2. Current Greenlight Tires Situation
Initially, we evaluated the overall company outlook and forthcoming difficulties.
Situation
Challenge
Greenlight Tires is a large growing tire company
Greenlight has developed a negative public image due to
tire pollution in the protected wetlands of Louisiana
Improve Greenlight’s Company Image
Embed Commitment to Environment into Culture
Determine Best Strategic Alternative to Greenlight
3. Our Solution
We recommend that Greenlight purchase RubberUp’s assets to create an immediate
revenue-producing subsidiary to use as an internal tire disposal resource.
We also recommend the acquisition payment be divided
up into even annual payouts over four years to RubberUp.
4. Our Team
Our team comes from diverse backgrounds, from California to Italy.
Tyler Nevins
Finance
Sophomore
Tulsa, OK
Natalie
Kaiserman
Accounting
Sophomore
South Jordan, UT
Andy Rebarchik
Accounting
Sophomore
Milwaukee, WI
Roberto Mongia
Accounting
Sophomore
Verona, Italy
Grant Hiltbrand
Accounting
Freshman
Mission Viejo, CA
5. Our Process
We created a four-step process to present our solution.
Market Research
Strategic Alternatives
Implementation Process
Company Impact
6. Competitive Landscape
We performed market research as an attempt to laser in on the possible solutions.
Market Research
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Implementation
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● Crumb Rubber
○ Weightlifting Plates
○ Portable Speed Bumps
○ Anti-Fatigue Mats
○ Sports fields
● TDF - Tire Derived Fuels
○ More Energy than Coal
○ Cleaner than Fossil Fuels
● Asphalt
○ 15-22% of the Mix for Rubberized Asphalt
○ Can be Installed with the Same Equipment
○ Reduces Tire Noise
● Rubber Mulch
○ 12 Year vs. Annual
○ Added Safety
● Aggregate
○ 10x Drainage of Soil
○ 8x Insulation of Stone
● Retreading
More Than 2500 Companies make up
the tire recycling industry
7. Competitive Landscape
The biggest potential lies within playground surfaces, the most profitable sector, but the market is changing.
Market Research
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Today2013
Expected Annual
Revenue Growth
3.6%
8. Problem Structure
How can Greenlight Tires restore public image and embed
environmental concern into the company culture?
Purchase a recycling
company
Build infrastructure for
internal recycling company
Other Options
Purchase
RubberUp, Inc.
Purchase
different
company
Create an internal
process for
recycling
Create an internal
recycling revenue
stream
One-time
charitable act
Use recycling
company as a
vendor
In order to reach our recommendation, we explored all possible solutions to the problem.
Market Research
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Implementation
Process
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9. Key Considerations
In our research, we identified key factors of success for Greenlight Tires going forward
Market Research
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Considerations for Potential Solutions
Will our solution solve the current image issue the company faces?
Does our solution fit with the company mission statement?
What are the associated opportunities and threats for our proposed
solutions?
Will Greenlight have sufficient assets to perform this solution? Will it
have a positive, long-term benefit?
10. A Four-Year Asset Acquisition
Market Research
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Implementation
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We propose purchasing the assets of RubberUp, paying over a four year period,
for a total of $2,800,000 (or four payments of $700,000)
Through a marketing
campaign, Greenlight can
rebrand themselves as a green
company through “GreenUp
with Greenlight”
The RubberUp employees should be
brought on as contractors during a four
year period to transition to management
11. Vertical Integration
Results of Acquisition
Acquiring RubberUp, a profitable recycling company, has myriad benefits.
Market Research
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Implementation
Process
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Improved Company Reputation
Environmental Culture Change
Position Company for Growth
Short & Long-Term Financial Benefits
Provides Employment Advancement
12. Vertical Integration of RubberUp
Greenlight and RubberUp will both lower their operational costs through this acquisition.
Market Research
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Process
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RubberUp
Factory
Greenlight supplies used tires,
lowering operational costs
RubberUp’s processes continue to
produce and sell recycled rubber for
playgrounds
Through Vertical Integration, RubberUp’s
operating costs will decline, driving up profits.
Greenlight will also be able to turn a cost (tire
disposal) into a revenue stream (recycled rubber)
13. Timeline of Conversion Process
A four-year buyout model will mutually benefit both companies’ bottom lines.
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2017
$700,000
2018
$700,000
2020$700,000
2019$700,000
The four-year Return on Investment model projects a
stronger, more positive return compared to an initial
payment model due to the Time Value of Money.
Paying over a four-year
period will result in a
significant decrease in
the payback period (4.5
years to .875 years)
based on our earnings
model of $800,000
annually.
14. Tax Implications
PWC would be able to assist Greenlight in this transaction due to the many different tax benefits available.
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Depreciation
Incentive
Programs
Tax Credits
Purchasing RubberUp’s
assets allows Greenlight to
immediately begin
depreciation on these
assets
Mississippi Tax law
contains a 5% discount on
any $1,000,000 investment
on buildings or equipment
used for manufacturing
There are many different
business incentive
programs through the
Department of Energy for
green investments
15. Pro Forma Impact
We estimated a one-year impact on the Financial Statements to map the change in the company going forward.
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2017 (First Full Year)2015 (Last Year) Percent Change
Net Sales 28,865.60
Net Income 4,023.30
Total Assets 17,624.30
Tot. Liabilities 11,553.70
Total Equity 6,070.60
ROE .66
Current Ratio 2.66
ROA 0.23
Net Sales 36,582.91
Net Income 6,125.55
Total Assets 20,684.28
Tot. Liabilities 13,113.68
Total Equity 7,570.60
ROE 0.81
Current Ratio 2.66
ROA 0.23
Net Sales 126.74%
Net Income 152.25%
Total Assets 117.36%
Tot. Liabilities 113.50%
Total Equity 124.71%
ROE 122.09%
Current Ratio 83.11%
ROA 129.73%
16. Risk Mitigation
We evaluated potential risks and ramifications to our solution, and proactive resolutions.
Risks
Entity/RubberUp may
have potential legal/image
issues
Greenlight may face hefty fines, and
if they contest the charges, may
face backlash
Greenlight’s public image will not
have any effect.
Ramifications
The negative image of
RubberUp becomes a
Greenlight liability
The positive image effects of the
acquisition will be confounded, and
the company will have a large
payout
Greenlight will have taken an
unnecessary risk
Solutions
Asset Purchase instead of
Entity Purchase
Partnership with Louisiana public
officials to dispose of their tires free
of charge, and use rubber in public
areas throughout state
Rebranding: GreenUp with
Greenlight
17. We would be happy to answer any questions that you may have at this time.
Thanks!
18. Appendix: State Department
The State of Louisiana may
still fine Greenlight a large
amount. We recommend a
quick court settlement and
an act of good faith in free
tire disposal for all state
officials in the state of
Louisiana. All of the
rubber from these tires
will be used in public parks
around the State of
Louisiana. This will have a
lasting positive effect on the
communities in Louisiana.
19. Appendix: Vertical Integration
Rubber Recycling Market
Recycled Product Consumer
(Playground Suppliers)
Recycling Company (RubberUp)
Rubber Producer (Greenlight)
Vertical Integration applies to Greenlight as it integrates the assets of RubberUp
into their corporate structure. Greenlight acquires an internal customer for their
defected and recycled tires, and RubberUp acquires an internal tire supplier for their
recycling business. Vertical Integration allows Greenlight to obtain a profitability
advantage in the rubber recycling industry
20. Appendix: Rebranding Greenlight
Because of the drastic image change Greenlight Tires is pursuing,
developing a communications strategy involving a rebrand would be
beneficial. We recommend “GreenUp with Greenlight” to drive home
the idea that Greenlight Tires is an eco-friendly company.
The BYU football team,
desperate for a rebrand
from the gold-lined BYU
jerseys that made just one
bowl appearance, has
appeared in a bowl game
ever since their revert to the
traditional colors.
This change is to be seen as a
communications/marketing
change rather than a structural
corporate change.
24. Appendix: DCF Assumptions
● WACC based on the five year average the S&P Index
● Cash flows will grow at an estimated 2.4% each year with the market growth of the rubber
industry
30. Appendix: How Can PWC Help?
● Tax Planning
● Audit and Assurance
● Advisory
● RubberUp may have a different internal structure. PWC
can help there, implementing the same information
system for the two companies.
● What should the company do with the legal battle
(Developing a 4 year model that can bear the punishment
and support the RubberUp investment)
● Transaction evaluation groups that can help determine
more proper and beneficial values during the acquisition
and integration.
31. Appendix: Details of Acquisition Proposal
We recommend a four-year asset acquisition deal with four payments of
$700,000, paid annually from 01/2017 until 01/2020. The total payout will be
$2.8 million Part of the deal should include a four year contract with all
RubberUp employees to bring all employees into Greenlight as contractors. The
management of RubberUp should be phased out over the four-year period. This
will allow time to incorporate, operate and train key employees as the
obligations transfer to Greenlight management. After those four years, we
recommend a non-compete clause lasting from 2021-2024, prohibiting the
owners of RubberUp to open a competing business. Doing this will protect
Greenlight from the risk of losing all RubberUp customers after the merger’s
completion.
32. Appendix: Timeline and Tax Benefits
Greenlight will benefit from a lower initial
bottom-line hit, while adding a new revenue
stream. They will also benefit from the gradual
integration and transition to internal
management. From a tax perspective, Greenlight
benefits by immediate depreciation of
RubberUp’s assets.
RubberUp owners can easily transition into
retirement over the four years through working as
contractors for Greenlight until the transition
completes, while receiving four annual lump
sums.
- Federal depreciation allowance: a 50% depreciation
allowance may be taken for equipment and machinery
used for recycling, during the first year in which the
property is in service.
- Manufacturing Investment Tax Credit (An income tax
credit is available equal to five percent (5%) of the
eligible investment made by manufacturers that have
been in business in Mississippi for more than two (2)
years. An eligible investment means an investment
greater than one million dollars ($1,000,000) in
buildings and/or equipment used in the manufacturing
operation)
- Incentives from department of energy: There are
business incentive programs, and they are listed on
www.energy.gov
33. Appendix: Pro Forma Financial Statements
% Change 31-Dec-2017 31-Dec-2015
Net Sales 126.74% 36,582.91 28,865.60
COGS 120.58% (21,949.75) (18,204.00)
SG&A 105.00% (3,553.73) (3,384.50)
R&D 150.00% (1,400.70) (933.80)
Other I/E 0.00% 0.00 1.60
Operating Income 152.54% 9,678.74 6,344.90
Interest Expense 100.00% (32.20) (32.20)
Earnings B4 Tax 152.81% 9,646.54 6,312.70
Income Tax 153.80% (3,520.99) (2,289.40)
Net Income 152.25% 6,125.55 4,023.30
34. Appendix: Pro Forma Financial Statements
Ratios Change 2017 2015
ROE 122.09% 0.81 0.66
Return on Sales 120.13% 0.17 0.14
Asset Turnover 107.99% 1.77 1.64
Leverage Ratio 94.11% 2.73 2.90
Current Ratio 83.11% 2.21 2.66
Debt Ratio 96.71% 0.63 0.66
Debt to Equity 91.01% 1.73 1.90
Return on Assets 129.73% 0.30 0.23
