Goldman Stanley, Inc.
Project Aardvark
Presentation to the Board of Directors
January 29, 2010
Goldman Stanley
Confidential Draft
Table Of Contents
Executive Summary
Aardvark Valuation
Potential Acquisitions
11
Process Recommendations
16
Appendix
19
Goldman Stanley
Executive Summary
Goldman Stanley
Executive Summary
As of January 29, 2010, Aardvarks share price and valuation are at all-time highs,
having more than doubled since early 2009
As Aardvarks stock price has soared in value, it has also generated over $35B in
cash & cash-equivalents
As Aardvarks cash balance grows, it is likely to face shareholder pressure to reinvest the cash in its business and to make significant acquisitions
Given Aardvarks strong currency and cash balance, it could easily make several
tuck-in acquisitions or larger-scale acquisitions to acquire customers
Such a strategy would allow Aardvark to capture more of the smartphone, laptop, and
desktop markets, and significantly improve its software offerings
Given Aardvarks cash position, such acquisitions could be made with 100% cash
or in the case of a larger deal, stock could also be used
Goldman Stanley
Aardvark Valuation
Goldman Stanley
Valuation Summary
Aardvarks current share price of $192.61 far exceeds the value implied by
comparable public companies
Recent comparable transactions show higher implied valuation ranges due to flurry of
consolidation and hardware M&A activity over 2009
Discounted Cash Flow Analysis under base-case assumptions shows implied
valuation on-par with Aardvarks current share price, implying that share price is
justified
All valuation analysis is based on base-case financial projections in line with Wall
Street analyst expectations
Given Aardvarks cash balance and high valuation multiples vs. similar public
companies, few competitors are well-positioned to make substantial acquisitions
Goldman Stanley
Aardvark Valuation Summary
($ in Millions Except Per Share Data)
Public Company Comparables(1)(2)
2009 EV / Revenue:
2010E EV / Revenue:
2009 EV / EBITDA:
2010E EV / EBITDA:
2009 P / E:
2010E P / E:
Min to 25th
Precedent Transactions
(1)
25th to Median
Median to 75th
Trailing EV / Revenue:
75th to Max
Forward EV / Revenue:
Trailing EV / EBITDA:
Forward EV / EBITDA:
Discounted Cash Flow Analysis
11-15% Discount Rate, 5-9x Terminal Multiple:
$0.00
Goldman Stanley
$100.00
$200.00
$300.00
$400.00
$500.00
$600.00
(1) EBITDA excludes stock-based compensation and non-recurring charges.
(2) Financial data as of January 29, 2010.
$700.00
Aardvark Comparable Public Companies
US-Based Hardware & Networking Companies with Over $20 Billion Revenue
($ in Millions Except Per Share Data)
Comparable Public Companies Operating Metrics (1)
45.0%
40.0%
35.0%
30.0%
25.0%
20.0%
15.0%
10.0%
5.0%
0.0%
(5.0%)
(10.0%)
39%
31%
29%
18%
14%
8%
25%
22%
2010E Revenue Growth
8% 7%
2009A EBITDA Margin
4%
(6%)
Comparable Public Companies Valuation Multiples(1)(2)
14.0 x
12.0 x
10.0 x
8.0 x
6.0 x
4.0 x
11.5 x
10.6 x
7.6 x
8.4 x
6.8 x
4.4 x
3.7 x
10.7 x
8.6 x
7.3 x
5.1 x
5.5 x
2009 EBITDA Multiple
2010E EBITDA Multiple
2.0 x
0.0 x
Goldman Stanley
(1) EBITDA excludes stock-based compensation and non-recurring charges.
(2) Financial data as of January 29, 2010.
Aardvark Precedent Transactions
Networking & Hardware M&A Transactions Over $1 Billion with US-Based Sellers Since January 1, 2008
($ in Millions Except Per Share Data)
Goldman Stanley
(1) Excludes stock-based compensation and non-recurring charges.
Aardvark Discounted Cash Flow Analysis
($ in Millions Except Per Share Data)
DCF Assumptions:
Discount Rate:
12.5%
Terminal EBITDA Multiple:
7.0 x
Model Uses Base Case Financial
Projections
Mid-Year Convention Used For PV
Of Cash Flows
Goldman Stanley
10
Potential Acquisitions
Goldman Stanley
11
Potential Acquisitions
Given Aardvarks large cash balance, it could make a wide variety of acquisitions
ranging from small tuck-in deals to acquire technology and IP to larger deals driven
by customer or market share acquisition
Tier 1 Potential Acquisitions
Tier 1 acquisition candidates are worth over $1 billion and would significantly
boost Aardvarks market share or result in substantial revenue or cost synergies
Leading candidates include ARM, for its chipset technology and integration with
Aardvarks existing products, and Research in Motion to capture additional
share in the corporate smartphone market
Tier 2 Potential Acquisitions
Tier 2 acquisition candidates are worth less than $1 billion and would enhance
Aardvarks core technology and fill in gaps in existing products
Potential acquisitions include specialized chipset and semiconductor companies
as well as Web 2.0, social media, and mobile software companies
Goldman Stanley
12
Potential Acquisition Candidates
Tier 1 Acquisition Candidates
Tier 2 Acquisition Candidates
Goldman Stanley
13
Company Profile: ARM
ARM Holdings
Headquarters:
Employees:
Founded:
Cambridge, UK
1700
1990
Financial Information(1):
Market Cap:
Cash:
2009 Revenue:
2009 EPS:
2010E Revenue:
2010E EPS:
$2.5B
$204M
$490M
$7.85
$531M
$10.97
Goldman Stanley
ARM Holdings is a supplier of semiconductor
intellectual property and components of digital
electronic products. It designs and licenses
intellectual property rather than manufacturing and
selling semiconductor chips, and it licenses its IP to
a wide network of hardware, mobile, and
networking companies. It also provides tools to
optimize system-on-chip designs.
Management Team:
Warren East
Tudor Brown
Graham Budd
Mike Muller
Tim Score
John Cornish
Ian Drew
Antonio Viana
CEO
President
COO
CTO
CFO
EVP, Systems
EVP, Marketing
EVP, Sales
Products:
Key Partners:
Processors ARM provides 32-bit embedded
microprocessors based on a common architecture
that delivers high-performance, power efficiency,
and reduced system cost.
System IP Serves as the connection between
processors, memory, and peripherals to ensure
optimum performance.
Multimedia ARM provides graphics processors
that enable embedded graphics, audio, and video
applications.
Physical IP Provides SoC integrated circuits
and logic, embedded memory, and interface IP.
Tools ARM subsidiaries provide compilers,
debuggers, simulators, and other optimization tools
for a wide variety of chip and processor families.
Electronic Arts, LSI Logic,
Microsoft, National Semiconductor,
Nokia, NVIDIA, Rambus, Real
Networks, Samsung, and Toshiba.
(1) Financial data as of January 29, 2010.
14
Company Profile: Research In Motion
Research In Motion
Headquarters:
Employees:
Founded:
Waterloo, ON
12,000
1984
Financial Information(1):
Market Cap:
Cash:
2009 Revenue:
2009 EPS:
2010E Revenue:
2010E EPS:
$36B
$2.5B
$13B
$3.70
$17B
$5.03
Goldman Stanley
Research In Motion designs the BlackBerry
smartphone and creates solutions for the
worldwide mobile communications market,
including a variety of software for the BlackBerry
device. In addition to its line of BlackBerry devices,
the company also provides enterprise server
software to support businesses using the device.
Products:
BlackBerry Pearl 3G Provides Trackpad and
dedicated media keys as well as SureType
technology and 3G network support.
BlackBerry Bold Provides extended battery life
as well as GPS, Wi-Fi, and 3G network support.
BlackBerry Curve 8500 Includes Trackpad and
dedicated media keys, easy media sharing, and
2.0 MP camera.
BlackBerry Tour 9630 Provides GPS,
worldwide compatibility, and 3.2 MP camera.
BlackBerry Storm Features Wi-Fi, SurePress
technology, and 3G network support.
BlackBerry Curve 8900 Features thin,
lightweight design as well as GPS and Wi-Fi
support and 3.2 MP camera.
(1) Financial data as of January 29, 2010.
Management Team:
Jim Balsillie
Mike Lazaridis
Don Morrison
Robin Bienfait
Brian Bidulka
David Yach
Co-CEO
Co-CEO
COO
CIO
CFO
CTO
Key Partners:
AT&T, Brightstar, Digital China,
GPXS, Hewlett-Packard, IBM,
Skype, Sprint, Tata Indicom, TMobile, Verizon, Virgin, and
Vodafone,
15
Process Recommendations
Goldman Stanley
16
Key Recommendations
We recommend engaging in targeted discussions with the Tier 1 acquisition
candidates and assessing their receptiveness to M&A discussions
At the same time, Goldman Stanley will reach out to Tier 2 candidates and introduce
Aardvark as a potential acquirer
M&A process with Tier 1 candidates will take significantly longer due to the scale of
the companies, so we recommend conducting both processes simultaneously
Depending on responses from Tier 1 and Tier 2 candidates, Goldman Stanley and
Aardvark may do additional research to determine other potential acquisitions and
then approach them
Targeted Buy-Side M&A
Broad Buy-Side M&A
< 5 parties
10 100 companies
6 months to 1 year
Time required is highly variable
Close-ended
Iterative process
Higher success probability
Lower success probability
Goldman Stanley
17
Process Recommendation
Specialized
Negotiations With One
Party
Highly Targeted
Process
Targeted
Discussions +
Broader Search
Broad M&A Process
Broad
Marketing
RECOMMENDED
Combination of targeted
discussions plus broader
search conducted in
background maximizes
success probability and
minimizes disruption to
Aardvark
Additional parties
contacted depend on
responsiveness of Tier 1
and Tier 2 companies
Interested parties would
sign NDAs and then
proceed into due diligence
and valuation discussions
with Aardvark
Goldman Stanley
18
Appendix
Goldman Stanley
19
Aardvark Projected Income Statement
($ in Millions Except Per Share Data)
Goldman Stanley
(1) Excludes stock-based compensation and non-recurring charges.
20
Aardvark Comparable Public Companies
US-Based Hardware & Networking Companies with Over $20 Billion Revenue
($ in Millions Except Per Share Data)
Goldman Stanley
(1) Share prices as of January 29, 2010.
(2) Excludes stock-based compensation and non-recurring charges.
(3) Revenue growth from Apples FY2009 through FY2010E.
21
Aardvark DCF Analysis WACC Calculation
($ in Millions Except Per Share Data)
Goldman Stanley
(1) Financial data as of January 29, 2010.
22
