Exhibit (c)-(2)
| C O N F I D E N T I A L 2 5 J U L Y 2 0 1 5 F I N A N C I A L A N A L Y S I S D I S C U S S I O N M A T E R I A L S Project Xpress |
| Disclaimer This document has been prepared by Lazard based upon information provided to it by Xueda Education Group (“Xueda”) and publicly available information, and portions of the information herein may be based upon certain statements, estimates and forecasts with respect to the anticipated future performance of Xueda. We have relied upon the accuracy and completeness of the foregoing information, and have not assumed any responsibility for any independent verification of such information or any independent valuation or appraisal of any of the assets or liabilities (contingent or otherwise) of Xueda or any other entity, or concerning solvency or fair value of Xueda or any other entity. To the fullest extent permitted by law, Lazard disclaims any responsibility for the information herein and for any omissions from such information. With respect to financial forecasts, we have assumed that they have been reasonably prepared on bases reflecting the best currently available estimates and judgments as to future financial performance of Xueda. We assume no responsibility for and express no view as to such forecasts or the assumptions on which they are based. The information set forth herein is based upon economic, monetary, market and other conditions as in effect on, and the information made available to us as of, the date hereof, unless indicated otherwise. While any subsequent changes in the circumstances may affect the information herein, we assume no responsibility to update or supplement the information set forth herein. These materials and the information contained herein are confidential and may not be disclosed publicly or made available to third parties without the prior written consent of Lazard. These materials shall not be used for any purpose other than that for which they were provided. These materials do not constitute tax, accounting, actuarial, legal or other specialist advice, and Lazard shall have no duties or obligations to you in respect of these materials or other advice provided to you, except to the extent specifically set forth in an engagement or other written agreement, if any, that is entered into by Lazard and you. Lazard only acts for those entities and persons whom it has identified as its client and no-one else and will not be responsible to anyone other than such clients for providing the protections afforded to clients of Lazard nor for providing advice. C O N F I D E N T I A LP R O J E C T X P R E S S |
| Table of Contents I TRANSACTION OVERVIEW 1 II MANAGEMENT PROJECTIONS 3 III FINANCIAL ANALYSIS 4 APPENDICES A B C Additional Xpress Information WACC Analysis Premiums Paid Analysis 10 14 15 C O N F I D E N T I A LP R O J E C T X P R E S S |
| P R O J E C T X P R E S S I Transaction Overview |
| Transaction Summary The following summary outlines the proposal (the “Proposal”) from the Independent Committee to Xiamen Insight Investment Co., Ltd. (“Insight”) for the acquisition of Xueda Education Group (“Xueda” or the “Company”) Unvested options shall be vested in full prior to closing and any of such vested “in-the-money” options shall be cashed out at closing, whilst any of such vested No Company MAE Source: Current Draft of Merger Agreement as of July 25, 2015 Note: (1) Parent means Xiamen Insight Investment Co., Ltd.; (2) Merger Sub means an exempted company with limited liability under the laws the Cayman Islands which shall be formed by Insight as its new wholly-owned subsidiary; (3) MAE means Material Adverse Effect; (4) BAIC means Beijing Administration for Industry and Commerce or its relevant local district counterparts 1 TRANSACTION Acquisition by Insight of all of the outstanding shares of Xueda (“Transaction ”) Acquisition by Insight of all of the equity interests of Xueda’s on-shore operating entity (“VIE”) and termination of certain control agreements (“Termination Agreement”) OFFER PRICE AND IMPLIED VALUATION US$5.50 per ADS (or US$2.75 per ordinary share), valuing the fully-diluted ordinary share capital of Xueda at approximately US$355.8 million CONSIDERATION 100% cash FINANCING All of Insight’s payment obligations guaranteed by Tsinghua Unigroup pursuant to Limited Guarantee Maximum amount of Parent(1) Termination Fee payable by Insight to Xueda (being 5% of the equity value) shall be deposited within 5 business days after Xueda’s shareholder vote is obtained TREATMENT OF SHARE INCENTIVE PLANS Existing share incentive plans of Xueda shall be terminated Restricted share units and restricted shares shall be vested in full prior to closing and shall be cancelled at closing in exchange for the cash merger consideration “underwater” options shall be cancelled without consideration CERTAIN CLOSING CONDITIONS Closing Conditions to Each Party: Shareholder approval: each of the Xueda requisite shareholder vote and the Insight requisite shareholder vote shall have been obtained Government approval: (i) the parties shall have made all necessary filings and shall have received clearance under the PRC Anti-Monopoly Law; (ii) the parties shall have received all other necessary pre-closing authorizations, consents, and approvals of all governmental entities As of Closing, there are no government orders or injunctions restraining, enjoining or otherwise prohibiting the merger Closing Conditions to Insight and Merger Sub(2): Representations and warranties of Xueda shall be true and correct subject to a Company MAE(3) standard, except with respect to certain fundamental representations which shall be true and correct in all respects (save for any de minimis inaccuracies) Xueda shall have performed or complied in all material respects with each of its agreements and covenants Holders of no more than 15% of the Company’s shares shall have served notice of dissent VIE: The Termination Agreement shall be in full force and effect and the termination of certain control agreements of VIE shall have become effective The Equity Transfer Agreements (for the transfer of all of the equity interests of the VIE) shall be in full force and effect. 100% of the equity interests of the VIE shall have been duly transferred to Insight, such transfer shall have been duly registered with BAIC(4) and Xueda shall have delivered a true copy of written confirmation of such registration to Insight, in each case without material cost to Xueda or any of its affiliates, and at no cost to Insight or any of its affiliates P R O J E C T X P R E S SIT R A N S A C T I O N O V E R V I E W |
| Transaction Summary (Cont’d) The following summary outlines the proposal (the “Proposal”) from the Independent Committee to Xiamen Insight Investment Co., Ltd. (“Insight”) for the acquisition of Xueda Education Group (“Xueda” or the “Company”) merger agreement such amount required to be deducted and withheld with respect to the making of such payment under any provision of applicable tax law it is otherwise ready to close, and (iii) the failure of the conditions to be satisfied is not due to a breach by the Company, a subsidiary or a VIE shareholder of the the merger agreement is terminated either (x) for reaching the termination date or (y) because Xueda shareholders failed to approve the merger, and in either in the definition of “Acquisition Proposal” for this purpose) Approvals(2) have not been obtained and/or the VIE-related transactions have not yet been consummated Source: Current Draft of Merger Agreement as of July 25, 2015 Note: (1) Excluded Party means any solicited person that during the go-shop period makes a written Acquisition Proposal that the Independent Committee determines prior to the go-shop period end date constitutes a Superior Proposal; (2) Required Approvals means the PRC overseas investment approvals, the filing with SZSE and the approval of CSRC with respect to the consummation of the Transactions by Insight and Merger Sub and, if applicable, clearance under the PRC Anti-Monopoly Law approving the Transactions 2 GO SHOP “Acquisition Proposal” defined as any proposal or offer for a business combination involving 15% or more of the net revenues, net income, total assets or equity securities of Xueda or any of its subsidiaries, taken as a whole 45-day go-shop period following the signing “Superior Proposal” means any bona fide written Acquisition Proposal (with the percentage set forth in the definition of such term changed from 15% to 35%) The Independent Committee shall determine in good faith, after consultation with its advisors, that such proposal constitutes a Superior Proposal TAX WITHHOLDING Each of the surviving company, Insight and the paying agent shall only be entitled to deduct and withhold from any amounts otherwise payable pursuant to the TERMINATION FEE AND CONDITIONS FOR XUEDA TO RECEIVE TERMINATION FEE US$17.0 million in the event that the merger agreement is terminated: The Agreement is terminated by either party after the Termination Date, at the time of such termination (i) all conditions have been satisfied (other than regulatory approvals required by, or orders restraining, enjoining or otherwise prohibiting, the Merger, and the VIE condition), (ii) the Company has confirmed Merger Agreement, the Termination Agreement or the Equity Transfer Agreements US$14.0 million in the event that the merger agreement is terminated: A material breach of any representations, warranties or covenants by Insight Failure to proceed to closing by Insight despite all closing conditions having been satisfied US$4.4 million in the event that the merger agreement is terminated: Shareholder meeting of Insight has been convened and shareholder approval was not obtained TERMINATION FEE AND CONDITIONS FOR INSIGHT TO RECEIVE TERMINATION FEE US$7.0 million in the event that the merger agreement is terminated: An Acquisition Proposal received by Xueda after the go-shop period (or during the go-shop period from a party other than an Excluded Party(1)) was determined by the Independent Committee to constitute a Superior Proposal Xueda consummates an Acquisition Proposal or enters into a definitive agreement with respect to an Acquisition Proposal within a 12-month tail period after case a bona fide Acquisition Proposal was made known prior to such termination (provided that references to “15%” will be deemed to be references to “35%” A material breach of any representations, warranties or covenants by Xueda A change in recommendation by Xueda’s board after the go-shop period (or during the go-shop period from a party other than an Excluded Party) Xueda’s board fails to include the Company Recommendation in the proxy statement TERMINATION DATE 6 months from signing, subject to extension of up to 180 days by either Parent or the Company in its sole discretion if at the time of such extension the Required P R O J E C T X P R E S SIT R A N S A C T I O N O V E R V I E W |
| P R O J E C T X P R E S S II Management Projections |
| Management Projections (US$ '000) Income Statement Net Revenue % Growth 293,157 347,047 338,314 354,685 376,700 398,936 421,232 441,276 458,611 5.3% 32.2% 18.4% (2.5%) 4.8% 6.2% 5.9% 5.6% 4.8% 3.9% Cost of Revenue Gross Profit % Gross Margin (219,655) (239,948) (254,612) (259,087) (272,596) (288,311) (303,659) (315,897) (327,626) 73,502 107,099 83,702 95,598 104,104 110,624 117,572 125,380 130,985 6.5% 25.1% 30.9% 24.7% 27.0% 27.6% 27.7% 27.9% 28.4% 28.6% Selling and Marketing Expenses % of Net Revenue General and Adm inistrative Expenses % of Net Revenue (31,336) 10.7% (46,262) 15.8% (36,308) 10.5% (52,716) 15.2% (36,216) 10.7% (60,042) 17.7% (37,652) 10.6% (55,149) 15.5% (40,559) 10.8% (58,162) 15.4% (43,360) 10.9% (61,090) 15.3% (46,175) 11.0% (63,895) 15.2% (48,342) 11.0% (66,782) 15.1% (50,668) 11.0% (69,197) 15.1% 6.1% 4.6% EBIT % EBIT Margin (4,096) 15,097 (12,194) 2,797 5,382 6,174 7,502 10,255 11,121 31.8% (1.4%) 4.4% (3.6%) 0.8% 1.4% 1.5% 1.8% 2.3% 2.4% Adjusted EBITDA(1) % EBITDA Margin 9,760 31,288 4,767 14,579 15,653 16,395 17,786 20,707 22,590 9.2% 3.3% 9.0% 1.4% 4.1% 4.2% 4.1% 4.2% 4.7% 4.9% Net Income (Loss) to Ordinary Shareholders % Net Margin Key Balance Sheet Items (4,773) 16,151 (10,022) 6,549 8,092 8,886 10,058 12,242 13,117 14.9% (1.6%) 4.7% (3.0%) 1.8% 2.1% 2.2% 2.4% 2.8% 2.9% Cash and Cash Equivalents Total Current Assets 238,070 256,908 246,682 272,094 208,546 229,654 220,366 243,502 233,033 257,046 245,494 270,529 258,430 284,463 272,361 299,190 286,643 314,234 Net PP&E Total Non-Current Assets Total Assets Deferred Revenue Total Liabilities 40,616 59,357 316,265 133,792 187,038 34,826 59,524 331,618 133,854 179,119 30,433 49,295 278,949 126,148 168,235 27,518 47,081 290,584 131,234 173,321 26,665 46,761 303,808 136,365 178,452 26,417 47,022 317,551 141,223 183,310 26,664 47,670 332,132 145,746 187,833 27,244 48,590 347,779 149,151 191,238 27,240 48,852 363,086 151,342 193,429 Total Equity 129,227 152,499 110,714 117,263 125,355 134,241 144,299 156,541 169,657 Source: Management’s projections approved by the Independent Committee Note: (1) Adjusted EBITDA excludes non-recurring items, including impairment loss on goodwill, impairment loss on intangible assets and foreign exchange (gain)/loss 3 2015E-2020E CAGR Historical Management Projections 2012A 2013A 2014A 2015E 2016E 2017E 2018E 2019E 2020E P R O J E C T X P R E S SI IM A N A G E M E N T P R O J E C T I O N S |
| P R O J E C T X P R E S S III Financial Analysis |
| Financial Analysis METHODOLOGY Summary IMPLIED PRICE PER ADS(1) KEY ASSUMPTIONS WACC: 11.0 – 14.0% Adjustment of US$91.0m as of Mar 31, 2015 $4.07 $4.23 7.0 - 12.0x(7) 2015E EBITDA of US$14.6m Note: (1) Assuming 62,678,035 basic ADS outstanding as of June 30, 2015; (2) Adjustment includes full amount of Net Cash (US$227,994,000) (excluding announced cash dividend payout of US$9,982,000), Minority Interest (US$30,000), Investment under Equity Method (US$12,671,000) and excludes Deferred Revenue (US$149,666,000); (3) The low end of trading multiples is based on the median of the U.S. education companies; (4) The high end of trading multiples is based on the median of the U.S.-listed Chinese education companies; (5) The low end of trading multiples is based on the median of the U.S.-listed Chinese education companies; (6) The high end of trading multiples is based on the median of the U.S. education companies; (7) Low end as 25% percentile multiple and high end as 75% percentile multiple of precedent transactions round up/down to the nearest integer; (8) Excludes non-recurring items, including impairment loss on goodwill, impairment loss on intangible assets and foreign exchange (gain)/loss in 2014; (9) Same adjustment as described in footnote (2), but not excluding Deferred Revenue of (US$149,666,000); (10) Low end as 25% percentile multiple and high end as 75% percentile multiple of precedent privatization transactions; (11) As of July 23, 2015. 4 For Reference Purpose Only (US$2.95/ADS) prior to Apr 20, 2015 Current Price(11): $3.18 Initial Offer Price: $3.38 Revised Offer Price: $5.50 DCF Analysis Terminal Growth Perpetual Growth Rate: 3.0 – 5.0% Adjustment(2) of US$91.0m as of Mar 31, 2015 $2.65 $3.46 WACC: 11.0 – 14.0% Terminal EV/EBITDA Multiple: 6.0 – 10.0x Adjustment(2) of US$91.0m as of Mar 31, 2015 Exit Multiple $3.07 $4.10 Enterprise Value/ 2015E EBITDA $2.82 $4.6 7 5.9(3) – 13.8x(4) 2015E EBITDA of US$14.6m Adjustment(2) of US$91.0m as of Mar 31, 2015 Publicly Traded Comparables 5.9(3) – 10.7x(4) 2016E EBITDA of US$15.7m (2) Enterprise Value/ 2016E EBITDA $2.92 $4.11 $1.70$1.95 16.3(3) – 18.7x(4) 2015E Net Income of US$6.5m 2015E P/E 14.4(5) – 15.4x(6) 2016E Net Income of US$8.1m 2016E P/E $1.86 $1.99 8.0 - 14.0x(7) LTM EBITDA of US$1.8m(6) as of Mar 31, 2015 Adjustment(9) of US$240.7m as of Mar 31, 2015 Adjustment(2) of US$91.0m as of Mar 31, 2015 Precedent Transactions Enterprise Value/ LTM EBITDA $1.68$1.85 Enterprise Value/ 2015E EBITDA $3.08 $4.24 $5.47 $6.63 Adjustment(9) of US$240.7m as of Mar 31, 2015 Adjustment(2) of US$91.0m as of Mar 31, 2015 $2.08 $4.35 52-week trading range (as of July 23, 2015) $3.29 16.5 – 28.5%(10) premium to Xpress’ Apr 19, 2015 unaffected share price (US$2.82/ADS) $3.62 Premium Paid Analysis (Premium over 30-Day VWAP)$3.29 11.6 – 30.6%(10) Premium to Xpress’ 30-day VWAP $3.86 Premium Paid Analysis (Premium over 1-Day Price) 52-Week Trading Range P R O J E C T X P R E S SI I IF I N A N C I A L A N A L Y S I S |
| Discounted Cash Flow Analysis (US$ '000) Net Revenue % Growth 354,685 4.8% 376,700 6.2% 398,936 5.9% 421,232 5.6% 441,276 4.8% 458,611 3.9% Adjusted EBITDA(3) % EBITDA Margin 14,579 4.1% 15,653 4.2% 16,395 4.1% 17,786 4.2% 20,707 4.7% 22,590 4.9% EBIT % EBIT Margin 2,797 0.8% 5,382 1.4% 6,174 1.5% 7,502 1.8% 10,255 2.3% 11,121 2.4% Less: Cash Taxes % Tax Rate (839) 30.0% (1,615) 30.0% (1,852) 30.0% (2,251) 30.0% (3,077) 30.0% (3,336) 30.0% NOPAT 1,958 3,768 4,322 5,252 7,179 7,785 Plus: D&A Less: Capital Expenditures Less: Change in Working Capital 11,782 (8,867) 2,356 10,271 (9,418) 3,721 10,221 (9,973) 3,327 10,284 (10,531) 3,125 10,452 (11,032) 2,270 11,469 (11,465) 1,161 Unlevered Free Cash Flow 7,229 8,341 7,897 8,129 8,869 8,950 Note: (1) (2) (3) Assuming cash-based compensation will replace share-based compensation and is included in operating expenses for the calculation of EBIT per management; Assuming valuation date is as of Mar 31, 2015 and free cash flow is discounted at the mid year of each year; Adjusted EBITDA excludes non-recurring items, including impairment loss on goodwill, impairment loss on intangible assets and foreign exchange (gain)/loss. 5 Management Projections 2015E 2016E 2017E 2018E 2019E 2020E P R O J E C T X P R E S SI I IF I N A N C I A L A N A L Y S I S |
| Discounted Cash Flow Analysis (cont’d) TERMINAL GROWTH SENSITIVITY ANALYSIS 5.4x 4.6x 4.0x 6.2x 5.1x 4.4x 7.3x 5.9x 4.9x $ 3.08 2.83 2.65 $ 3.25 2.94 2.73 $ 3.46 3.08 2.82 Note: (1) Adjustment includes full amount of Net Cash (US$227,994,000) (excluding announced cash dividend payout of US$9,982,000), Minority Interest (US$30,000), Investment under Equity Method (US$12,671,000) and excludes Deferred Revenue (US$149,666,000) 6 Discount Rate 11.0% 12.5% 14.0% Implied Terminal EV/EBITDA Multiple @ Perpetuity Growth Rate Implied Price per ADS (US$) @ Perpetuity Growth Rate 3.0% 4.0% 5.0% 3.0% 4.0% 5.0% Adjustment (1) Equity Value Terminal Value as % of EV Discount as of @ Perpetuity Growth Rate @ Perpetuity Growth Rate Rate 03/31/2015 3.0% 4.0% 5.0% 3.0% 4.0% 5.0% 11.0% 12.5% 14.0% $ (91,029) $ 193,178 $ 203,434 $ 217,109 65.2% 68.4% 71.8% (91,029) 177,601 184,320 192,829 60.4% 63.2% 66.3% (91,029) 166,273 170,935 176,633 56.0% 58.5% 61.3% (US$ '000) Terminal Growth Methodology NPV of FCFs PV of Terminal Value Enterprise Value Discount as of @ Perpetuity Growth Rate @ Perpetuity Growth Rate Rate 03/31/2015 3.0% 4.0% 5.0% 3.0% 4.0% 5.0% 11.0% 12.5% 14.0% $ 35,529 $ 66,619 $ 76,876 $ 90,551 $ 102,149 $ 112,405 $ 126,080 34,289 52,283 59,002 67,511 86,572 93,291 101,800 33,124 42,121 46,782 52,480 75,244 79,906 85,604 P R O J E C T X P R E S SI I IF I N A N C I A L A N A L Y S I S |
| Discounted Cash Flow Analysis (cont’d) EXIT MULTIPLE SENSITIVITY ANALYSIS 3.8% 5.1% 6.5% 6.6% 8.0% 9.4% 7.8% 9.2% 10.7% $ 3.27 3.16 3.07 $ 3.69 3.55 3.43 $ 4.10 3.94 3.79 Note: (1) Adjustment includes full amount of Net Cash (US$227,994,000) (excluding announced cash dividend payout of US$9,982,000), Minority Interest (US$30,000), Investment under Equity Method (US$12,671,000) and excludes Deferred Revenue (US$149,666,000) 7 Discount Rate 11.0% 12.5% 14.0% Implied Perpetuity Growth Rate @ Terminal EV/EBITDA Multiple Implied Price per ADS (US$) @ Terminal EV/EBITDA Multiple 6.0x 8.0x 10.0x 6.0x 8.0x 10.0x Adjustment (1) Equity Value Terminal Value as % of EV Discount as of @ Terminal EV/EBITDA Multiple @ Terminal EV/EBITDA Multiple Rate 03/31/2015 6.0x 8.0x 10.0x 6.0x 8.0x 10.0x 11.0% 12.5% 14.0% $ (91,029) $ 204,923 $ 257,166 $ 309,410 68.8% 78.6% 83.7% (91,029) 198,351 247,039 295,727 68.1% 78.0% 83.2% (91,029) 192,279 237,697 283,115 67.3% 77.4% 82.8% (US$ '000) Exit Multiple Methodology NPV of FCFs PV of Terminal Value Enterprise Value Discount as of @ Terminal EV/EBITDA Multiple @ Terminal EV/EBITDA Multiple Rate 03/31/2015 6.0x 8.0x 10.0x 6.0x 8.0x 10.0x 11.0% 12.5% 14.0% $ 35,529 $ 78,365 $ 130,608 $ 182,852 $ 113,894 $ 166,137 $ 218,381 34,289 73,033 121,721 170,409 107,322 156,010 204,698 33,124 68,127 113,544 158,962 101,250 146,668 192,086 P R O J E C T X P R E S SI I IF I N A N C I A L A N A L Y S I S |
| Comparable Company Analysis Share Price 07/23/2015 % of 52 Week High Equity Value (US$m) Enterprise Value (US$m) Adjusted Adjusted EV/ Revenue Adjusted EV/ EBITDA Price / Earnings (1) EV Company (US$m) 2015E 2016E 2015E 2016E 2015E 2016E U.S.-Listed Chinese Education Companies TAL Education Group 35.25 89.8% 2,817 2,402 2,579 4.44x 3.38x 22.4x 15.8x 26.1x 19.0x China Distance Education 13.60 61.8% 491 393 437 3.70x 2.94x 13.8x 10.2x 20.0x 14.3x U.S. Education Companies Grand Canyon Education, Inc. 44.20 85.0% 2,081 1,979 2,091 2.70x 2.45x 8.3x 7.4x 16.3x 14.7x Capella Education Co. 54.10 69.5% 661 528 539 1.24x 1.18x 5.9x 5.4x 15.8x 14.5x K12, Inc. 13.72 57.9% 526 436 492 0.52x 0.57x 4.5x NM 20.0x NM Bridgepoint Education, Inc. 9.48 67.7% 433 179 282 0.48x 0.48x 7.2x 6.4x 44.5x 34.2x Source: Bloomberg, Capital IQ Note: NM represents negative multiple or multiple exceeds 50 times (1) Adjusted enterprise value excludes deferred revenue and student deposit; (2) EBITDA and earnings are projected a material drop in 2016. 8 Xpress - Management Projections (Current Price)$3.1873.1%$198$(42)$1070.30x0.28x7.4x6.8x30.3x24.5x Xpress - Management Projections (Offer Price)5.50126.5%343$102$2520.71x0.67x17.3x16.1x52.3x42.4x Mean Median 1.14x1.11x6.6x6.5x21.4x19.7x 1.07x1.06x5.9x5.9x16.3x15.4x Am erican Public Education, Inc.26.0369.5%4463343581.07x1.06x4.7x4.6x12.8x12.6x (2) Apollo Education Group, Inc.13.8140.0%1,4878211,3070.50x0.58x3.9x4.7x13.0x16.2x Graham Holdings Com pany$674.0360.2%$ 3,932$ 3,536$3,9121.43x1.48x11.9x10.8x27.7x26.0x Mean Median 3.32x2.63x15.8x11.5x20.1x14.9x 3.27x2.56x13.8x10.7x18.7x14.4x Tarena International12.4178.3%6515005252.85x2.19x13.3x8.8x16.9x11.9x New Oriental Education$23.2085.4%$ 3,640$ 2,443$2,8682.30x2.00x13.8x11.1x17.4x14.4x P R O J E C T X P R E S SI I IF I N A N C I A L A N A L Y S I S |
| Precedent Transaction Analysis(1) EV/ EV/ Announcement Stake Enterprise Date Acquiror Target Sought Value (US$m) LTM EBITDA NFY EBITDA 03/13/2014 Hellm an & Friedm an Renaissance Learning 96% 1,100.0 14.0x NA 06/30/2013 Chairm an and CEO ChinaEdu 100% 50.2 2.1x 2.6x 03/05/2012 PLATO Learning Archipelago Learning 100% 324.5 15.5x 14.4x 05/18/2011 Leeds Equity Partners Nobel Learning Com m unities 100% 144.7 8.4x 8.3x 11/02/2010 K12 Am erican Education Corporation 100% 34.1 8.6x NA 06/01/2010 Archipelago Learning Educationcity Ltd 100% 87.0 14.5x NA Source: Company filings, Broker reports, Bloomberg, Capital IQ Note: (1) Selected comparable K-12 education transactions 9 Mean $ 433.8 10.5x 8.8x Median 144.7 10.8x 8.3x 75th Percentile $ 460.9 14.1x 11.8x 25th Percentile 50.2 8.1x 7.2x 03/26/2010 Thom a Bravo PLATO Learning 100% 109.1 7.0x 7.2x 07/01/2010 Pearson Sistem a Educacional Brasileiro (School Learning System s Division) 100% 460.9 14.6x NA 12/16/2010 Scantron GlobalScholar, Inc. 100% 166.6 12.1x NA 08/15/2011 Perm ira Renaissance Learning 100% 485.0 12.0x 11.8x 11/26/2012 Apollo Global Managem ent McGraw-Hill Education 100% 2,648.0 7.1x NA 12/24/2013 Consortium Noah Education Holdings 100% 20.4 9.2x NA 05/13/2014 Learning Technologies Group Preloaded Lim ited 100% $ 9.4 9.5x NA P R O J E C T X P R E S SI I IF I N A N C I A L A N A L Y S I S |
| PROJECT XPRESS Appendices LAZARD |
| P R O J E C T X P R E S S A Additional Xpress Information |
| Price Performance – Last Twelve Months (1) Share 6.0 2,500 5.0 2,000 takeover offer from Insight, 4.0 1,500 3.0 1,000 2.0 ed 14Q2 ay 20, 2015 of US$118m, esents a yoy 500 incr % decrease of 0.2% 1.0 0.0 0 Jul 2014 Oct 2014 Dec 2014 Feb 2015 May 2015 Jul 2015 Source: Bloomberg, Company website, Company filings Note: (1) As of July 23, 2015 10 Revised Offer Price $5.50 per ADS Mar 18, 2015 The CEO Mr. JIN Xin Apr 20, 2015 Xueda announced that the board has received a public Nov 18, 2014 Announced 14Q3 revenue of US$72.6m, represents a yoy decrease of 8.6% acquired 1,095 non registered common shares and 1 million ADS, with total value of c. US$15m with an offer price of $3.38 per ADS, which implies $217m for 100% of Xueda’s equity Initial $3. Offer Price 38 per ADS Mar 4, 2015 Aug 25, 2014 Published 2014 annual report, with 14Q4 revenue of US$ 59.7m represents a yoy decrease of 3.6% annual revenue of US$338m represents a yoy decrease of 2.5 , ;Published 1 ,US$ 85.4m, M 5Q1 repr Anno revenue rep unc rese ease revenue of nts a yoy of 5.4% Price (US$) Volume (in 000's) Period High (Aug 25, 2014)$4.35 Period Average$2.97 Period Low (Jan 23, 2015)$2.08 P R O J E C T X P R E S SAA D D I T I O N A L X P R E S S I N F O R M A T I O N |
| Xpress Volume at Various Prices (US$ in million, except per share data) From IPO on Nov 2, 2010 to Present Shares Traded 100,000,000 80,000,000 60,000,000 40,000,000 20,000,000 0 $2.00-$2.50 $2.50-$3.00 $3.00-$3.50 $3.50-$4.00 $4.00-$4.50 $4.50-$5.00 $5.00-$5.50 Beyond $5.50 Last Twelve Months as of July 23, 2015 Shares Traded 25,000,000 20,000,000 15,000,000 10,000,000 5,000,000 0 $2.00-$2.50 $2.50-$3.00 $3.00-$3.50 $3.50-$4.00 $4.00-$4.50 $4.50-$5.00 $5.00-$5.50 Beyond $5.50 Source: Bloomberg, as of July 23, 2015 11 % Traded8.6%41.8%26.1%21.0%1.4%1.2%0.0%0.0% % Cumulative8.6%50.4%76.5%97.4%98.8%100.0%100.0%100.0% Total Volume 51,588,733 Volume-Weighted Average Price: Last 1-month 3.40 Last 3-month 3.52 Since July 21, 2014 3.10 % Traded2.7%25.9%16.5%9.5%7.7%3.7%1.9%32.1% % Cumulative2.7%28.6%45.0%54.6%62.3%66.0%67.9%100.0% Total Volume 205,405,858 Volume-Weighted Average Price: Last Half Year 3.23 Last Year 3.10 Since IPO 5.16 P R O J E C T X P R E S SAA D D I T I O N A L X P R E S S I N F O R M A T I O N |
| Ownership Overview(1) Founders Xin Jin, Co-Founder, Chief Executive Officer Rubin Li, Co-Founder, Chairman and Vice President Jinbo Yao, Co-Founder 41,132,948 21,150,930 10,972,720 32.8% 16.9% 8.8% Others, 41.6% Other Major Shareholders Yufei Jiang Yafei Wang Founders, 58.4% 10,100,652 2,237,585 8.1% 1.8% Top Institutional Investors First Manhattan TCS Capital Management 3.4% 2.3% 4,253,388 2,905,548 Source: Company Note: (1) As of Jun 30, 2015 12 Total Outstanding(1)125,356,070100.0% Other Shareholders32,602,29926.0% Total Other Major Shareholders12,338,2379.8% Total Founders73,256,59858.4% Shareholders # of Ordinary Shares % Shareholders by Category P R O J E C T X P R E S SAA D D I T I O N A L X P R E S S I N F O R M A T I O N |
| NTM Adjusted EV/EBITDA Multiple Evolution ADJUSTED EV(1)/ NTM EBITDA ANALYSIS 12.0x 10.0x 8.0x 6.0x 4.0x 2.0x 0.0x Jul 2012 Jan 2013 Aug 2013 Feb 2014 Sep 2014 Mar 2015 Source: Capital IQ as of July 23, 2015 Note: (1) (2) Adjusted enterprise value excludes deferred revenue and student deposit; No projected NTM EBITDA after April 20, 2015. 13 Period High (Apr 15, 2014) 7.9x Period Median 4.5x Period Average 4.5x Period Low (Aug 10, 2012) 1.3x P R O J E C T X P R E S SAA D D I T I O N A L X P R E S S I N F O R M A T I O N |
| P R O J E C T X P R E S S B WACC Analysis |
| Weighted Average Cost of Capital (WACC) Analysis ($ in millions) Enterprise Value Net Debt / Total Cap. Net Debt / Equity Levered Beta Unlevered Beta Company U.S.-Listed Chinese Peers New Oriental Education TAL Education Group Tarena International China Distance Education $2,868 2,579 525 437 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 1.117 0.699 1.730 1.655 1.117 0.699 1.730 1.655 U.S. Peers $3,912 2,091 1,307 539 492 282 358 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.632 0.862 1.331 0.714 1.048 0.788 0.992 0.632 0.862 1.331 0.714 1.048 0.788 0.992 Graham Holdings Com pany Grand Canyon Education, Inc. Apollo Education Group, Inc. Capella Education Co. K12, Inc. Bridgepoint Education, Inc. Am erican Public Education, Inc. Sensitivity Range Implied Cost of Equity Implied WACC Assumptions Low High Low High Low High Unlevered Beta Target Debt/Capitalization Levered Beta(a) Marginal Tax Rate Risk-Free Rate of Return(b) Equity Risk Prem ium (c) Cost of Equity(d) Pre-Tax Cost of Debt 1.250 0.0% 1.250 25.0% 3.6% 7.0% 12.4% 6.2% 0.900 1.400 9.9% 13.4% 9.9% 13.4% 3.4% 5.8% 3.6% 7.0% 12.2% 10.9% 12.4% 12.4% 12.2% 10.9% 12.4% 12.4% Source: Company filings, Barra Beta Book, 2015 Ibbotson SBBI Book, Capital IQ, as of July 23, 2015 (a) (b) (c) Levered Beta = Unlevered Beta x [1 + (1 - Tax Rate)(Debt/Equity)]; Represents 10-year China Treasury yield. Low end represents the current yield of RMB denominated bond issued by IFC; Represents long-horizon expected Equity Risk Premium based on differences of historical arithmetic mean returns on the S&P 500 from 1926 - 2014 (Ibbotson Yearbook). Low point of sensitivity range represents historical returns for global equity markets over short term government securities (1900 – 2011), per Dimson et al. (2012); Cost of Equity = (Risk Free Rate of Return) + (Levered Beta)(Equity Risk Premium ); Weighted Average Cost of Capital = (After-Tax Cost of Debt)(Debt/Cap) + (Cost of Equity)(Equity/Cap). (d) (e) 14 WACC(e) 12.4% Xueda Education Group $108 0.0% 0.0% 1.226 1.226 Median 0.0% 0.0% 0.862 0.862 Mean 0.0% 0.0% 0.910 0.910 Median 0.0% 0.0% 1.386 1.386 Mean 0.0% 0.0% 1.300 1.300 WEIGHTED AVERAGE COST OF CAPITAL ANALYSIS P R O J E C T X P R E S SBW A C C A N A L Y S I S |
| P R O J E C T X P R E S S C Premiums Paid Analysis |
| Precedent China Going-Private Transactions(1) Analysis of 30-Day VWAP YY 07/09/2015 Ongoing 35.7% 68.50 NA NA 58.4 17.4% (1.2%) Kongzhong Corp 06/29/2015 Ongoing 24.7% 8.56 NA NA 7.00 22.3% 11.5% China Inform ation Technology 06/22/2015 Ongoing 47.0% 4.43 NA NA 3.36 31.8% 9.3% AirMedia 06/19/2015 Ongoing 38.0% 6.00 NA NA 3.52 70.5% 10.8% Bona Film 06/12/2015 Ongoing 54.6% 13.70 NA NA 12.86 6.5% 20.4% 21vianet 06/10/2015 Ongoing 19.3% 23.00 NA NA 19.91 15.5% 17.5% E-House 06/09/2015 Ongoing 26.0% 7.38 NA NA 6.71 10.0% 16.2% Mindray 06/04/2015 Ongoing 27.8% 30.00 NA NA 27.47 9.2% 3.9% China Mobile Gam es & Entertainm ent 05/18/2015 Ongoing N/A 21.50 NA NA 20.38 5.5% 3.6% Perfect World 01/02/2015 Ongoing 28.3% 20.00 20.20 1.0% 15.80 27.8% 18.6% AutoNavi 02/10/2014 07/17/2014 28.2% 21.00 21.00 0.0% 16.50 27.3% 15.7% Charm 09/30/2013 09/24/2014 58.5% 4.70 4.70 0.0% 4.00 17.5% 14.1% iSoftStone 06/06/2013 08/29/2014 18.7% 5.85 5.70 (2.6%) 4.84 17.8% 23.3% Cam elot Inform ation System s 03/12/2013 03/29/2014 52.2% 1.85 2.05 10.8% 1.68 22.0% 35.9% Yongye International 10/15/2012 07/03/2014 29.9% 6.66 7.00 5.1% 4.80 45.8% 42.3% Zhongpin 03/27/2012 06/27/2014 17.5% 13.50 13.50 0.0% 9.20 46.7% 40.6% Focus Media 08/13/2012 04/29/2013 18.5% 27.00 27.50 1.9% 23.40 17.5% 31.6% China Nuokang Bio-Pharm 05/09/2012 02/07/2012 61.2% 5.80 5.80 0.0% 3.70 56.8% 43.7% Yucheng Technologies 05/21/2012 12/28/2012 16.1% 3.80 3.90 2.6% 3.08 26.4% 26.4% AisaInfo-Linkage 01/20/2012 07/23/2013 6.4% 12.00 12.00 0.0% 9.90 21.2% 39.9% Note: (1) As of July 23, 2015 15 Xpress 04/20/2015 58.6% $ 3.38 $ 5.50 62.7% $ 2.82 95.0% 86.4% Mean 34.1% 2.3% 24.0% 20.1% Median 28.3% 1.0% 20.2% 17.9% 75th Percentile 28.5% 30.6% 25th Percentile 16.5% 11.6% China Transinfo Technology 02/21/2012 11/02/2012 27.8% 5.65 5.80 2.7% 5.15 12.6% 24.4% Winner Medical Group 04/02/2012 12/13/2012 74.0% 4.30 4.50 4.7% 3.40 32.4% 25.6% ShangPharm Corporation 07/06/2012 03/20/2013 65.0% 9.00 9.00 0.0% 6.90 30.4% 35.5% 3SBio 09/12/2012 05/30/2013 13.9% 15.00 16.70 11.3% 11.60 44.0% 38.7% Shengtai Pharm aceutical 04/17/2012 08/06/2013 40.5% 1.65 1.65 0.0% 1.10 50.0% 37.1% Sim cere Pharm aceutical 03/11/2013 12/24/2014 66.9% 9.56 9.66 1.0% 8.00 20.8% 14.7% Pactera 05/20/2013 03/26/2014 10.4% 7.00 7.30 4.3% 5.26 38.8% 28.4% ChinaEdu 06/30/2013 04/24/2014 0.2% 7.00 7.00 0.0% 5.84 19.9% 16.2% Giant Interactive 11/25/2013 07/18/2014 47.2% 11.75 12.00 2.1% 9.93 20.9% 27.6% Shanda Gam es 01/27/2014 Ongoing 76.2% 6.90 7.10 2.9% 5.70 24.6% 37.5% Wuxi Pharm aTech 04/30/2015 Ongoing 1.4% 46.00 NA NA 39.50 16.5% 17.1% Taom ee Holdings 06/01/2015 Ongoing 22.3% 3.59 NA NA 2.99 20.0% 11.6% JA Solar 06/05/2015 Ongoing 15.6% 9.69 NA NA 8.08 19.9% 2.6% RenRen 06/10/2015 Ongoing 31.0% 4.20 NA NA 4.11 2.2% 13.7% Hom einns 06/11/2015 Ongoing 35.0% 32.81 NA NA 30.17 8.8% 18.3% Qihoo 360 06/17/2015 Ongoing 17.7% 77.00 NA NA 66.05 16.6% 30.3% Vim icro 06/22/2015 Ongoing 11.6% 13.50 NA NA 12.33 9.5% 3.4% Mom o 06/23/2015 Ongoing 47.8% 18.90 NA NA 15.70 20.4% 15.3% China Nepstar Chain Drugstore 07/06/2015 Ongoing 79.5% 2.60 NA NA 2.20 18.2% (1.5%) Dangdang 07/09/2015 Ongoing 35.9% $ 7.81 NA NA $ 6.51 20.0% (15.9%) Company Announcement Date Completed Date Buyer Ownership Initial Offer Price (US$) Final Offer Price (US$) Offer Raise Percentage Price before Announcement Premium over 1-Day Price Premium over P R O J E C T X P R E S SCP R E M I U M S P A I D A N A L Y S I S |
