Case Analysis Landmark Facility Solution and Broadway Industries

CASE STUDY: BROADWAY INDUSTRIES ACQUISITION OF LANDMARK FACILITY SOLUTIONS Deal Valuation and Synergy Analysis

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Broadway Industries, a facility services company based out of Newark, New Jersey is eyeing to acquire Landmark Facility Solution, a large integrated player based out of Sacramento area offering its services to multiple commercial customers. The acquisition was pursued with an expectation of growing market presence, improve growth and reward shareholders with better earnings prospects through synergy benefits. This document discusses that why it was important for Broadway to acquire Landmark (synergy), was it possible for synergies to materialize in real sense, should Broadway really acquire Landmark, what should be the fair valuation of Landmark, how the acquisition should be financed (equity / debt / mix), what is the extent of equity dilution happen because of such acquisition and what is the cost of such dilution.

Contents Why Broadway should acquire Landmark Facility Solution (Synergy)................................................ 2 

Integrated player with diversified offering ...................................................................................... 3



Gain in market share ....................................................................................................................... 4



Operational efficiency and cost optimization .................................................................................. 4



Ability to command premium pricing .............................................................................................. 5

 Opportunity to gain from Landmark’s expertise and developing a learning curve to improve existing operation of Broadway and create new line of opportunities ................................................... 5 Will synergies materialize in real sense..................................................................................................... 6 Discounting rate to be used for valuing the acquisition........................................................................... 7 Choice of alternative to finance the deal and Broadway’s capability to service debt obligation ......... 8 Valuation of both standalone companies and combined firm post acquisition and fair value of Landmark .................................................................................................................................................. 11 Quantum of dilution for Broadway shareholder and cost of such dilution ......................................... 12 Annexure 1: Broadway Financial and Common Size ............................................................................ 13 Annexure 2: Landmark Financials and Common Size ......................................................................... 14 Annexure 3: Standalone Projection (Pre-acqusition) ............................................................................ 15 Annexure 4: Combined Financials (Post- Acquisition) – Optimistic Case .......................................... 16 Annexure 5: Combined Financials (Post- Acquisition) – Pessimistic Case.......................................... 17 Annexure 6: Debt Repayment and Interest Coverage under different options .................................. 18 Annexure 7: Valuation ............................................................................................................................. 19 Annexure 8: Comparable ......................................................................................................................... 20

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Why Broadway should acquire Landmark Facility Solution (Synergy) Broadway Industries (Broadway), based in Newark, New Jersey, founded in 1982, by Tim Harris, CEO and President, was a facility services company and provides janitorial services, floor and carpet maintenance, HVAC and other building maintenance in the eastern United States. It had 12 regional offices from New England to Florida, and served industrial, retail, manufacturing, government, and education facilities. In year 2014, the company projected sales were US$ 161.9 million growing at a 4-Yr CAGR of 4%. The company was earning a gross margins of ~8% and net margins of ~3%. Net profit in last five years had been in tight range of US$4.2 – 4.6 mn. (Refer Annexure 1) Facility management services industry was worth US$ 120 bn in the U.S. in 2013. Within this, the integrated facility-services segment growth had been steady over last decade and the same was expected to growth at 6% p.a. till 2016. However, the market for single-service contracts player like Broadway and others was forecasted to grow at 4% annually. Broadway growth was aligned to industry growth and in absence of any new proposition the company growth was not expected to outpace industry in future as well. Landmark Facility Solutions (Landmark), founded in 1956 as a regional janitorial services provider to commercial facilities in the Sacramento area, grew quickly to become a large integrated provider to commercial customers. By early 2014, the company serviced more than 300 mn sqft and had more than 20 regional offices, in Calfornia, Arizona, Oregon, Washington, and British Columbia. Its major clients included large hospitals, and several Fortune 500 biotechnology and pharmaceutical companies. The company had won several accolades and been named regional supplier of the year. Its services were highly respected and in western United States, it was known for its high quality services and technical expertise and hence mostly command premium pricing.

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In last five years sales grew between 4 to 5% and last 4-Yr CAGR was 4.5%. Year 2014 was expected to report sales of US$ 345.5 mn. While the gross margins had been steady at little over 10%, jump in overhead cost led to fall in operating margins from 2.8% in 2010 to 0.9% in 2014 (E) and hence net margins from 1.8% to 0.6%. Net profit fell from US$ 5.2 mn in 2010 to US$ 2.0 mn in 2014. (Refer Annexure 2) It became important for Tim, to search for alternative and follow the path of M&A to look for inorganic growth opportunity and became an integrated player in pursuit of business risk diversification, opportunity to tap newer geographies and improve growth prospects. Hence the acquisition of Landmark will result in following synergy benefits to Broadway as a combined entity:  Integrated player with diversified offering  Facility management service provider in the U.S. offer comprehensive line of services including janitorial solutions, HVAC, commercial cleaning, facility engineering, energy solutions, landscaping, parking and security. The industry is highly fragmented with few large integrated player and several small regional private players. The environment offers opportunity for large integrated players that operate in multiple line of services and across geographies. Such players diversify their service offering and often provide bundle / integrated offers. Large commercial players also prefer single point of contact for all their requirement and hence prefer integrated players over standalone service providers. Advantage to integrated players are that they leverage economies of scale and offer compelling value proposition to gain premium pricing. Combination of Broadway and Landmark will create one such integrated service provider with bigger and diversified solutions, larger footprints and customer base. 3

 Gain in market share  As per the case, recently there had been consolidation in the industry leading to emergence of few integrated players with larger footprints. Acquisition would provide Broadway a bigger market and large comprehensive portfolio of products and services which enable them to offer better bundled services to its existing customers of combined entity and also provide access to markets where it had no presence. Landmark’s building and engineering solutions could help Broadway gain market share in East Coast. Further, Landmark will open options for Broadway to enter high-tech biotechnology, and pharmaceutical industries in its home market and help them to gain market share in this segment in eastern U.S. Lastly, Tim’s goal to enter West Coast can also be met and help Broadway to make a national integrated player which should add to market share, sales, profitability and hence valuation.  Operational efficiency and cost optimization  Landmark had reached to bottom quartile of facility management companies in last few years due to fall considerable and consistent fall in operating margins. Relying on Tim’s belief, the fall in margins was driven by managerial complacency and cost mismanagement. The acquisition will enable Broadway: o To replace current management team, cut executive pay, reduce non-essential marketing expenses and optimize shared services cost by reducing redundant staff and office spaces which will help to improve the margins of combined entity substantially. Harris is known for cultivating the culture of operational efficiency and hence is eyeing for restoring Landmark operating margins back to 3%. o Net working capital (non-cash) to sales ratio, another important driver of efficiency measurement, of Landmark was expected to fall from an average of 7% of sales to

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aligned with Broadway metrics of average 5% of sales driven by improvement in processes.  Ability to command premium pricing  Landmark had ability to command premium pricing for its high-quality services and expertise. The acquisition was expected to enable Broadway to exploit this competency and broaden its footprints leveraging Landmark’s brand and improve its pricing power and hence sales and margins.  Opportunity to gain from Landmark’s expertise and developing a learning curve to improve existing operation of Broadway and create new line of opportunities  Landmark was a highly respected player for its expertise and cutting edge solution. Broadway’s staff and operations would be exposed to such high end culture which enables improvement in efficiency and help to serve better, design better and innovate better.

5

Will synergies materialize in real sense Previous section have highlighted several rationale behind acquisition of Landmark. But there can be numerous reasons which may lead to non-materialization of above synergies. Without discussing in detail following are the broad reasons why the synergies may not deliver benefits:  Cultural integration issues or inability to integrate cultural differences of two different entity into a combined entity  Lack of clarity and execution of post-merger integration process with respect to identification and elimination of redundancies, reduction of common overhead expenses, reduction in manpower and identification of process gaps.  Change in external factors and market dynamics leading to shut down of business, loss of revenues, falling short of projections and hence losses.  Failure to determine ability to manage large diversified business when a standalone private player acquire a large diversified player. Combined entity would be double the size of Broadway, with coast-to-coast operations.  Often judgment of commanding premium pricing and hence accommodating loss of revenue in lieu of gain in margins result in a double edge sword when such expectation turn futile and the same was also highlighted as a concern by the appointed task force.  Error in estimates leading to over valuation of target and hence payment of significant premiums for expected synergy benefits which results a lower number.  Choosing a wrong mix of financing to finance the deal and hence end up taking excessive debt on books leading to rise in bankruptcy risk. Amidst above highlighted concerns of possibilities of non-materializing of synergies, there exists a strong case that there are substantial benefits for Broadway to go and acquire Landmark.

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Discounting rate to be used for valuing the acquisition Unlevered beta = Levered beta / [1 + D/E * (1-tax rate)] Using information given in exhibit 4 of the case, unlevered beta of comparable has been computed and average of the same taken to compute industry average at 1.1 times. Further, under both alternative, D/E ratio of Broadway (combined operations) was taken which resulted in D/E of 2.8 times in case of 1st alternative and 0.6 times in case of 2nd alternative. These two metric along with tax rate at 35% is used to derive levered beta under both options. Using exhibit 5, riskfree rate (10-Yr Treasury Rate) and market risk premium is taken at 2.56% and 5.9% respectively to derive cost of equity at 21.0% and 11.6% respectively under both options. This also reveals the fact how considerable exposure to external debt raises risk and hence increases cost of equity. In case of 1st alternative beta risen to 3.13 times which highlight the underlying risk of this alternative compare to 1.5 times in case of 2nd options. Cost of debt was 5.5% in case of 1st alternative and 5% in case of 2nd option and using post tax cost of debt, WACC is derived at 8.19% and 8.54% respectively. This is to note here that although cost of capital or WACC is lower in case of 1st alternative at 8.19%, the same reveals a substantial risk given substantial rise in D/E to nearly 3 times and cost of equity at 21%. Pre Acq

Post Acq

Broadway Existing New @ 100% debt financing New @ 1:1 financing Long term debt 8.30 120.00 60.00 Equity 43.13 43.13 103.13 Total Capital 51.43 163.13 163.13 Debt % Equity %

16.1% 83.9%

73.6% 26.4%

36.8% 63.2%

0.19

2.78

0.58

D/E

Broadway D/E Unlevered Beta Tax Rate Levered Beta

1st Alternative (100% Debt) 2.8 1.1 35%

2nd Alternative (50% Debt) 0.6 1.1 35%

3.13

1.54

Risk-free rate M arket risk premium

2.56% 5.90%

2.56% 5.90%

Cost of Equity (CAPM)

21.0%

11.6%

Cost of Debt (Pre-tax) Cost of Debt (Post-tax)

5.50% 3.58%

5.00% 3.25%

Debt portion Equity portion

73.6% 26.4%

36.8% 63.2%

WACC

8.19%

8.54%

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Choice of alternative to finance the deal and Broadway’s capability to service debt obligation As per the case, there are two alternative to finance the deal – 100% debt financing or a mix of 50% debt and 50% equity. It is important to understand current capital structure of Broadway to evaluate the impact of each alternative. As seen in previous section, the current capital structure of Broadway comprises 16% debt and 84% equity. Currently it has operating profit of US$ 7 to 8 mn and has annual interest cost obligation of US$ 0.4 mn besides annual principal obligation of US$0.4 mn. In case of first alternative (100% debt financing), leverage ratio of Broadway will jump substantially taking debt to 74% of total capital and equity at 26% or D/E ratio will jump to 3 times from current 0.2 times. While in second alternative (50% debt), leverage ratio will jump moderately taking debt to 37% and equity at 73% or D/E ratio will jump to 0.58 times. The principal repayment obligations while in the first alternative starts at US$ 5 mn from 2017 onwards for subsequent six years and finally a bullet repayment of US$ 90 mn in 2023, the same in case of second alternative comes as one single bullet repayment of US$ 60 mn in the year of maturity in 2020. Interest rate in case of 100% debt financing is 5.5% while in case of 50% debt financing is 5% p.a. The same when compared with Broadway’s standalone operating profit reveals a bleak picture in case of 1st alternative, where the entity has operating profit lower than interest cost obligation in year 2015 and 2016. This shows how risky this proposition is and becomes excessive dependent on Landmark’s performance and profitability at least in first two years. For later period, the company expected to generate sufficient profit to take care of both new and old loans interest

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obligation. The same does not seems to be a challenge when evaluated under second alternative where interest coverage is above 1 starting from 2015. (Annexure 3) However, this is not the right way of looking and evaluating financing option without taking into consideration the financial of combined entity. When looked in combination and ignoring all other elements, both financing pose no problem as far as the repayment obligation is concerned. In case of first alternative, under optimistic scenario, against a total interest obligation of US$ 7.0 mn, the combined operating profit is expected to be US$ 14.91 mn resulting in an interest coverage of 2.13 times in 2015 and rising further from thereon in subsequent period. The same is 1.98 times in 2015 and rising further in subsequent period in case of pessimistic scenario when combined operating profit is US$ 13.84 mn. In case of second alternative, the interest coverage rises to 4.39 and 4.07 in 2015 under optimistic and pessimistic scenario respectively. (Annexure 4, 5 and 6) When looked in isolation both options appear viable when compared on the basis of combined financials. Organization uses debt as it provides tax shield and hence improve profits for shareholder. The organization run for the shareholder and not for servicing the debt holders. Tim Harris must appreciate the fact that although 100% debt financing will provide the highest tax shield but at the same time will eat away nearly 50% of profits compared to second alternative which generate substantial profits. Tenure of debt for 100% debt financing is long and is ending in 2023 and hence will continue to have impact on profitability. The same is not the case in 50% debt financing where the tenure is ending in 2020. When both options are compared net profit is substantially higher in case of 50% debt financing. Similar is the case also when combined financials under pessimistic case are evaluated. Besides, 100% debt financing also increases the D/E ratio at Broadway substantially 9

to 2.8 times which risen only to 0.58 times in case of 50% option. This poses significant threat to credit rating and further debt raising capacity of Broadway if Tim chooses to go with first option. Another important factor to consider is beta which rises to as high as 3.13 times vs. 1.54 times between both alternatives respectively. Lastly, the cost of equity for Broadway will become significantly higher and become a challenging task to justify shareholder expectation if he chooses to go with 100% debt financing. Based on above analysis, it is advisable to go with second alternative and finance the deal with 50% debt and 50 % equity.

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Valuation of both standalone companies and combined firm post acquisition and fair value of Landmark Based on both optimistic and pessimistic scenarios, both companies have been valued on a standalone basis post acquisition and fair of landmark under both options is derived. Valuation has been derived only based on 50% debt and 50% equity financing. 100% financing option has been ignored as the same has not been recommended as a viable option. While the fair value of Landmark under both options is US$ 66.05 mn and US$ 45.48 mn respectively, the fair value of Broadway is US$ 87.77 mn and US$ 77.11 mn. Both put together the value of combined firm is US$ 153.83 or $154 mn and US$ 122.59 mn or US$ 123 mn respectively. (Annexure 7) Landmark’s deal price at US$ 120 million is 82% premium to fair value at US$ 66.05 mn under optimistic case. The deal value results in an implied price-to-earnings ratio of 33.9 times year 2015 earnings which represents reasonable valuation compared to its peers which are trading between 28 times to 41 times. However, on market capitalization-to-sales ratio basis the deal is reasonably under priced at 0.33 times 2015 sales compared to 0.44 times to 0.60 times run rate of comparable in the market (Annexure 8). In the short term, Broadway should gain benefits because of cost optimization resulting out of the synergy benefits. But the speed at which Broadway will monetize these opportunities will decide its future performance and will remain a key monitorable. Even though the deal price is substantially higher than the fair value derived, Broadway should go ahead with the deal given the combined synergies of this deal is a big positive for Broadway.

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Quantum of dilution for Broadway shareholder and cost of such dilution As seen in below table, 40% equity ownership in combined firm is valued at US$ 61.53 mn in case of optimistic scenario and US$ 49.04 mn in case of pessimistic case. While the former implies that the Landmark shareholders receive a premium of US$ 1.53 mn the latter signifies a discount of US$ 11 mn. Taking optimistic scenario the deal results in dilution in Broadway’s EPS of 39% to Broadway equity owners.

In US$ Million Optimistic Pessimistic Value of Combined Firm 153.83 122.59 Equity Raised (40% ownership) 61.53 49.04 Dilution when US$ 60 mn is raised 39.0% 48.9%

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Annexure 1: Broadway Financial and Common Size In US $ Million Income statement Net sales COGS Gross profit Operating expenses Depreciation and amortization Operating profit a Interest expense Income taxes Net income EPS Dividends Balance sheet Cash Accounts receivable Other current assets Current assets Net PP&E Investments and other assets Total assets

2010

2011

2012

2013

2014 [E]

2010

2011

2012

2013

2014 [E]

137.8 126.1 11.7 2.9 1.8 7.0 0.4 2.3 4.3 $1.23 $0.24

143.5 131.5 12.0 2.9 2.2 6.9 0.4 2.3 4.2 $1.21 $0.24

149.5 137.1 12.4 2.9 2.5 7.0 0.4 2.3 4.3 $1.22 $0.24

155.3 142.5 12.8 3.0 2.8 7.0 0.4 2.3 4.3 $1.23 $0.24

161.9 148.6 13.3 3.0 2.9 7.4 0.4 2.5 4.6 $1.30 $0.24

100.00% 91.51% 8.49% 2.10% 1.31% 5.08% 0.28% 1.68% 3.12%

100.00% 91.64% 8.36% 2.02% 1.53% 4.81% 0.25% 1.59% 2.96%

100.00% 91.71% 8.29% 1.94% 1.67% 4.68% 0.27% 1.54% 2.87%

100.00% 91.76% 8.24% 1.93% 1.80% 4.51% 0.25% 1.49% 2.77%

100.00% 91.79% 8.21% 1.85% 1.79% 4.57% 0.23% 1.52% 2.82%

1.8 13.1 2.8 17.7 16.0 35.9 69.6

1.0 13.5 4.0 18.5 17.4 38.6 74.5

1.9 14.6 4.1 20.6 18.6 41.8 81.1

1.5 15.2 4.2 20.9 19.7 43.2 83.8

2.1 16.2 4.2 22.5 20.9 43.5 86.8

2.59% 18.82% 4.02% 25.43% 22.99% 51.58% 100.00%

1.37% 18.12% 5.37% 24.86% 23.34% 51.81% 100.00%

2.38% 18.01% 5.06% 25.45% 22.98% 51.57% 100.00%

1.79% 18.14% 5.01% 24.94% 23.52% 51.55% 100.00%

2.39% 18.66% 4.84% 25.89% 24.02% 50.10% 100.00%

10.4 0.4 10.8 8.7 13.1 12.5 45.1 36.0 81.1

11.0 0.4 11.4 8.3 13.3 11.4 44.4 39.4 83.8

11.5 0.4 11.9 7.9 13.0 10.9 43.7 43.1 86.8

13.36% 0.57% 13.94% 11.78% 16.67% 15.80% 58.19% 41.81% 100.00%

13.29% 0.54% 13.82% 10.33% 17.18% 15.03% 56.37% 43.63% 100.00%

12.83% 0.49% 13.32% 10.73% 16.16% 15.42% 55.64% 44.36% 100.00%

13.13% 0.48% 13.60% 9.90% 15.87% 13.60% 52.98% 47.02% 100.00%

13.24% 0.46% 13.70% 9.10% 14.97% 12.55% 50.33% 49.67% 100.00%

Accounts payable 9.3 9.9 b Long-term debt, current portion 0.4 0.4 Current Liabilities 9.7 10.3 Long-term debt 8.2 7.7 Accrued expenses and deferred taxes 11.6 12.8 Other non-current liabilities 11.0 11.2 Total liabilities 40.5 42.0 Shareholders 'equity 29.1 32.5 Total liabilities and equity 69.6 74.5 a Interest rate on long-term debt outstanding is at 4.5% per year. b Principal amount of long-term debt is amortized at $0.4m per year.

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Annexure 2: Landmark Financials and Common Size In US $ Million Income statement Net sales COGS Gross profit Operating expenses Depreciation and amortization Operating profit Interest expense Income taxes Net income EPS Dividend

2010

2011

2012

2013

2014 [E]

2010

2011

2012

2013

2014 [E]

289.9 259.4 30.5 20.9 1.6 8.0 0.0 2.8 5.2 $1.30 $0.20

304.1 273.1 31.0 21.6 1.6 7.8 0.0 2.7 5.1 $1.27 $0.20

316.4 284.1 32.3 26.7 1.7 3.9 0.3 1.3 2.3 $0.58 $0.20

329.0 295.3 33.7 28.6 1.7 3.4 0.2 1.1 2.1 $0.52 $0.20

345.5 310.4 35.1 30.3 1.8 3.0 0.0 1.1 2.0 $0.49 $0.20

100.00% 89.48% 10.52% 7.21% 0.55% 2.76% 0.00% 0.97% 1.79%

100.00% 89.81% 10.19% 7.10% 0.53% 2.56% 0.00% 0.90% 1.67%

100.00% 89.79% 10.21% 8.44% 0.54% 1.23% 0.09% 0.40% 0.74%

100.00% 89.76% 10.24% 8.69% 0.52% 1.03% 0.06% 0.34% 0.63%

100.00% 89.84% 10.16% 8.77% 0.52% 0.87% 0.00% 0.30% 0.56%

Balance sheet Cash Accounts receivable Other current assets Current assets Net PP&E Investments and other assets Total assets

3.6 20.7 6.3 30.6 3.1 45.0 78.7

4.2 22.0 5.1 31.3 5.1 47.1 83.6

3.3 29.3 4.9 37.5 7.2 47.3 92.0

1.5 30.4 5.0 36.9 9.2 47.6 93.7

0.4 31.0 4.9 36.3 11.2 47.2 94.6

4.57% 26.30% 8.01% 38.88% 3.94% 57.18% 100.00%

5.05% 26.33% 6.10% 37.48% 6.16% 56.36% 100.00%

3.55% 31.84% 5.33% 40.72% 7.88% 51.41% 100.00%

1.63% 32.45% 5.34% 39.41% 9.78% 50.81% 100.00%

0.40% 32.76% 5.18% 38.33% 11.80% 49.87% 100.00%

Accounts payable Bank borrowing Current Liabilities Accrued expenses and deferred taxes Other non-current liabilities Total liabilities Shareholders' equity Total liabilities and equity

5.6 0.0 5.6 13.9 16.6 36.1 42.6 78.7

5.3 0.0 5.3 13.9 17.5 36.7 46.9 83.6

7.6 4.0 11.6 15.0 17.0 43.6 48.4 92.0

8.9 2.5 11.4 15.3 17.3 44.0 49.7 93.7

10.4 0.0 10.4 15.5 17.9 43.8 50.8 94.6

7.12% 0.00% 7.12% 17.66% 21.09% 45.87% 54.13% 100.00%

6.34% 0.00% 6.34% 16.63% 20.94% 43.92% 56.08% 100.00%

8.26% 4.35% 12.61% 16.30% 18.48% 47.39% 52.61% 100.00%

9.50% 2.67% 12.17% 16.33% 18.47% 46.96% 53.04% 100.00%

10.99% 0.00% 10.99% 16.38% 18.91% 46.28% 53.72% 100.00%

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Annexure 3: Standalone Projection (Pre-acqusition) Landmark In US $ Million Net sales Operating profit Net income Depreciation and amortization Change in net working capital Capital expenditure Total FCF

2015 362.8 5.4 3.5 2.1 1.3 3.6 0.7

2016 380.9 5.7 3.7 2.4 1.3 3.8 1.0

Financials 2017 400.0 6.0 3.9 2.7 1.4 4.0 1.2

2018 420.0 6.3 4.1 3.0 1.5 4.2 1.4

2019 441.0 6.6 4.3 3.3 1.6 4.4 1.6

Broadway Financials In US $ Million 2015 2016 2017 2018 2019 Net sales 168.4 175.1 182.1 189.4 197.0 Operating profit 6.7 7.0 7.3 7.6 7.9 Interest expense 0.4 0.4 0.4 0.4 0.4 Net income 4.1 4.3 4.5 4.7 4.9 Depreciation and amortization 3.1 3.3 3.5 3.7 3.9 Change in net working capital 0.4 0.4 0.4 0.4 0.4 Capital expenditure 4.2 4.4 4.6 4.7 4.9 Total FCF 2.8 3.1 3.3 3.5 3.7 *Numbers in the exhibits are based on the assumption Broadway does not acquire Landmark.

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Annexure 4: Combined Financials (Post- Acquisition) – Optimistic Case Landmark In US $ Million Sales Growth Sales Operating M argin Capital Expenditure % of sales Depreciation Non-cash Net WC as % of sales Net WC

2015 5% 362.8 1.50% 1% 2.1 7.00% 25.39

2016 5% 380.9 2.00% 1% 2.4 6.50% 24.76

362.78 5.44 3.54 2.10 (0.1) 3.63 2.12

380.91 7.62 4.95 2.40 (0.6) 3.81 4.18

399.96 10.00 6.50 2.70 0.4 4.00 4.76

419.96 12.60 8.19 3.00 0.0 4.20 6.99

440.96 13.23 8.60 3.30 (0.9) 4.41 8.43

458.59 13.76 8.94 3.60 1.0 4.59 6.99

2015 -10.00% 145.71 8.50% 2.00% 2.10% 3.1 5.25% 7.65

2016 -10.00% 131.14 8.50% 2.00% 2.10% 3.3 5.25% 6.89

2017 9.00% 142.94 9.00% 2.00% 2.10% 3.5 5.25% 7.50

2018 9.00% 155.81 9.00% 2.00% 2.10% 3.7 5.25% 8.18

2019 9.00% 169.83 9.50% 2.00% 2.10% 3.9 5.25% 8.92

2020 4.50% 177.47 9.50% 2.00% 2.10% 4.1 5.25% 9.32

145.7 12.4 2.9 9.5 0.4 5.9 3.1 (0.9) 3.1 7.05

131.1 11.1 2.6 8.5 0.4 5.3 3.3 (0.8) 2.8 6.85

142.9 12.9 2.9 10.0 0.4 6.2 3.5 0.6 3.0 6.38

155.8 14.0 3.1 10.9 0.4 6.8 3.7 0.7 3.3 6.84

169.8 16.1 3.4 12.7 0.4 8.0 3.9 0.7 3.6 7.88

177.5 16.9 3.5 13.3 0.4 8.4 4.1 0.4 3.7 8.62

Combined (100% debt financing) In US $ Million S ales Operating Profit Interest Expense - Old Loan Interest Expense - New Loan Net Income Depreciation and amortization Increase in net working capital Capital expenditure Total FCFF

2015 508.49 14.91 0.40 6.60 5.14 5.20 (0.96) 6.69 9.16

2016 512.05 16.14 0.40 6.60 5.94 5.70 (1.40) 6.56 11.03

2017 542.90 20.00 0.40 6.60 8.45 6.20 1.06 7.00 11.14

2018 575.76 23.51 0.40 6.33 10.91 6.70 0.68 7.47 13.83

2019 610.78 25.97 0.40 6.05 12.69 7.20 (0.21) 7.98 16.31

2020 636.06 27.07 0.40 5.78 13.58 7.70 1.37 8.31 15.61

Combined (50% debt financing) In US $ Million S ales Operating Profit Interest Expense - Old Loan Interest Expense - New Loan Net Income Depreciation and amortization Increase in net working capital Capital expenditure Total FCFF

2015 508.49 14.91 0.40 3.00 7.48 5.20 (0.96) 6.69 9.16

2016 512.05 16.14 0.40 3.00 8.28 5.70 (1.40) 6.56 11.03

2017 542.90 20.00 0.40 3.00 10.79 6.20 1.06 7.00 11.14

2018 575.76 23.51 0.40 3.00 13.07 6.70 0.68 7.47 13.83

2019 610.78 25.97 0.40 3.00 14.67 7.20 (0.21) 7.98 16.31

2020 636.06 27.07 0.40 3.00 15.38 7.70 1.37 8.31 15.61

Net sales Operating profit Net income Depreciation and amortization Increase in net working capital Capital expenditure Total FCFF Broadway In US $ Million Sales Growth Sales Gross M argin Opex as % of sales Capex as % of sales Depreciation Non-cash Net WC as % of sales Net WC Net sales Gross profit Opex Operating profit Interest expense Net income Depreciation and amortization Increase in net working capital Capital expenditure Total FCFF

2017 5% 400.0 2.50% 1% 2.7 6.30% 25.20

2018 5% 420.0 3.00% 1% 3 6.00% 25.20

2019 5% 441.0 3.00% 1% 3.3 5.50% 24.25

2020 4% 458.6 3.00% 1% 3.6 5.50% 25.22

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Annexure 5: Combined Financials (Post- Acquisition) – Pessimistic Case Landmark In US $ Million Sales Growth Sales Operating M argin Capital Expenditure % of sales Depreciation Non-cash Net WC as % of sales Net WC Net sales Operating profit Net income Depreciation and amortization Increase in net working capital Capital expenditure Total FCFF

2015 5% 362.8 1.50% 1% 2.1 7.00% 25.39

2016 5% 380.9 2.00% 1% 2.4 7.00% 26.66

2017 5% 400.0 2.50% 1% 2.7 7.00% 28.00

2018 5% 420.0 2.50% 1% 3 6.50% 27.30

2019 5% 441.0 2.50% 1% 3.3 6.50% 28.66

2020 4% 458.6 2.50% 1% 3.6 6.50% 29.81

362.78 5.44 3.54 2.10 (0.1) 3.63 2.12

380.91 7.62 4.95 2.40 1.3 3.81 2.27

399.96 10.00 6.50 2.70 1.3 4.00 3.87

419.96 10.50 6.82 3.00 (0.7) 4.20 6.32

440.96 11.02 7.17 3.30 1.4 4.41 4.69

458.59 11.46 7.45 3.60 1.1 4.59 5.32

2015 -15.00% 137.62 8.50% 2.40% 2.10% 3.1 5.25% 7.23

2016 -15.00% 116.97 8.50% 2.40% 2.10% 3.3 5.25% 6.14

2017 8.00% 126.33 9.00% 2.40% 2.10% 3.5 5.25% 6.63

2018 8.00% 136.44 9.00% 2.40% 2.10% 3.7 5.25% 7.16

2019 8.00% 147.35 9.50% 2.40% 2.10% 3.9 5.25% 7.74

2020 3.50% 152.51 9.50% 2.40% 2.10% 4.1 5.25% 8.01

137.6 11.7 3.3 8.4 0.4 5.2 3.1 (1.3) 2.9 6.94

117.0 9.9 2.8 7.1 0.4 4.4 3.3 (1.1) 2.5 6.57

126.3 11.4 3.0 8.3 0.4 5.2 3.5 0.5 2.7 5.78

136.4 12.3 3.3 9.0 0.4 5.6 3.7 0.5 2.9 6.16

147.4 14.0 3.5 10.5 0.4 6.5 3.9 0.6 3.1 7.03

152.5 14.5 3.7 10.8 0.4 6.8 4.1 0.3 3.2 7.66

Combined (100% debt financing) In US $ Million S ales Operating Profit Interest Expense - Old Loan Interest Expense - New Loan Net Income Depreciation and amortization Increase in net working capital Capital expenditure Total FCFF

2015 500.39 13.84 0.40 6.60 4.44 5.20 (1.38) 6.52 9.06

2016 497.89 14.75 0.40 6.60 5.04 5.70 0.19 6.27 8.84

2017 526.29 18.34 0.40 6.60 7.37 6.20 1.82 6.65 9.64

2018 556.39 19.50 0.40 6.33 8.31 6.70 (0.17) 7.06 12.48

2019 588.31 21.49 0.40 6.05 9.77 7.20 1.94 7.50 11.72

2020 611.10 22.29 0.40 5.78 10.48 7.70 1.42 7.79 12.98

Combined (50% debt financing) In US $ Million S ales Operating Profit Interest Expense - Old Loan Interest Expense - New Loan Net Income Depreciation and amortization Increase in net working capital Capital expenditure Total FCFF

2015 500.39 13.84 0.40 3.00 6.78 5.20 (1.38) 6.52 9.06

2016 497.89 14.75 0.40 3.00 7.38 5.70 0.19 6.27 8.84

2017 526.29 18.34 0.40 3.00 9.71 6.20 1.82 6.65 9.64

2018 556.39 19.50 0.40 3.00 10.47 6.70 (0.17) 7.06 12.48

2019 588.31 21.49 0.40 3.00 11.76 7.20 1.94 7.50 11.72

2020 611.10 22.29 0.40 3.00 12.28 7.70 1.42 7.79 12.98

Broadway In US $ Million Sales Growth Sales Gross M argin Opex as % of sales Capex as % of sales Depreciation Non-cash Net WC as % of sales Net WC Net sales Gross profit Opex Operating profit Interest expense Net income Depreciation and amortization Increase in net working capital Capital expenditure Total FCFF

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Annexure 6: Debt Repayment and Interest Coverage under different options New Loan Servicing (100% debt financing) - US$ Mn

Year Op Loan Bal Interest Repayment Cl Loan Bal 2015 120.00 6.60 120.00 2016 120.00 6.60 120.00 2017 120.00 6.60 5.00 115.00 2018 115.00 6.33 5.00 110.00 2019 110.00 6.05 5.00 105.00 2020 105.00 5.78 5.00 100.00 2021 100.00 5.50 5.00 95.00 2022 95.00 5.23 5.00 90.00 2023 90.00 4.95 90.00 New Loan Servicing (50% debt financing) - US$ Mn

Year Op Loan Bal Interest Repayment Cl Loan Bal 2015 60.00 3.00 60.00 2016 60.00 3.00 60.00 2017 60.00 3.00 60.00 2018 60.00 3.00 60.00 2019 60.00 3.00 60.00 2020 60.00 3.00 60.00 -

Total annual Broadway obligation incl Standalone old loan Op Profit 7.40 6.74 7.40 7.00 12.40 7.28 12.13 7.58 11.85 7.88 11.58 11.30 11.03 95.75

Optimistic Case Broadway Int combined coverage profit 0.96 14.91 1.00 16.14 1.04 20.00 1.13 23.51 1.22 25.97

Optimistic Case Total annual Broadway Broadway obligation incl Standalone Int combined old loan Op Profit coverage profit 3.80 6.74 1.98 14.91 3.80 7.00 2.06 16.14 3.80 7.28 2.14 20.00 3.80 7.58 2.23 23.51 3.80 7.88 2.32 25.97 63.80

Int Cov 2.13 2.31 2.86 3.50 4.03

Broadway Standalone Op Profit 6.74 7.00 7.28 7.58 7.88

Pessimistic Case Broadway Int combined coverage profit 0.96 13.84 1.00 14.75 1.04 18.34 1.13 19.50 1.22 21.49

Int Cov 1.98 2.11 2.62 2.90 3.33

Int Cov 4.39 4.75 5.88 6.91 7.64

Pessimistic Case Broadway Broadway Standalone Int combined Op Profit coverage profit 6.74 1.98 13.84 7.00 2.06 14.75 7.28 2.14 18.34 7.58 2.23 19.50 7.88 2.32 21.49

Int Cov 4.07 4.34 5.39 5.74 6.32

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Annexure 7: Valuation Landmark - Optimistic Scenario FCFF Discounting Factor at 8.54% PV of FCFF Sum of PV of FCFF

2015 2.12 0.92 1.95 24.12

Terminal Growth Terminal Yr FCFF Terminal Value PV of Terminal Value

4% 4.44 97.83 59.83

Enterprise Value Less: Non Current Liabilities Equity Value Broadway - Optimistic Scenario FCFF Discounting Factor at 8.54% PV of FCFF Sum of PV of FCFF

2016 4.18 0.85 3.55

2017 4.76 0.78 3.72

2018 6.99 0.72 5.04

2019 8.43 0.66 5.60

2020 6.99 0.61 4.27

83.95 (17.90) 66.05 2015 7.05 0.92 6.49 32.73

Landmark - Pessimistic Scenario FCFF Discounting Factor at 8.54% PV of FCFF Sum of PV of FCFF

2015 2016 2017 2.12 2.27 3.87 0.92 0.85 0.78 1.95 1.93 3.02 17.83

Terminal Growth Terminal Yr FCFF Terminal Value PV of Terminal Value

4% 3.38 74.49 45.55

Enterprise Value Less: Non Current Liabilities Equity Value 2016 6.85 0.85 5.82

2017 6.38 0.78 4.99

2018 6.84 0.72 4.93

2019 7.88 0.66 5.23

2020 8.62 0.61 5.27

Broadway - Pessimistic Scenario FCFF Discounting Factor at 8.54% PV of FCFF Sum of PV of FCFF

2015 2016 2017 6.94 6.57 5.78 0.92 0.85 0.78 6.40 5.57 4.52 30.28

4% 5.48 120.75 73.84

Terminal Growth Terminal Yr FCFF Terminal Value PV of Terminal Value

4% 4.87 107.33 65.63

Enterprise Value Less: Non Current Liabilities Equity Value

106.57 (18.80) 87.77

Enterprise Value Less: Non Current Liabilities Equity Value

95.91 (18.80) 77.11

2015 2016 2017 2018 2019 2020 9.16 11.03 11.14 13.83 16.31 15.61 0.92 0.85 0.78 0.72 0.66 0.61 8.44 9.36 8.71 9.97 10.83 9.55 56.85

Combined Firm - Pessimistic Case FCFF Discounting Factor at 8.54% PV of FCFF Sum of PV of FCFF

2019 4.69 0.66 3.11

2020 5.32 0.61 3.25

2018 6.16 0.72 4.44

2019 7.03 0.66 4.67

2020 7.66 0.61 4.69

63.38 (17.90) 45.48

Terminal Growth Terminal Yr FCFF Terminal Value PV of Terminal Value

Combined Firm - Optimistic Case FCFF Discounting Factor at 8.54% PV of FCFF Sum of PV of FCFF

2018 6.32 0.72 4.56

2015 2016 2017 2018 2019 2020 9.06 8.84 9.64 12.48 11.72 12.98 0.92 0.85 0.78 0.72 0.66 0.61 8.34 7.50 7.54 8.99 7.78 7.94 48.10

Terminal Growth Terminal Yr FCFF Terminal Value PV of Terminal Value

4% 9.93 218.59 133.67

Terminal Growth Terminal Yr FCFF Terminal Value PV of Terminal Value

4% 8.26 181.82 111.19

Enterprise Value Less: Non-Current Liabilities Equity Value

190.53 (36.70) 153.83

Enterprise Value Less: Non-Current Liabilities Equity Value

159.29 (36.70) 122.59

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Annexure 8: Comparable In US $ Mn Sales Net income EPS Share price Number of shares outstanding M arket capitalization Debt Assets Equity beta P/E M arket Cap to Sales D/E Equity Beta (levered) Unlevered Beta Average Unlevered Beta

Comparable Company 1 $13,945.7 $219.4 $0.95

Comparable Company 2 $6,417.2 $123.8 $1.84

Comparable Company 3 $836.9 $12.1 $0.55

$26.76 231.2 $6,186.9 $5,887.0 $10,267.1 1.69

$46.83 67.3 $3,151.7 $355.0 $3,465.9 1.25

$22.73 22.0 $500.1 $289.0 $862.4 1.56

28.20 0.44

25.46 0.49

41.33 0.60

1.0 1.7x 1.0x 1.1x

0.1 1.3x 1.2x

0.6 1.6x 1.1x

20