S&W’s unique selling proposition is its firearms, and it is struggling to succeed. It also has a defense technology with which S&W can improve its portfolio of offerings. The institutions, such as the government and other private agencies requiring defense facilities are the target audience of the company. The target audience is overlapped by the USR, which has enabled S&W to enhance its customer relations with its diverse offerings. USR is an innovative company that can help in increasing S&W’s revenue. USR also holds the same objective of improving the product categories and entering new markets.
Estimated Growth Rate
PV of Cashflows
Present Value of Future Cashflows
Net Present Value
Current Closing Price
Current Number of Share
Current New Price afte deal
Expected number of Shares in 2010
Expected Price of Share in 2010
Expected Increase in Price
1. Is USR a good fit for S&W? Does it accomplish S&W’s objectives of diversifying away from firearms?
2. Why did S&W use an earn out as part of the compensation for USR?
3. Assuming EBITDA is a close approximation for free cash flow, does the USR acquisition provide a positive net present value for S&W? Be ready to defend your methodology and assumptions used in your valuation estimate.
4. How important was the $100 million backlog information for your estimate of USR’s value to S&W?
5. How does the earn out impact your calculations?
6. Based on your NPV estimate of USR, what is the implied new stock price of S&W after acquiring USR? If you were Harry Callahan would you recommend taking a position in S&W? Would it be a long or short position?