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Confidential Presentation on:
Hydromatic TechnologiesOctober 30, 2009
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Executive Summary
Loop Capital is pleased to continue our productive dialogue withHydromatic Technologies regarding strategic and financingalternatives for the Company
Hydromatics unique hydronic technology provides multiple
avenues to create value for the Companys stakeholders Multiple potential end-user applications
Patent and trademark protection provides barriers to competition
Attractive secular trends - amidst the clamor for higher efficiency,lower energy consuming appliances favors wide scale adaptationof Hydromatics technology, both in the U.S and globally
Loop Capital is prepared to assist Hydromatic in maximizing valuefor its stakeholders by:
Evaluating a broad spectrum of strategic and financing alternativesfor the Company
Identifying and approaching potential investors on the Companysbehalf
Valuing, structuring and negotiating any potential investments inthe Company
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Executive Summary (continued)
Loop Capital has carried out a preliminary analysis of thecompetitive landscape for household appliance manufacturers, witha particular focus on makers of clothes dryers
Sector dominated by large, well capitalized OEMs
Recent economic downturn
especially the decline in house prices
has adversely impacted the sector
Increasing focus on energy efficiency as a key growth driver, as
manufacturers seek to appeal to both consumers and legislators
demand for greener products
This backdrop provides multiple ways for Hydromatic to maximizevalue for its stakeholders, including:
Continuing to develop hydronic technology on a stand-alone basisand pursuing licensing opportunities with OEMs (status quo)
Partnering with a major OEM to develop technology in exchangefor preferential or exclusive rights
Exploring an outright sale to an OEM, at the right
value
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Executive Summary (continued)
There are multiple pools of potential investors that could providenear-term funding to enable Hydromatic to continue the pursuit ofgrowth opportunities
Green-tech focused venture funds
Corporations with strategic interests in potential end-applications
Traditional venture capital and private equity funds
Angel investors
Hydromatic would benefit from Loop Capitals deep financialadvisory experience
The team has collectively executed over 50 transactions for clients,including large public corporations as well as early-stage companies
Loops team members have also raised and invested venture and
private equity capital
Loop Capital is prepared to immediately commence a strategic andfinancial advisory review for Hydromatic
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Hydromatic Investment Highlights
Proprietary DryerMiser technology offerssignificant savings in energy consumptionwhile also improving safety
UniqueTechnology
Multiple potential applications includingresidential (clothes dryers), commercial andindustrial
Addresses critical requirement for improved
energy efficiency (and consequent reductionin emissions)
US and international patent (applications)provide significant barriers to competition
Ability to drive value through licensing,strategic partnerships or eventual sale tomultiple potential strategic suitors
Hydromatic has many attributes that investors would find compelling
Broad End UserApplications
Green
MultipleAvenues to
Maximize Value
SignificantBarriers to
Competition
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Key Macro Trends/Business Drivers
Government and consumers focused on more energy efficient appliances and
energy cost savings
Increased home foreclosure filings amid the subprime mortgage crisis anddeclining home prices has made it tougher for homeowners to refinanceloans or borrow money to buy goods like new household appliances
However, it seems that the housing crisis has bottomed, with a modestrebound anticipated in the near term
Projected 2% volume CAGR over the next 5 years
Highly competitive sector with competitors having a strong global presenceand robust brand equity
Cost savings and scale likely to fuel consolidation
E.g., Whirlpools acquisition of Maytag
Global competitors like LG (South Korea) and Haier (China) are able tomanufacture their products at lower costs
Global partnerships are likely to grow to take advantage of lower costs andpenetration opportunities
Ex.-
Joint venture between Whirlpool and Chinese company, HisenseKelon, for refrigerators and washing machines for Chinese and exportmarkets
EnergyEfficiency
Housing Market
Sector
Consolidation/Scale
Low Cost
CountryManufacturing
Macro trends driving product demand and shaping the competitivelandscape for Hydromatic include:
Issue Commentary
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How Investors Would Evaluate Hydromatic
Product/Service
Exit Strategy
Investment Considerations
Management
Differentiation of product from
alternatives
Protectable rights (IP)
Addressable market size
Growth potential
Buying power of potentialcustomers
Exit Valuation
Potential strategic acquirors
IPO Potential
Acquisition Targets
Strength/depth of managementteam
Coverage of key job functions
Relevant sector or start-upexperience
Ability to control the company
Investment amount/ownership
Expected returns
Current financing/sources anduses of funds
Company projections
Preemptive rights in later roundinvestments
Special voting rights
Potential investors would consider the following key factorsprior to investing in Hydromatic
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Financing alternatives
VentureCapital
StrategicInvestors
Angel
Investors
Overview Potential Merits and Considerations
Targeted approachfocused on firmswith specific
interest in green
tech
Large pool of investors focused around greensecular trend
Ability to provide current and future financingas well as other resources (e.g., introductions)
Would likely seek significant economic orcontrolling interest
Large corporationswith products inHydromatics valuechain, e.g. trackrecord of supplyingmajor dryer OEMs
Adds credibility and could provide engineeringresources to perfect product(s)
More open to passive/minority interest
Could limit scope of opportunities, e.g. withcompetitors
Individuals andfamily offices withsignificant funds toinvest
Ability to provide current and future financing
Structure and terms could be more favorable
Potentially less value-added if no specificproduct angle or ties to sector
Loop Capital would consider the following types of potential investors
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Perspectives on Valuation
($ in millions)
Based on illustrative projections, potential investors could expect anownership stake in a range between 13%-22% and 34%-56% for a $2million or $5 million investment in Hydromatic respectively
2010 2011 High LowNet Revenue $2.5 $11.8 $25.0 $20.0
Margins 44% 40% 40% 40%
EBITDA $1.1 $4.7 $10.0 $8.0
Valuation Multiple 6.0x - 8.0x 6.0x - 8.0x
Enterprise Value $60 - $80 $48 - $64
Required Ownership to Achieve 40% IRR$2mm Investment 13%-18% 17%-22%
Implied Pre-Money Valuation $9 - $13 $7 - $10
$5mm Investment 34%-45% 42%-56%
Implied Pre-Money Valuation $6 - $10 $4 - $7
December 2014
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Illustrative Process Timeline
Preparation
Marketing
Investor Due
Diligence
Final Negotiations/Closing
Loop Capital due diligence
Build financial model
Prepare offering docs
Draft term sheet
Screen potential investors
Send teaserSend preliminary term sheet
Management presentations
Collect indicators of interest
Investor due diligence
Negotiate final terms
Close
November December January February
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Engaging Loop Capital Markets
Critical input on organizational structure and strategy
Industry and competitive analysis, i.e. identify sectortrends, outlook and potential opportunities/
implications for Hydromatic Evaluation/review of alternatives to provide
Hydromatics management and board with guidanceon key issues
Loop Capital is prepared to provide a full roster of investment bankingservices to Hydromatic
Strategic Advice
Financial Advice
Developing detailed financial models and valuationanalysis
Preparation of marketing materials, e.g. prospectus
and management presentation, and overseeing ofmarketing efforts
Screening and approaching potential investors
Structuring, negotiating and closing financing andother transactions
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