an independent licensed agent operating under the Kea brand in South Africa.
Until recently, the business had a licensed agent in Australia but after being put into liquidation it was acquired by thl.
Kea holds an estimated share of the total New Zealand fleet of 7% with a fleet composed of approximately 364 vehicles.
The table below sets out for Kea the number of assets being acquired, the Assessed Value and Agreed Value as per the common methodology applied by thl to both Vendors.
Figure 2.10 – Kea fleet and consideration Kea Fleet acquired 364 vehicles Assessed Fleet Value (NZ$ million) 34.7 Agreed Fleet Price (NZ$ million) 31.7 Non-Fleet Assets (NZ$ million) 1.5 Total Kea Consideration (NZ$ million) 33.2 thl is paying a total consideration of $33.2 million to acquire the assets and business of Kea.
United United is a privately owned company with motorhome rental operations in New Zealand. The business offers 2B, 2BTS, 4B and 6B motorhomes for rental and sale under three brands:
United Motorhomes: Premier brand offering fitted Mercedes Benz vehicles. Alpha Motorhomes: Budget brand offering refurbished models drawn from the premier fleet. Econo Campers: Budget brand targeting the value conscious and backpacker segment.
United sources its motorhomes directly from Supreme Motorhomes, which is fully owned by a trust associated with the Vendors of United.
United holds an estimated share of the total New Zealand fleet of 11% with a fleet composed of approximately 634 vehicles.
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The table below sets out for United the number of assets being acquired, the Assessed Value and Agreed Price as per the common methodology applied by thl to both Vendors.
Figure 2.11 – United fleet and consideration United Fleet acquired 634 vehicles Assessed Fleet Value (NZ$ million) 40.2 Agreed Fleet Price (NZ$ million) 36.1 Non-Fleet Assets (NZ$ million) 0.2 Total United Consideration (NZ$ million) 36.3 thl is paying a total consideration of $36.3 million to acquire the assets and business of United.
Transaction Price As noted above the amounts being paid for Kea and United are $33.2 million and $36.3 million respectively – a total of $69.5 million.
The thl Board and management’s view is that the prices are the best that could be achieved. The prices represent the next highest value alternative for the Vendors and therefore their “walk away” position and were reached following an extended negotiation process.
2.4.3. Transaction consideration
The approach to structuring the consideration is as follows:
thl will repay the existing debt of the businesses. thl is negotiating revised banking arrangements to repay and replace the existing bank debt held by the Vendors.
Where there are immediate cash consequences for a Vendor (e.g. tax) arising from the Transaction, a cash payment has been negotiated to allow the relevant Vendors to meet these obligations.
An amount is being withheld at the transaction date (but accruing interest at 3% margin over the 90 day bank bill settlement rate (“90 day BKBM”)) and paid to the Vendors upon sale of the acquired fleet (“Deferred Consideration”). To the extent the actual sale value realised is less than the Assessed Value, the actual Deferred Consideration will reduce (this is explained in more detail below).
An issue of new thl shares. The shares are to be issued at a six month VWAP of $0.619 per share (calculated at 29 August 2012). The value of shares issued is approximately equal to 50% of the difference between the Assessed Value and the aggregate value of the other elements of the consideration. The remaining 50% constitutes the discount to assessed value that thl is receiving and, according to thl, recognises that thl’s equity trades at a material discount to its NTA.
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The outcome of applying the methodology across the Vendors and subsequent negotiations produces a total consideration for the Transaction as follows:
Figure 2.12 - Consideration Consideration for the Transaction (NZ$ million)
Vendor debt repaid 50.9
Deferred Consideration – paid over four years as fleet sales reach pre-agreed levels (discussed further 8.0 below); interest rate 3% margin over the 90 day BKBM, calculated quarterly
Cash - paid to meet cash obligations of the Vendors crystallised by the Transaction 3.2
thl shares issued at $0.619 (six month VWAP) equal to 50% of remaining difference between the 7.4 Assessed Value less Vendor debt, Cash and Deferred Consideration
Total Consideration 69.5
The Agreed Value and total consideration has been negotiated individually with each Vendor so that there are minor variations between each Vendor. However the level of variation is not significant.
Deferred Consideration The inclusion of the Deferred Consideration means that the ultimate price to be paid by thl depends on the prices at which the acquired vehicles are subsequently sold. To the extent that the prices achieved are lower than the Assessed Value (depreciated to the time of sale), the amount of the Deferred Consideration paid will be reduced.
The key terms of the Deferred Consideration are as follows:
Under the Deferred Consideration each Vendor has part of their consideration deferred at settlement and thl pays interest quarterly at a rate of rate of 3% margin over the 90 day BKBM on the outstanding balance.
Approximately 15% of each Vendor’s Assessed Value is to be retained by thl as Deferred Consideration. At the date of the Transaction, the actual proportion of Kea Assessed Value retained is only 6%, but this is expected to increase to reach 15% by the end of FY14 as vehicle asset sales occur and a proportion of sale proceeds are retained by thl until the 15% target is reached.
The Deferred Consideration is allocated across all acquired vehicles and is paid by thl upon their sale, subject to the actual sale price achieved (and in the case of Kea, the outstanding balance of the Deferred Consideration having reached 15% of the Assessed Value of the remaining unsold fleet based on a retention threshold).
As each acquired vehicle is sold, the net sale proceeds are calculated (for the purposes of assessing the Deferred Consideration to be paid on that vehicle) as the sale price less refurbishment costs and any third party commissions.
Each quarter, the aggregate net sale proceeds are calculated and compared to the aggregate Assessed Value depreciated to the time of sale of the acquired vehicles sold in that quarter. The Deferred Consideration that was allocated to the acquired vehicles that were sold in that quarter is paid to the Vendor as long as the aggregate net sale proceeds are not less than the aggregate book value of those acquired vehicles. If it is less, the Deferred Consideration to be
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paid in that quarter is reduced. The reduction in the Deferred Consideration is a function of the extent to which the aggregate sale proceeds are less than the Assessed Value depreciated to the time of sale for that quarter. The Deferred Consideration is retained by thl dollar for dollar against any shortfall. When the shortfall hits 15%, no Deferred Consideration is payable on the acquired vehicles sold in that quarter.
The overall intent is that thl only pays the Deferred Consideration allocated to each vehicle to the extent that the sale proceeds reach pre-agreed levels. However, sales above this value threshold can offset sales below book value in any quarter.
While relatively complex, the Deferred Consideration provides thl with protection in the event that sale proceeds from the sale of fleet assets acquired do not reach the Assessed Value.
New thl Shares thl will issue new shares as part consideration for the Transaction. This will dilute existing shareholders. The pre-Transaction and post-Transaction stakes of the shareholders with stakes larger than 5% are outlined in the following table. There is no material change in control as a result of the Transaction.
Figure 2.13 – thl shareholding composition (12 September 2012) Shareholding composition pre-transaction as at 12 September 2012 Rank Shareholder Shares (million) Shares (%)
1 Sterling Grace Capital Management 18.9 19.3%
2 Utilico Limited 8.8 8.9%
3 Tower Asset Management 8.5 8.7%
4 ACC 7.6 7.7%
5 Douglas K & M & others 5.2 5.3%
6 Milford Asset Management 5.1 5.2%
Others 44.1 44.9%
Total 98.2 100.0%
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Figure 2.14 – thl shareholding composition post-transaction Shareholding composition post-transaction Rank Shareholder Shares (million) Shares (%)
1 Sterling Grace Capital Management 18.9 17.2%
2 Utilico Limited 8.8 8.0%
3 Tower Asset Management 8.5 7.7%
4 ACC 7.6 6.9%
5 UNITED VENDOR 6.4 5.9%
6 KEA VENDOR 5.6 5.1% 7 Douglas K & M & others 5.2 4.7%
8 Milford Asset Management 5.1 4.6%
Others 43.8 39.9%
Total 110.2 100.0% Source: thl, NZX SSH notices
2.4.4. Transaction funding thl proposes to fund the Transaction through a range of funding types. The table below sets out the proposed funding of the transaction:
Figure 2.15 – Funding sources Funding Sources (NZ$ million) New Debt To replace the existing vendor debt 50.9 Cash To allow Vendors to meet immediate cash obligations created by the 3.2 Transaction Deferred Consideration A form of vendor finance with an interest rate of 3% margin over the 90 8.0 day BKBM and repayment depending on the price at which surplus fleet is sold New Equity 12.0 million shares issued at 6 month VWAP $0.619 per share 7.4 Total Consideration 69.5
The following should be noted in regard to the funding:
The Transaction is conditional on the $50.9 million bank funding being arranged by thl on terms that are acceptable to it. At the date of this report, thl was finalising arrangements with Westpac and ANZ. While the final terms are awaiting credit approval, the terms of the financing have been agreed (and are incorporated into this analysis) and thl is confident that the banking arrangements will be finalised on this basis.
The small amount of cash being applied to the Transaction is being met out of thl’s cash reserves.
The Deferred Consideration is explained in more detail in section 2.4.3. It is a form of vendor finance incurring an interest cost of 3% margin over the 90 day BKBM. To the extent the Deferred Consideration is paid, it will be paid from the proceeds of vehicle sales. The amount of the Deferred Consideration that is ultimately paid is a function of the sale price achieved (after costs associated with preparing the vehicle for sale) when acquired vehicles are sold
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compared to the Assessed Value of those vehicles (depreciated to the time of sale). If the sale price is less than the depreciated Assessed Value, the deferred consideration will be reduced.
The value of shares to be issued is $7.4 million. The basis for valuing the shares is to use a six-month VWAP. The six-month VWAP is $0.619 per share. Accordingly the requirement is for approximately 12,019,000 shares to be issued. Post-transaction, the United Vendor will own 5.9% and the Kea Vendor 5.1% of thl.
2.4.5. Transaction benefits
The benefits expected to accrue to thl from the Transaction are as follows:
Kea and United earnings thl will incorporate the existing earnings of Kea and United. thl intends to retain and continue to operate the Kea and United brands. On a stand-alone basis, the FY13 annualised EBITDA contribution from the two businesses (before synergies) is estimated at $7.6 million. thl believes that this underlying EBITDA contribution can be fully retained on acquisition.
Fleet rationalisation There will be a period of fleet rationalisation that will allow for significant savings in capital expenditure in the first two years after the transaction and on-going savings in operational costs. thl’s analysis of post-Transaction fleet composition compared to expected hire days in 2B, 2BTS, 4B and 6B indicates that there are 616 surplus vehicles in the combined thl and Vendor fleets post-Transaction.
The value impact of rationalising surplus vehicles has three parts:
thl can release the capital invested in the surplus assets. The reduction will be structured so the fleet is optimised for the New Zealand sector compared to the aggregate stand-alone offerings of the three companies thl, Kea and United. The fleet reduction will be achieved via lower fleet replacement. While this may lead to a small increase in the average age of the fleet for a short period, thl is of the view this will have no material impact on thl’s customer offering and financial performance. A benefit of acquiring the relatively younger Kea fleet is that the number of new vehicles at the premium end will be maintained and the capital expenditure holiday can be maximised. The savings in capital expenditure estimated for the thl fleet are approximately $30 million. There will be additional capital expenditure savings to the extent the Status Quo capex plans of Kea and United will also be reduced as a result of the Transaction. However, as there is no stand-alone business plan for Kea and United this number cannot be accurately assessed.
thl will also realise operating cost savings associated with the surplus vehicles. The operating costs include storage, consumables, repairs and maintenance, cleaning, and associated wages. The annual variable cost associated with each motorhome is in the order of $2,500. This is therefore an EBITDA saving across the surplus fleet of $1.5 million per annum once the fleet is fully rationalised. thl also expects to achieve better pricing for buying motorhome chassis given the increase in scale. These gains are estimated as capex savings of $0.4 million per annum over time.
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The timing of these benefits is set out below:
Figure 2.16 – Capex and opex benefits Benefit FY 13 (8 mths) FY14 (NZ$ million) (NZ$ million) Capex Savings from thl fleet rationalisation 11.5 18.1 Capex Improved purchasing terms 0.2 0.4 Total Capex 11.7 18.5 Opex Reduced fleet costs 0.1 1.2
Operational cost savings There are operational synergies arising from combining the three businesses. Although thl intends to continue to operate the Kea and United brand names, the operational elements of the three businesses will be combined and rationalised. Accordingly, compared to the three companies operating stand-alone, there will be reductions in property lease costs, labour costs, and back office costs.
The details of the expected synergy benefits are as follows:
Exit of surplus property leases. Five surplus premises have been identified. These will be exited over twelve months with annual savings (once complete) of ~$0.9 million.
Elimination of surplus/duplicated back office costs (such as marketing, property, ICT and other administration) – in many cases back office savings will be achieved immediately and in any event should be completed within six months with annual savings ~$2.0 million.
Reduced personnel – the Transaction involves the acquisition of the businesses and assets of the Vendors and in each case thl will make employment offers to the majority of the Vendors’ current employees. Following the Transaction the FTE numbers of thl NZ Rentals and the Vendors will drop by 21 from 273 to 252. We note that some of the personnel changes have already been achieved through attrition.
The ultimate benefit of these synergies is estimated at $3.8 million per annum. The table below sets out the expected timing for realising the synergies.
Figure 2.17 – Cost synergies Cost synergy FY 13 (8 mths) FY14 (NZ$ million) (NZ$ million) Leases Surplus premises 0.1 0.9 Back-office Marketing, property, ICT and other administration 1.2 2.0 savings Labour Target FTEs down by 21 from 103 to 82 0.6 0.9 Combined synergies 2.0 3.8
We have not undertaken a detailed verification of the Transaction synergies but we do note that thl’s management has worked with the Vendors to estimate the potential synergies from the Transaction
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and have a high level of confidence around their achievement. We consider the process regarding the derivation of synergy benefits to have been robust.
Total Transaction Benefits The total expected benefits of the Transaction are an increase in normalised EBITDA of ~$13.0 million, one-off capital expenditure savings from thl’s fleet rationalisation of approximately $30 million over two years, and capex reduction from improved purchasing terms of $0.4 million. In summary, the total expected benefits of the Transaction over forecast FY13 and FY14 are:
Figure 2.18 – Total transaction benefits Benefit FY13 (8 mths) FY14 (NZ$ million) (NZ$ million) EBITDA Earnings from Kea and United 8.0* 8.1 EBITDA Fleet cost savings 0.1 1.2 EBITDA Other cost synergies 2.0 3.8 EBITDA TOTAL 10.1 13.1
Capex Fleet Rationalisation 11.5 18.1 Capex Purchasing terms 0.2 0.4 Capex TOTAL 11.7 18.5
Note: FY13 (8 months) EBITDA from Kea and United earnings of $8.0m is higher than previously quoted FY13 normalised EBITDA of $7.6m in section 2.4.4 as the 8 months exclude the low season (July-September) earnings which in some cases are forecast to be EBITDA losses. Differences may arise due to rounding.
2.4.6. Implications for thl
The Transaction will have significant impact on the estimated forecast financial statements of thl. The table below sets out the statement of Financial Performance for thl prior to the Transaction (FY2012) and then shows pro-forma results for FY13 and FY14 under the Status Quo (no Transaction) and post- Transaction.
Figure 2.19 – Statement of financial performance (Status Quo and Post-Transaction) Statement of Financial Performance Pre-Transaction Status Quo Post-Transaction NZ$ million FY12A FY13F FY14F FY13F FY14F (unless otherwise stated) Revenue 200.0 205.4 205.2 239.7 241.3 EBITDA(1) 60.7 56.1 62.5 66.2 75.5 EBIT(1) 16.3 16.3 22.5 21.2 29.0 NPAT(1) 4.5 6.1 11.6 6.9 14.8 NPAT (normalised)(2) 8.5 Pro-forma dividends (3) 2.0 3.9 5.9 4.4 8.8 Shares on Issue 98.2m 98.2m 98.2m 110.2m 110.2m EPS (cps)(1,2) 4.6 6.2 11.8 7.7 13.4 DPS (cps)(2,4) 2.0 4.0 6.0 4.0 8.0
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Notes: (1) based on earnings from continuing operations for FY12, FY13 post-Transaction excludes $1.2m of transaction costs and $500k of synergy implementation costs. (2) excluding acquisition costs and implementation costs. (3) dividends assumed to be 2cps in 2013, 4cps in 2014 and 60% of LTM NPAT thereafter. (4) dividends based on financial year. Figures may not add correctly due to rounding.
The key points to note are as follows:
There are material increases in revenue and profits from the Transaction – compared to both the FY12 year and the Status Quo pro-forma forecasts. FY13 reflects only 8 months of acquisition benefits.
In FY14 post-Transaction, revenue is forecast to be around $36 million higher than in the Status Quo.
Compared to the Status Quo, the Transaction is forecast to increase FY14 EBITDA by $13.1 million. This is approximately equal to the EBITDA contribution from the stand-alone Kea and United ($8.1 million) and the expected synergies from combining the three businesses ($4.9 million).
The gain in NPAT is offset by acquisition and implementation costs and also by increased interest costs associated with the debt financing.
Despite the fact that the Transaction includes the issue of new thl shares, the post- Transaction forecasts are both EPS and DPS accretive, compared to the Status Quo.
The table below sets out a pro-forma balance sheet for thl pre-Transaction (pro-forma 31 October 2012) and immediately post-Transaction.
Figure 2.20 – Pro-forma statement of financial position, (Pre-Transaction and Post-Transaction) Statement of Financial Position (pro-forma, 31 October 2012) NZ$ million (unless otherwise stated) Pre-Transaction Acquisition Post-Transaction Fixed assets & investments 226.0 69.5 295.4 Net working capital 3.1 - 3.1 Other assets / liabilities 4.9 - 4.9 Waitomo licenses and leases 14.3 - 14.3 Goodwill 8.3 - 8.3 Net operating assets 246.9 69.5 316.3 Cash 4.8 3.2 1.5 Debt 98.8 50.9 149.6 Deferred consideration - 8.0 8.0 Total debt 98.8 58.8 157.6 Shareholder’s funds 152.9 7.4 160.2 Shares on Issue 98.2 12 110.2 NTA/Share 1.33 1.25 Debt/(debt plus equity) 39% 48%
PAGE | 35 TOURISM HOLDINGS LIMITED – INDEPENDENT REPORT
The key points to note are as follows:
The Transaction is dilutive in terms of NTA/share. This reflects the fact that shares are being issued at less than the pre-transaction NTA/share of $1.33 (pro-forma, 31 October 2012). Of more interest to shareholders should be the extent to which the equity issue is value-dilutive – i.e. the shares are being issued at below the underlying value of thl. We discuss this issue in more detail in section 3.3.
There is a material increase in thl debt to fund the Transaction. Net debt increases by ~$54 million and the debt to debt-plus-equity ratio lifts from 39% to 48%. However, reduced capex from the fleet rationalisation program is forecast to lead to a rapid reduction in these debt levels. The table below sets out the forecast capital structure and gearing metrics through to FY14.
Figure 2.21 – Pro-forma capital structure and gearing (Pre-Transaction and Post-Transaction) Pro-forma capital structure and gearing Pre-Transaction Post-Transaction NZ$ million (unless otherwise stated) 31 Oct 12 Nov 12 30 June 13 30 June 14 Debt 98.8 149.6 111.0 97.0 Deferred consideration - 8.0 6.8 4.8 Total debt 98.8 157.6 116.8 101.8 Shareholders Funds 152.9 160.2 165.8 171.8 Debt/(debt plus equity) 39% 50% 41% 37%
PAGE | 36 TOURISM HOLDINGS LIMITED – INDEPENDENT REPORT
3. Transaction Valuation
In this section we set out our analysis of the expected impact on shareholder value (for existing thl shareholders) from the Transaction. Cameron Partners’ approach to the analysis is to:
1. Establish the Status Quo enterprise value of thl (ie without the Transaction).
2. Establish the enterprise value of thl post-Transaction.
3. Calculate our assessment of the current equity value of thl based on our Status Quo enterprise valuation and the current capital structure.
4. Overlay the proposed capital structure (including the new debt and equity issuance) on the post-Transaction enterprise value, assess the impact of this and establish the change in equity value to thl’s current shareholders from the Transaction.
3.1. Valuation Methodology
In order to value thl under the Status Quo and post-Transaction, we use two valuation approaches:
Discounted cash flow (“DCF”); and Capitalised earnings multiples.
Our primary valuation approach is DCF and we use capitalised earnings multiples as a cross check.
3.1.1. DCF methodology
The DCF methodology derives the present value of the free cash flows (“FCF”) of the business, recognising the time value of money and the appropriate risk to those FCF. The standard approach to calculating a DCF is as follows:
The FCF of the business are forecast over a specific period and a forecast of maintainable FCF beyond that period is used to determine a perpetuity value. FCF represent the surplus cash associated with the business after deducting cash operating expenses, tax, movements in working capital and capital expenditure. FCF represents the cash available to pay returns to providers of debt and equity capital. The FCF are then discounted to reflect their value at the current time. The discount rate applied to the FCF is an estimate of the required return sought by the combined security holders of the business. The discount rate used is the estimated weighted average cost of capital (“WACC”). The WACC is a blend of the cost of debt and the cost of equity, weighted in proportion to the target capital structure of the business. The WACC represents the rate of return required by investors to compensate them for the business risks they bear by investing in the business.
The DCF approach we take derives an assessment of the value of the business, prior to considering how the business is financed. This ungeared business value is commonly referred to as the enterprise value and represents the total value of the business based on the forecasts of the operating income of the business under its business plan. To derive the equity value of a business, net debt is deducted from the enterprise value.
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3.1.2. Capitalisation of earnings
The capitalisation of earnings approach requires an assessment of the maintainable earnings of the business and application of appropriate capitalisation rates (or earnings multiples), typically based on the trading and transaction multiples of comparable companies.
3.2. Status Quo and Post-Transaction Enterprise Valuation
3.2.1. DCF Analysis
The Status Quo assumptions used in our DCF valuation are based on the forecasts for the four years to FY16 that were provided to us by thl. These forecasts have been approved by thl’s Board. They allowed for growth in New Zealand motorhome rentals of 5% or more per annum through to FY16 reflecting inflation 2.5% pa and general hire day growth 2.5% pa. We observe that the motorhome rentals revenue has been largely flat recently and there is little in the outlook for key inbound tourism markets that suggests a rapid return to strong revenue growth. We have therefore taken a more conservative view of revenue growth at 2% p.a. reflecting flat market growth over these years.
The changes between the Status Quo assumptions and the post-Transaction assumptions relate only to the NZ Rentals business and Head Office costs and reflect only the impact of the Transaction benefits that were described in section 2.4.5:
The inclusion of the earnings forecasts of Kea and United (with motorhome rental growth in line with our thl Status Quo assumption). Fleet rationalisation benefits. Cost synergies.
On this basis, the key assumptions and forecast outcomes adopted in our Status Quo and post- Transaction forecasts and DCF analysis are set out below:
Figure 3.1 – Valuation assumptions Item Status Quo Post-Transaction Assumptions Assumptions Motorhome Revenue CAGR (FY14 – FY16) 2.0% 2.0% Total Operating Revenue + fleet sales CAGR (FY14 – FY16) 2.6% 2.7% EBITDA CAGR (FY14 – FY16) 4.7% 4.5% EBITDA margin range (FY13 – FY16) 30.5% - 31.8% 33.2% - 34.4% Average net capex/revenue (FY14 – FY16) 22% 18% Corporate tax rate 28% 28% Weighted average cost of capital 12.0% 12.0% Terminal growth rate 2.0% 2.0% *We note that thl’s US operation has a higher effective tax rate than assigned in our analysis. However, thl also has unused New Zealand tax losses which it can use to offset future New Zealand profits. The net impact of these tax issues is negligible.
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We have assessed the WACC as approximately 12.0%. The key inputs are:
A risk free rate of 5.0%. An asset beta of 1.2. A post-tax market risk premium of 7.0%. A corporate tax rate of 28%.
Based on the assumptions set out above we estimate the Status Quo enterprise value of thl at $191.7 million and the post-Transaction enterprise value of thl at $301.4 million at 31 October 2012.
3.2.2. Comparable Company Metrics
The graph below sets out the forecast EBIT and PE multiples for our list of comparable companies and thl Status Quo and post-Transaction.
Figure 3.2 – Comparable company metrics
18.0x 15.5x 16.0x
14.0x 11.7x 12.0x 10.9x 10.5x 10.4x 9.6x 10.0x
8.0x
6.0x
4.0x
2.0x
0.0x EV/EBIT P/E
Comparable Companies (forecast) thl Status Quo (FY13F) thl post-Transaction (FY14F)
Source: Capital IQ as at 7.09.12
We note that our post-Transaction multiples for FY13F are not directly comparable to the observed multiples of other companies:
FY13 forecast EBIT and NPAT capture only 8 months of additional earnings from Kea and United. FY13 forecast figures include $1.2m of transaction costs and an additional $500k cost to realise labour and back office synergies. Operational synergies don’t come into full effect until FY14F.
Accordingly, we use FY14F multiples from our post-Transaction DCF as a proxy for FY13F. These are consistent with the observed multiples of comparable companies.
PAGE | 39 TOURISM HOLDINGS LIMITED – INDEPENDENT REPORT
3.2.3. Sensitivities
We have run sensitivity analysis on both the Status Quo and post-Transaction valuations and note the modelling is very sensitive to:
Revenue growth (yield and rental day) assumptions. Fleet assumptions (size, utilisation and sale price). Discount rate assumptions. Terminal growth assumptions.
Accordingly, it would be appropriate to regard our valuations as midpoints in a range. More conservative views about future growth would yield lower values; more aggressive assumptions would yield higher values.
However, it is important to note that for the purposes of assessing the total value created by the Transaction, the absolute valuations of the Status Quo and the post-Transaction are not key. It is the difference between the two valuations which drives the assessment of the value created by the Transaction. This value is relatively insensitive to the assumptions used to determine the absolute values of the Status Quo and post-Transaction scenarios.
Where the absolute valuations are important is in regard to how the value being created is being shared between the shareholders of thl and the Vendors. The reason for this is that part of the consideration includes an issue of thl shares. The price these are issued at relative to their assessed value is an important consideration for thl shareholders. This issue is discussed in more detail in section 3.3.2.
PAGE | 40 TOURISM HOLDINGS LIMITED – INDEPENDENT REPORT
3.3. Transaction Value to thl Shareholders and Vendors
3.3.1. Value to current thl shareholders
The table below compares the Status Quo enterprise value with the post-Transaction value. The difference is the combined value of the underlying businesses being acquired, the thl fleet rationalisation benefits and the cost synergies. Figure 3.3 – thl enterprise value bridge
THL enterprise value bridge 350
300 27 250 28 54 200 150 301 NZ$m 246 100 192 50 0 THL standalone EV Vendor value thl fleet Synergies Post- contribution rationalisation Transaction EV
Source: thl management forecasts and Cameron Partners analysis
The bridge shows the value impact from the three areas of Transaction benefit:
Kea and United’s value contribution thl fleet rationalisation Operating synergies
In this analysis, the value contribution of Kea and United is implied. It is the residual after the value of thl fleet rationalisation and operating synergies is deducted from the incremental value created by the Transaction.
As noted in section 2.4.5, the thl fleet rationalisation benefits reflects only the change in the capital expenditure plan for thl between the Status Quo and post-Transaction. The Kea and United fleet rationalisation benefit is captured in the Kea and United value contribution.
The implication of this is that the true standalone value of Kea and United is less than the $54.5 million shown in the above chart. We are not able to separate these elements as Status Quo capital expenditure plans for Kea and United are not available.
However, in regard to a standalone value of Kea and United we note the following:
The EBIT of thl’s NZ Rentals business was $5.5 million in FY12. Comparable company EBIT multiples (see section 3.2.2) are in the order of 10.5x, suggesting a standalone value for thl’s NZ Rental business of ~$58 million. The total net asset value of this division is $81.2 million.
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The discount of the earnings based value to total asset value is in the order of 29%. The Assessed Value plus new fleet assets being acquired from Kea and United is ~$76.5 million. Applying discounts at 29% to Kea and United’s Assessed Value gives an estimated value of $54.3 million.
While this valuation approach may provide some comfort regarding the underlying value of Kea and United, thl shareholders should note that the value being ascribed to the business also includes some capital expenditure benefits arising from the Transaction and a true standalone value based on earnings would be lower.
Nonetheless, in the absence of the information allowing us to perform a proper standalone DCF valuation of Kea and United we have used the valuation outlined in the waterfall chart above as a proxy for Kea and United’s value.
In any event we are assured by the thl Board and management that the consideration being offered for Kea and United is the absolute lowest that could be achieved and that there are only two options for thl shareholders to consider: The Status Quo (i.e. no transaction). thl with the Transaction at the price being offered.
For this reason, we believe the focus of the thl shareholders should be on the value increase they can expect to receive from the Transaction, rather than on the relationship between the price being paid and estimates of underlying value.
To derive the value of the Transaction to thl current shareholders we need to compare the equity value of thl pre-Transaction with the equity value retained by thl’s current shareholders post- Transaction. To do this comparison we need to complete the following:
1. Overlay the current capital structure on Status Quo enterprise valuation calculated above to determine the current assessed equity value of thl.
2. Overlay the post-Transaction capital structure on the post-Transaction enterprise valuation to determine the post-Transaction equity value of thl.
3. Determine the share of this equity value that belongs to the existing shareholders of thl (as new equity is issued to the Vendors as part of the Transaction).
The non equity components of thl’s Status Quo and/or post-Transaction capital structure include:
Cash. Bank loans. Interest rate swaps. Deferred considerations. Redeemable shares (similar to share options and outlined in more detail in Appendix 3) held by thl senior executives.
PAGE | 42 TOURISM HOLDINGS LIMITED – INDEPENDENT REPORT
Figure 3.4 – Transaction benefits analysis NZ$ million Pre-Transaction Change Post-Transaction Enterprise value 191.7 109.8 301.4 Net Debt 94.1 54.0 148.1 Deferred Consideration - 8.0 8.0 Value of swaps 1.9 - 1.9 Redeemable Shares (1) 0.2 2.7 2.9 Total non-equity securities 96.2 160.9 thl Shareholder Value(2) 95.4 45.1 140.5 Less shares as consideration 7.4 Shareholder value created by Transaction 37.6 # shares on issue (000) 98,181 12,019 110,200 Implied value per share ($) 0.97 0.30 1.27 Current thl Shareholders % shares 100% 89.1% Current thl Shareholders aggregate value 95.4 29.8 125.2 Value to Vendors through equity issue 7.9 Notes (1) The value of the Redeemable shares has been calculated using a Black-Scholes pricing model and using the actual pre- Transaction share price for the pre-Transaction value and the implied post-Transaction share price for the post- Transaction value (2) Before issuance of equity securities (3) Differences may arise due to rounding
Our analysis suggests that the total equity benefits of the Transaction are in the order of $37.6 million. However, as the consideration includes an issue of new equity (12.019 million shares – giving the Vendors approximately 10.9% of the company), the value of the Transaction captured by current thl shareholders is in the order of $29.8 million. This is an estimated impact of $0.30 per share.
This is a material increase in value to thl shareholders.
The graph below shows the bridge between the current assessed value of the equity held by thl shareholders and the implied value of equity held by them post-Transaction. Figure 3.5 – DCF transaction bridge
350
300 27
250 28 Share Share price: 54 161 price: 200 $0.97 $1.27
NZ$m 150 96 301 15 246 100 192 140 140 125 50 95
0 Equity Non-equity Status Vendor value thl fleet Synergies Post- Non-equity Vendor equity THL securities Quo contribution rationalisation Transaction securities value shareholder EV EV equity
Source: thl management forecasts and Cameron Partners analysis
PAGE | 43 TOURISM HOLDINGS LIMITED – INDEPENDENT REPORT
3.3.2. Value to the Vendors
It should be noted that the proposed issue of shares as part of the Transaction provides the Vendors with value above the notional $7.4 million included in the consideration (i.e. 12.019 million shares issued at $0.619 per share). The sources of value for the Vendors are as follows:
The Vendors share in the synergy benefits of the Transaction in proportion to their shareholding (10.9%). The Vendors are benefitting to the extent the issue price ($0.619 per share) is less than the underlying value of thl. We have assessed the value of thl at around $0.97 per share.
The combined impact of these factors is that, to the extent our assessed Status Quo valuation of thl reflects actual underlying value, then of the $37.6 million of additional equity value that is created by the Transaction, the Vendors are receiving $7.9 million more than the $7.4 million headline value set out as consideration. Of the $7.9 million increase, approximately $3.8 million is due to the issue price being less than our assessed price and $4.2m is the result of their post-Transaction shareholding (10.9%) sharing in the value created by the Transaction.
The Vendors are also receiving further value from the Transaction to the extent that total consideration being paid ($69.5 million) is greater than the underlying value of the business and assets being acquired. In this regard we note the following:
Subject to limitations set out in section 3.3.1, we derived a proxy value contribution from Kea and United businesses ~$54.5 million. On this basis, the premium being offered to the Vendors (given a consideration of $69.5 million) is in the order of $15 million. This suggests a total premium to the Vendors (including the equity issuance benefits) of $23 million compared to the value increase to thl shareholders of approximately $30 million. To the extent the underlying value of Kea and United is less than $54.5 million, then the total premium being paid to the Vendors will be higher – although the expected value to thl shareholders will remain close to $30 million or $0.30 per share. The reason the value to thl shareholders will remain constant is that under our analytical framework we have captured the total value of adding the two businesses to thl and there can be a high level of confidence in regard to this number. Given the information available, it is more problematic to split this value between the contribution being made by the underlying businesses and from Transaction benefits. If our estimate of one (eg the underlying business value) should be lower, then the implication is that the value of the other (eg the Transaction benefits) should be higher, and the total value being added from the Transaction remains unchanged.
PAGE | 44 TOURISM HOLDINGS LIMITED – INDEPENDENT REPORT
4. Transaction Assessment
4.1. Transaction rationale
The Transaction reflects the thl Board and management’s view that industry consolidation is the highest value strategic option available to thl. This is further supported by the ongoing involvement of the Vendors’ principal shareholders in thl post-Transaction (as executives and directors) and a significant component of their consideration (i.e. thl shares and Deferred Consideration) being tied to the performance of thl.
The industry consolidation achieved under the Transaction has two main benefits – it enables:
Fleet capacity rationalisation.
Various operating cost synergies to be realised.
As outlined in section 2, there is considerable over-capacity in the New Zealand Motorhome sector – this is reflected in:
Surplus assets.
Higher than necessary operating costs (maintenance, depreciation etc).
Low utilisation.
Lower returns (due to both lower operating margins and higher asset base).
The Transaction will enable a coordinated approach to fleet management addressing sector over- capacity and rebalancing of the 2B; 2BTS; 4B and 6B mix within thl to optimise fleet utilisation.
In addition the Vendors will be fully integrated into thl enabling various operating cost synergies through reducing duplication and improved economies of scale – ie:
Consolidation of leases.
Elimination of surplus back office costs.
Superior purchasing terms.
Reduced personnel.
In our view the strategic rationale to reduce sector over-capacity and potential cost synergies is compelling.
There are some reasons to suggest rationalisation could occur without the Transaction. The main one of these is the ability of smaller firms to realise higher values on exit (through the sale of fleet) than they are currently experiencing as going concerns, coupled with potentially low costs of exit for these firms.
However, we believe this is not likely to happen in a meaningful way that would benefit thl shareholders to the extent the Transaction potentially can.
PAGE | 45 TOURISM HOLDINGS LIMITED – INDEPENDENT REPORT
4.2. Synergies
The Vendors businesses will be fully integrated into thl enabling various operating cost synergies by reducing duplication and improving economies of scale.
There are always risks realising synergies and risks of dis-synergies resulting from a transaction. Notwithstanding, we believe shareholders should have a high level of confidence regarding the cost synergy realisation and note:
A comprehensive analysis has been undertaken by thl’s management and the Vendors to estimate the potential synergies from the Transaction.
The major synergies are reduced capex and costs. Both of these can be forecasted with relative certainty compared to market based or revenue based assumptions.
The Transaction structure involves an asset purchase with various liabilities remaining with the Vendors. Consequently many of the cost synergies are immediate (labour, lease costs and overheads) with others (back office) achievable in a very short timeframe.
The key risks in our view are potential dis-synergies resulting from the Transaction. The table below sets these out, with the proposed mitigants.
Figure 4.1 – Dis-synergies and mitigants Dis-synergy Mitigants Revenue dis- “Cannibalisation” of existing revenues All brands retained synergies between brands Transaction will have low visibility for majority of customers Cultural Inefficiencies from different processes Vendor principals remaining with business compatibility and employee dis-satisfaction Immediate personnel changes – no “axe waiting to fall” Comprehensive integration plan Practical integration Key systems - primarily booking and Provision for system integration in Transaction costs billing arrangements Comprehensive integration plan Competitive Discounting Post-transaction thl will be better positioned to compete response Increase in fleet size
4.3. Fleet rationalisation
A considerable component of the value created by the Transaction is from fleet capacity rationalisation. Fleet capacity rationalisation is achieved through reduced vehicle purchases over a two year period rather than increased vehicle sales. In this respect:
thl has considerable “control” over the extent and timing of the rationalisation and freeing up of cashflow.
Forecast vehicle sales and assumed prices are in line with historical levels.
In addition, as outlined the quantum and nature of the Transaction consideration provides downside protection for thl:
The total fleet Agreed Price is at a discount to the total fleet Assessed Value of 9.3%.
PAGE | 46 TOURISM HOLDINGS LIMITED – INDEPENDENT REPORT
The Deferred Consideration arrangements effectively sheet home the first 15% of any shortfall in any individual vehicle sale to the Vendors.
4.4. Capital structure
The Transaction impacts on thl’s capital structure in two areas:
Issuance of new thl shares.
Increased debt.
4.4.1. New thl shares
The issuance of thl shares as part of the consideration for the Transaction dilutes existing thl shareholders.
There is no material change in control caused by the issue of new thl shares.
Any dilution needs to be assessed in context with the value created by the Transaction and as outlined in section 3 there is potentially material equity value created for current thl shareholders.
4.4.2. Increased debt
Under the Transaction thl’s debt will rise from ~$100 million to ~$158 million with a corresponding impact on a range of gearing measures in the short-term and associated financial risk.
Figure 4.2 – Debt ratios (Pre-Transaction and Post-Transaction) NZ$ million, unless otherwise stated Pre-Transaction Post-Transaction FY13F FY14F Debt 97.3 149.6 110.7 97.0 Deferred consideration - 8.0 6.8 4.8 Total debt 97.3 157.6 117.5 101.8 EBIT Interest cover 1.6x(1) 1.4x(2) 2.4x 3.4x Debt / Debt + Equity 38.6% 49.6% 41.5% 37.2% Debt / EBITDA 1.7x(1) 2.9x(2) 1.8x 1.3x Shareholder's Funds / Total Assets 54.2% 45.8% 52.8% 56.4% Notes: (1) EBIT and EBITDA calculated for LTM pre-Transaction (2) EBIT and EBITDA calculated for LTM post-Transaction
To partially finance the Transaction thl is arranging new bank facilities that include new financial covenant thresholds which provide more leeway for thl immediately post-Transaction. However all covenant thresholds revert to original levels within approximately 9 months.
PAGE | 47 TOURISM HOLDINGS LIMITED – INDEPENDENT REPORT
Financial forecasts indicate comfortable compliance with all financial covenants primarily due to improved operating performance and debt reduction achieved through cash operating surpluses and reduced capex as the combined fleet is rationalised from ~2,500 vehicles to ~1,800.
Notwithstanding, higher debt increases financial risk - particularly in the event of one-off shocks and a further deterioration in underlying revenue.
4.5. Valuation
4.5.1. Risks around Status Quo and post-Transaction value
There is some uncertainty around the Status Quo and post-Transaction valuations of thl as the valuations are very sensitive to small changes in key value drivers. As outlined these drivers include the economic performance of key tourism markets and FX cross rates.
However we note that many of these factors are common to both scenarios and thl’s exposure to the fundamental risks that it is currently exposed to do not materially increase under the Transaction. To the contrary, the potential benefits of the Transaction which include improved margins (via improved costs and scale) and utilisation (via fleet rationalisation) should help insulate it from the vagaries of the tourism market.
Furthermore, to a large extent the absolute valuation of thl is not a material factor in assessing the merits of the Transaction. The critical issue is the difference between the two scenarios (ie the value being added). The value being created by the Transaction relates to fleet rationalisation and cost synergies. As outlined above we believe the analysis and value of this element is sound.
The absolute valuations matter to the extent that thl is issuing equity as part of the consideration at less than underlying value. We have assessed this in section 3, and although we do believe that this is occurring, it is not unreasonable that the value being created is shared with the Vendors (see also section 4.5.3).
4.5.2. Investor market response
We note that the Status Quo DCF valuation we have derived for thl ($0.97 per share) was not reflected in the pre-announcement market price ($0.57 per share) which was at a significant discount to our DCF valuation (41% discount). The potential reasons for this discount are numerous. However, thl shareholders should be aware that it implies a material probability that the investor market will not, at least immediately, impound the full benefits of the Transaction into the thl shareprice – i.e. a similar level of discount that exists between the share price of thl and our DCF value may also be applied to the value determined for the Kea and United businesses.
In the table and diagram below we show the impact of this scenario. We have discounted the value ascribed to Kea and United by the observed discount between the thl pre-announcement share price
PAGE | 48 TOURISM HOLDINGS LIMITED – INDEPENDENT REPORT
and our assessed Status Quo value (41%). This reduces the Kea and United proxy value contribution from $54.5 million to $32.0 million. We assume that the thl fleet rationalisation and cost synergies are not discounted, as we believe these to be highly achievable.
As the table and diagram shows, if the pre-Transaction shareprice is used as the baseline and the discounted value of Kea and United is applied, the value increase likely to be reflected in the thl share price is in the order of $0.16 per share rather than the $0.30 per share based on DCF values.
While not as large, there is still a material increase in share price/thl shareholder value under this analysis.
Figure 4.3 – Transaction benefits analysis (discounted) NZ$ million Pre-Transaction Change Post-Transaction Enterprise value 152.2 87.2 239.5 Net Debt 94.1 54.0 148.1 Deferred Consideration - 8.0 8.0 Value of swaps 1.9 - 1.9 Redeemable Shares (1) 0.2 0.4 0.6 Total non-equity securities 96.2 158.7 thl Shareholder Value(2) 56.0 24.8 80.8 Less shares as consideration 7.4 Shareholder value created by Transaction 17.4 # shares on issue (000) 98,181 12,019 110,200 Implied value per share ($) 0.57 0.16 0.73 Current thl Shareholders % shares 100% 89.1% Current thl Shareholders aggregate value 56.0 16.0 72.0 Value to Vendors through equity issue 1.4 Notes (1) The value of the Redeemable shares has been calculated using a Black-Scholes pricing model and using the actual pre-Transaction share price for the pre-Transaction value and the implied discounted post-Transaction share price for the post-Transaction value (2) Before issuance of equity securities (3) Differences may arise due to rounding
PAGE | 49 TOURISM HOLDINGS LIMITED – INDEPENDENT REPORT
Figure 4.4 – DCF Transaction bridge (31 August 2012 share price discount to Status Quo valuation)
300
250
27
200 28
32 Share 159 150 price:
NZ$m $0.73 Share 239 100 price: 96 $0.57 184 152 9 50 81 72 72 56 0 Equity Non-equity Status Quo Vendor value thl fleet Synergies Post- Non-equity Vendor equity THL securities EV contribution rationalisation Transaction securities value shareholder EV equity
Source: thl management forecasts and Cameron Partners analysis
4.5.3. Implied value sharing with Vendors
Based on our DCF analysis and the split of value between the underlying value of Kea and United and the Transaction benefits a material (but not majority) proportion of the total value created by the transaction is being shared with the Vendors through the:
Aggregate price being paid to acquire the assets and businesses.
Issue of shares that:
Is at a price below our assessed value of thl.
Allows the Vendors to share in the synergy value created.
Under our DCF analysis we have estimated that thl shareholders are benefitting from the Transaction by an estimated $30 million and through the premium being paid to acquire the businesses and the issue of shares (see section 3 for further discussion), the Vendors are benefitting by $23 million.
In this regard we note the following:
It is not unusual for a price premium to be paid in control transactions to reflect the potential for the acquirer to implement standalone improvements (i.e. improve on the current business plan) and access synergies. This premium for control is the proportion of any incremental value the acquirer is willing to offer to the vendors to get them to sell. In this case it is not unreasonable for the Vendors to seek to share in the resulting benefits of the of the industry consolidation occurring under the Transaction. The Vendor’s share of value is not unreasonable in this context.
In any event, the negotiation process has, in the view of the thl Board and management, established the highest value alternative price for each of the Vendors. Accordingly:
Any offer below the price negotiated will not be acceptable for the Vendors.
thl has confirmed that there is no scope for a transaction under different terms and there are only two outcomes to be considered by current thl shareholders – either:
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Approve the Transaction on the terms proposed; or Decline the Transaction.
On this basis, there is no opportunity for thl shareholders to obtain the benefits of the Transaction at a lower price. Accordingly, thl shareholders should focus on the expected value uplift accruing to them from the Transaction and whether this is sufficiently material given the risks of the Transaction.
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Appendix 1 – Qualifications, Declarations and Consents
Declarations This Independent Report has been prepared by Cameron Partners at the request of the thl Board for the purpose of assisting thl’s Shareholders to assess the merits of the Transaction.
This Independent Report, or any part of it, should not be reproduced or used for any other purpose. Cameron Partners specifically disclaim any obligation or liability to any party whatsoever in the event that this Independent Report is supplied or applied for any purpose other than that for which it is intended.
A prior draft of this Independent Report was provided to the thl for review and discussion. Although minor factual changes to the Independent Report were made after the release of the first draft, there were no changes to our methodology, analysis, or conclusions.
This Independent Report is provided for the benefit of the thl shareholders that are eligible to vote on the relevant resolutions relating to the Transaction, and Cameron Partners consents to the distribution of this Independent Report to those people.
The engagement terms did not contain any term which materially restricted the scope of the work. Qualifications
Cameron Partners is an independent investment bank, which provides independent advice in relation to mergers and acquisitions, capital management and general strategic and corporate advice. Independence
None of the directors or employees of Cameron Partners have a relationship with or a shareholding in thl which could reasonably be regarded as capable of affecting Cameron Partners’ ability to provide an unbiased opinion in relation to the proposed transaction.
Cameron Partners will be paid a fixed fee for their services which is in no way contingent on the outcome of our analysis or the content of our Independent Report.
Cameron Partners does not have any other conflict of interest that could affect their ability to provide an unbiased Independent Report. Disclaimer and restrictions on the Scope of Our Work
In preparing this Independent Report, Cameron Partners has relied on information provided by thl and its advisers, and a range of other parties. Cameron Partners has not performed anything in the nature of an audit of that information, and does not express any opinion on the reliability, accuracy, or completeness of the information provided to us and upon which we have relied.
Cameron Partners have used the provided information on the basis that it is true and accurate in material respects and not misleading by reason of omission or otherwise. Accordingly, Cameron Partners and their respective directors, employees or agents, accept no responsibility or liability for any such information being inaccurate, incomplete, unreliable or not soundly based or for any errors in the analysis, statements and opinions provided in this Independent Report resulting directly or indirectly from any such circumstances or from any assumptions upon which this Independent Report is based proving unjustified.
The statements and opinions expressed in this Independent Report are based on information available as at the date of the Independent Report. In forming our opinion, we have relied on forecasts, projections and assumptions prepared by thl about future events which, by their nature, are not able to be independently verified. Inevitably, some assumptions may not materialise and unanticipated events and circumstances are likely to occur. Therefore, actual results in the future will vary from the forecasts and projections upon which we have relied. These variations may be material. Cameron Partners have reviewed all of the information used in the preparation of this Independent Report and believe that it is reasonable.
We reserve the right, but will be under no obligation, to review or amend our Independent Report if any additional information which was in existence on the date of this Independent Report was not brought to our attention, or subsequently comes to light.
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Appendix 2 – Information Sources
The following sources of information have been used in the preparation of this report:
Board Strategy Session Overview (October 2011)
Outlook for key tourism markets prepared for thl by Covec (August 2012)
Relevant material relating to the evaluation and timeframe of synergies, prepared by thl in conjunction with the Vendors
Board briefing paper prepared by thl (August 2012)
Transaction integration plan prepared by thl’s management
thl Shareholding Identification Report prepared by MerlinIR (September 2012)
thl Committed Terms Sheet (June 2012)
Proposed changes to thl’s committed terms (August 2012)
Asset Sale Agreement (Kea)
Asset Sale Agreement (United)
thl New Zealand rentals business plan 2012 – 2013
Agreement for Deferred Consideration
Sale of Intellectual Property and Licensing Agreement
thl business plan financial forecasts
thl fleet management plan
Discussions with senior management relating to structure, plan, execution and considerations around the transaction
Tourism satellite account – Ministry of Economic Development, Statistics New Zealand
Market commentary and statistics – Tourism New Zealand
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Appendix 3 – Redeemable Shares thl redeemable shares are part of the company’s long term incentive scheme. These provide the holder with the ability to exercise an option to acquire thl shares at the specified exercise price post the expiration date of each allocation. The mechanics of these instruments are similar to that of an American call option with dividend paying underlying assets. Consequently, we have valued the shares using the Black-Scholes option-valuation approach, adjusted for future dividend streams.
The Black-Scholes model evaluates an option based on the following parameters: . Valuation date: 31 August 2012 . Current price of underlying security: $0.57 . Risk free rate: 5% . Volatility: 34%, calculated as the observed volatility for the last 12 month prior to valuation date . Exercise price – as per table below . Expected future dividend distributions – as per table below . Time to expiry – as per table below
Shares Exercise Tranche Issue date Expiry date Issue price ($) outstanding price ($)
1 22/09/2006 22/09/2013 1,020,000 1.90 1.90
2 30/10/2007 30/10/2014 200,000 2.34 2.34
3 5/06/2009 5/06/2015 1,500,000 0.49 0.56
4 19/10/2009 19/10/2015 200,000 0.70 0.83
5 21/05/2010 21/05/2016 800,000 0.90 1.10
6 21/12/2010 21/12/2016 200,000 0.75 0.93
7 12/09/2011 12/09/2017 900,000 0.60 0.74
8 15/03/2012 15/03/2018 1,650,000 0.64 0.78
Source: thl
In addition, we have assumed 4.0 cents and 7.2 cents as FY13 and FY14 DPS respectively, applying a 60% dividend payout policy thereafter.
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Based on this, our assessment of the redeemable shares value is summarised in the table below:
Value Value of Tranche Expiry date Exercise price ($) Shares outstanding (cents) tranche ($)
1 22/09/2013 1.90 0.003 1,020,000 26
2 30/10/2014 2.34 0.023 200,000 45 3 5/06/2015 0.56 8.506 1,500,000 127,592 4 19/10/2015 0.83 3.432 200,000 6,863
5 21/05/2016 1.10 1.715 800,000 13,720 6 21/12/2016 0.93 2.705 200,000 5,409 7 12/09/2017 0.74 3.201 900,000 28,810
8 15/03/2018 0.78 2.435 1,650,000 40,185
Total 6,470,000 222,650
Assuming a post-Transaction share value, the value of each tranche changes materially:
Value Value of Tranche Expiry date Exercise price ($) Shares outstanding (cents) tranche ($) 1 22/09/2013 1.90 4.397 1,020,000 44,850 2 30/10/2014 2.34 5.384 200,000 10,769 3 5/06/2015 0.56 69.991 1,500,000 1,049,869 4 19/10/2015 0.83 50.625 200,000 101,250 5 21/05/2016 1.10 37.662 800,000 301,296 6 21/12/2016 0.93 45.658 200,000 91,316 7 12/09/2017 0.74 52.396 900,000 471,562 8 15/03/2018 0.78 49.317 1,650,000 813,724 Total 6,470,000 2,884,636
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Appendix 4 – Trading Comparables
Market EV EBIT multiple P/E multiple Company Country Cap (NZ$m) (NZ$m) H F H F Australasian Tourism and Leisure
Flight Centre Ltd. Australia 3,121 1,878 6.9x 5.3x 12.2x 12.3x
Sky City Entertainment Group Ltd. NZ 2,255 2,922 12.6x 11.9x 16.0x 15.4x
Amalgamated Holdings Ltd. Australia 1,366 1,345 13.4x 9.5x 11.3x 13.0x
Village Roadshow Ltd. Australia 698 1,024 7.7x 7.9x 14.7x 10.8x
Ardent Leisure Group Australia 569 807 14.3x 12.2x 14.3x 11.4x
Jetset Travelworld Ltd. Australia 237 -2 nm nm 10.9x 8.6x
Average 11.0x 9.4x 13.2x 11.9x
Median 12.6x 9.5x 13.3x 11.9x
Global Vehicle Rental
Hertz Global Holdings, Inc. US 7,777 22,571 15.5x 13.4x 18.7x 10.6x
Avis Budget Group, Inc. US 2,211 15,772 15.4x 17.3x 6.5x 5.9x
Dollar Thrifty Automotive Group Inc. US 3,032 4,625 10.6x 12.8x 12.8x 15.4x
Sixt Aktiengesellschaft Germany 1,032 2,840 8.7x 10.3x 6.1x 7.8x
Northgate plc UK 584 1,351 6.7x 7.5x 5.9x 7.9x
Fleetwood Corp. Ltd. Australia 835 814 8.4x 7.5x 12.3x 11.2x
Average 10.9x 11.5x 10.4x 9.8x
Median 9.6x 11.5x 9.4x 9.2x
Total
Average 10.9x 10.5x 11.8x 10.9x
Median 10.6x 10.3x 12.3x 11.0x
Source: Capital IQ, 07/09/2012 – figures adjusted for unusual items and discontinued operations
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Company name Description Flight Centre Limited provides wholesale and retail travel services. The company offers flights, hotels, holidays, car hire, cruises, rail passes, travel insurance, and others. The company, through its retail and corporate brands, provides a range of travel service for leisure and business travellers Flight Centre Ltd. in Australia, New Zealand, the United States, Canada, the United Kingdom, South Africa, Hong Kong, India, China, Singapore, and Dubai. Flight Centre Limited is headquartered in Brisbane, Australia SKYCITY Entertainment Group Limited operates in the gaming/entertainment, hotel and convention, Sky City hospitality, recreation, and tourism sectors in New Zealand and Australia. It operates casinos, Entertainment restaurants and bars, hotels, and convention centres, as well as tourism destinations, including Sky Group Ltd. Tower. The company also provides food and beverage, car parking, and property rental services. SKYCITY Entertainment Group Limited is based in Auckland, New Zealand. Amalgamated Holdings Limited, together with its subsidiaries, operates as an entertainment, hospitality, and tourism and leisure company. The company operates in three divisions: Amalgamated Entertainment, Entertainment Technology, and Hospitality and Leisure. The company also involves Holdings Ltd. in property rental and property investment businesses, as well as invests in shares in listed and unlisted companies. Amalgamated Holdings Limited is headquartered in Sydney, Australia.
Village Roadshow Limited operates as an entertainment and media company primarily in Australia, New Zealand, Singapore, and the United States. It operates theme park and water park, and cinema exhibition, as well as involves in film, DVD, and video distribution activities. The company owns Village Roadshow cinema circuit of approximately 680 screens in 70 separate sites. It also distributes theatrical movies Ltd. to cinema, video, DVD, pay television, and free to air television, as well as DVDs to retail and rental chains. In addition, the company involves in licensing, promoting, and marketing Australian recording artists. Village Roadshow Limited was founded in 1954 and is based in South Yarra, Australia. Ardent Leisure Group owns and operates leisure and entertainment assets in Australia, New Zealand, and the United States. The company’s leisure portfolio includes theme parks, such as Dreamworld and WhiteWater World in Coomera, Queensland; SkyPoint observation deck in Surfers Ardent Leisure Paradise, Queensland; 48 bowling centres in Australia and New Zealand; 7 d’Albora marina Group properties in New South Wales and Victoria; 9 indoor family entertainment centres in Texas, the United States; and 44 health clubs in Queensland, New South Wales, Victoria, South Australia, and Western Australia. It also involves in fractional boat ownership business in Sydney, New South Wales. Ardent Leisure Group is based in Milsons Point, Australia. Jetset Travelworld Ltd. sells international and domestic travel products. The company operates in Jetset Travelworld three segments: Retail, Wholesale, and Travel Management. It has operations in Australia, New Ltd. Zealand, the United States, Fiji, Asia, the United Kingdom, and South Africa. The company was founded in 1998 and is based in North Sydney, Australia. Hertz Global Holdings, Inc., through its subsidiaries, engages in the car and equipment rental businesses worldwide. The company operates in two segments, Car Rental and Equipment Rental. Hertz Global As of December 31, 2011, it operated a rental fleet of approximately 355,500 cars in the United Holdings, Inc. States; and a combined rental fleet of approximately 174,800 cars internationally. The company was founded in 1918 and is headquartered in Park Ridge, New Jersey. Avis Budget Group, Inc., together with its subsidiaries, provides car and truck rentals, and ancillary services to businesses and consumers worldwide. It supplies rental cars to the premium commercial Avis Budget and leisure segments of the travel industry under the Avis brand; and to the value-conscious Group, Inc. segments of the industry under the Budget brand. Avis Budget Group, Inc. was founded in 1946 and is headquartered in Parsippany, New Jersey. Dollar Thrifty Automotive Group, Inc., through its subsidiaries, engages in the daily rental of vehicles to business and leisure customers under the Dollar and Thrifty names through company-owned Dollar Thrifty stores in the United States and Canada. It also sells vehicle rental franchises worldwide; and Automotive Group provides sales and marketing, reservations, data processing systems, insurance, and other services Inc. to franchisees. As of June 27, 2012, it had approximately 1,575 corporate and franchised locations, including approximately 585 locations in the United States and Canada. The company was founded in 1989 and is headquartered in Tulsa, Oklahoma.
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Sixt Aktiengesellschaft provides mobility services for business and corporate customers, and private travellers. It offers vehicle rental and leasing services. The company rents various vehicles, including Sixt Aktiengesellschaft trucks, estate cars, convertibles, off-roaders, smaller city cars, sports cars, and SUVs. It also provides car leasing services, including finance leasing, full-service leasing, fleet management, mobility consulting, and sales-and-lease-back. The company was founded in 1912 and is based in Pullach, Germany. Sixt Aktiengesellschaft is a subsidiary of Erich Sixt Vermögensverwaltung GmbH.
Northgate plc, an investment holding company, provides light commercial vehicle hire services primarily in the United Kingdom and Spain. The company also offers fleet management services; Northgate plc and sells used light commercial vehicles directly to trade customers through its retail sites under the Van Monster brand. In addition, it provides online vehicle hiring and vehicle monitoring services to its customers. Northgate plc was founded in 1981 and is based in Darlington, the United Kingdom.
Fleetwood Corporation Limited, together with its subsidiaries, engages in the manufacture, wholesale, and retail of recreational vehicles and related products. It offers caravans, spare parts, accessories, marine equipment, campers, and pop tops, as well as fibber glass ute canopy, liner, Fleetwood Corp. lids, and alloy trays. The company also engages in the design, manufacture, sale, and rental of Ltd. manufactured accommodation, including park homes, transportable homes, and portable accommodations. The company serves the recreation, retirement, and resource industries in Australia and New Zealand. Fleetwood Corporation Limited was founded in 1964 and is headquartered in East Perth, Australia. Source: Capital IQ, 07/09/2012
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