Restructured Acquisition

Proposal:
Printicomm/Digitech Negotiations
Team 5
S. Deena, S. Delehanty, K. Hughes, V. Inguva, Z. Liu, M. Shaikh

Digitech
Objective:
Receive highest
payment for its assets

Current Valuation
$40MM

Printicomm
Objective:
Acquire Digitech for
lowest price possible

Current Valuation
$30MM

Earnout Structures
Earnou
t1

$28MM

3 Years

Earnou
t2

$20MM

5 Years

Recommendation
Cost
Future
Earnings
Transfer of
Knowledge

Lowest payout cost Printicomm

Highest earning potential for Digitech

Maximum time for Printicomm to
capitalize on value of prior
management

3
year
PRINTICOMM'S PERSPECTIVE

DIGITECH'S PERSPECTIVE

Earnout -- 3 Years

Earnout -- 3 Years
1998

Sales

$23,450

SalesGrowth

1999

2000

$25,795

$28,375

ProfitMargin

$31,212

1998

Sales

$23,450

SalesGrowth

10%

10%

OperatingIncome

2001

$2,580

$2,837

10%

$3,121

10%

10%

$28,140

ProfitMargin

$5,628

$
2,500

$
2,500

EarnoutTarget

$
2,000

AnnualEarnoutValue

$580

$337

$621

AnnualEarnoutValue

$3,628

PresentValueoftheEarnout

5%

DiscountFactor
$1,395

$33,768

$40,522

20%

PresentValueoftheEarnout

$6,754

20%

$8,104

20%

$
2,000

5%

2001

20%

EarnoutTarget

DiscountFactor

2000

OperatingIncome

10%

1999

$12,155

20%

20%

$ 2,500 $ 2,500
$4,254

$5,604

5
year
PRINTICOMM'S
PERSPECTIVE

DIGITECH'S PERSPECTIVE

Earnout -- 5 Years

Earnout -- 5 Years
1998

1999

Sales

$
23,450

$
25,795

SalesGrowth

10%

2000

2002

2003

$
$28,375$31,21234,333

$
37,766

10%

2001

10%

10%

10%

ProfitMargin

$
$
2,579.50 $2,837$3,1213,433

2002

2003

SalesGrowth

10%

10%

10%

$
3,000

10%

$
3,500

ProfitMargin

21%

19%

18%

20%

21%

AnnualEarnoutValue

$
80

$
$-$121$- 277

$
3,500

$
397

20%

22%

20%

23%

18%

EarnoutTarget

$2,500$3,000$3,000$3,500$3,500

AnnualEarnoutValue

$3,253$4,383$5,165$7,389$6,993

DiscountFactor

5%

$5,752.73$7,383$8,165$10,889$10,493.18

10%

EarnoutTarget

2001

$23,450$28,491$34,005$40,026$48,101$58,142

$3,776.65

$
3,000

PresentValueofthe
Earnout

2000

Sales

OperatingIncome

$
2,500

DiscountFactor

1999

OperatingIncome

1998

PresentValueoftheEarnout

5%

$23,093

Analysis of 5 Year Recommendation

Printicomm

Digitech

3 Year Earnout $29,575

$40,155

5 Year Earnout $21,265

$42,317

Cost

$20MM Payout
Reduces Cash Payment Printicom

Future Earnings

Digitech has higher earning potential

Digitech has to meet targets (Printicomm)

Transfer of
Knowledge

Longer time to capitalize on value of prior

management (Printicomm)

Conclusion
Acquisition based on 5 Year Earnout Scheme

Printicomm:
Minimizes payout cost if the acquisition is not profitable

Digitech:
Maximizes earning potential if management can truly make the
acquisition profitable

Questions