Exhibit (c)(2)
MARKET COMPARABLES
Shares
Outstanding
Company Current Price P/E Ratio Avg Daily Volume (000's)
- ------- ------------- --------- ---------------- ---------------
AP $ 12.97 24.5 5,100 9,632
GRC $ 19.90 19.0 4,700 8,541
IEX $ 29.20 17.5 213,700 32,510
TII $ 24.65 12.30 33,000 17,130
SGR $ 10.10 4.5 596,300 37,730
LSS $ 21.10 Def. 685,300 28,380
WEB $ 3.10 10.3 1,300 7,082
MVK $ 18.71 233.9 402,606 40,940
NWPX $ 12.05 8.8 10,100 6,549
IR $ 38.56 14.2 1,026,000 169,200
CMCO $ 1.60 Def. 43,500 14,900
TEX $ 12.62 Def. 270,400 47,400
ASTE $ 5.75 Def. 75,000 19,680
OSK $ 61.69 17.2 107,200 17,060
EDCO $ 6.10 9.2 N/A 1,639
(Float:440,710)
COMPARABLE CHARACTERISTICS
P/E: After elimination of MVK(P/E: 233.9) and stocks with deficit earnings,
the average P/E ratio of the group is 13.14.
Without AP(P/E: 24.5) and SGR(P/E: 4.5), the average P/E ratio is
12.75.
AVERAGE SHARES OUTSTANDING: 32,600,000
AVERAGE DAILY TRADING VOL.: 248,157
Without 3
outliers at
either extremes 144,438
CONCLUSIONS: Given EDCO's non-existent trading volume and low shares outstanding
and negligible float, a P/E ratio of 7 to 8 would be more likely against the
comparable group's average of approximately 13.
13
DISCOUNTED CASH FLOW ANALYSIS*
Fiscal Year Ending January 31 (000's)
Terminal
2004 2005 2006 2007 2008 Period
------- ------- ------- ------- ------- --------
Net Revenues $28,800 $23,944 $29,233 $29,526 $29,821 $30,716
Operating Income $ 3,935 $ 4,473 $ 4,647 $ 4,723 $ 4,799 $ 4,937
Cash Flow $ 1,019 $ 2,638 $ 2,686 $ 2,731 $ 2,776 $ 2,653
PV Factor at 12% 0.9449 0.8437 0.7533 0.6726 0.6005
Discounted Cash Flow $ 963 $ 2,226 $ 2,023 $ 1,837 $ 1,667
(000's)
Terminal Value: EBITDA $4,025
x5
-------
$20,125
Present Value Factor 0.6005
-------
$12,085
Sum of the Discounted Cash Flows $8,716
Terminal Value $20,801
-------
Less: Net Debt $2,802
-------
Fair Market Value of Equity $17,999
Per Share $7.95
* After the discounted cash flow analysis was distributed to the special
committee, but prior to the time that the special committee discussed the
analysis, it was brought to the committee's attention that certain of the
numbers in the chart were incorrect. Specifically, the special committee
was advised that (i) the cash flow number for 2004 should have been $2,109
(instead of $1,019), thus resulting in a discounted cash flow value of
$1,908 (instead of $963), and (ii) the cash flow number for the terminal
period should have been $5,935 (instead of $2,653) with a discount factor
of 0.5362, thus resulting in a discounted cash flow value of $3,182. Based
on 5 times EBITDA and a 25% discount, the discounted cash flow analysis
thus yielded a per share price of $7.55.
14
Valuation Matters
Estimated EBITDA as of
January 31, 2003
EBITDA $ 4,213,398
Multiple 5x
----------------
Enterprise Value $21,066,990
Less: Net Debt $ 2,802,060
----------------
Enterprise Equity Value $18,264,930
$ 8.07/share
Discount 25% $ 6.05/share
EBITDA as of January 31, 2002
EBITDA $ 5,899,453
Multiple 5x
----------------
Enterprise Value $29,497,265
Less: Net Debt $ 2,802,060
----------------
Enterprise Equity Value $26,695,205
$ 11.80/share
Discount 25% $7.67/share
15
M&A Middle-market analysis
EBITDA Multiple Analysis
Total M&A transactions in the U.S. market declined 17.5% in 2002. During
the same period, middle-market transactions ($1 billion or less) were down 9.3%.
Transactions of less than $100 million were off off approximately 8%. (Exhibit
1)
EXHIBIT 1: The left side y-axis shows the number of deals, ranging from 0
to 6,000, in intervals of 2,000. The right side y-axis shows total deal value,
ranging from $0 to $600 billion, in intervals of $100 billion. The x-axis shows
the years 1997-2002. The source of the graph is Thompson Financial and Robert W.
Baird & Co.
(Estimated)
Number of Deals Deal Value
--------------- ------------
1997 5255 $400 billion
1998 5636 $410 billion
1999 4622 $415 billion
2000 4672 $412 billion
2001 3346 $250 billion
2002 3036 $240 billion
U.S. Middle Market Enterprise Value to Median EBITDA Multiples
Middle-market median acquisition mutiples have fallen from 10.7 times
EBITDA in 1997 to 6.7 at the end of 2002. Multiples for this segment are now at
their lowest point in a decade. For transactions of less than $100 million, the
median EBITDA multiple currently is 5.7. (Exhibit 2 and Tables A and B)
EXHIBIT 2: The y-axis shows EBITDA multiples, ranging from 0.0 to 12.0, in
intervals of 2.0. The x-axis shows the years 1997-2002. The source of the graph
is Thompson Financial and Robert W. Baird & Co.
EBITDA Mutiple
--------------
1997 10.7
1998 9.6
1999 9.2
2000 8.0
2001 7.6
2002 6.7
16
Table A: U.S. Middle-Market M&A Deal Statistics
Middle-Market Segments Middle-Market Total
---------------------- -------------------
< $100M $100M - $499M $500M - $1,000M $0M-$1,000M
Jan. 2002 Jan. 2003 Jan. 2002 Jan. 2003 Jan. 2002 Jan. 2003 Jan. 2002 Jan. 2003
--------- --------- --------- --------- --------- --------- --------- ---------
Month
- -----
Number of Deals 214 161 34 29 5 6 253 196
Value of Deals $ 3,973 $ 3,653 $ 7,474 $ 5,141 $ 3,181 $ 4,532 $ 14,527 $ 13,325
Year-to-Date
Number of Deals 214 161 34 29 5 6 253 196
Value of Deals $ 3,973 $ 3,653 $ 7,474 $ 5,141 $ 3,181 $ 4,532 $ 14,527 $ 13,325
LTM
- ---
Number of Deals 2,653 2,433 532 528 99 97 3,284 3,058
Value of Deals $ 53,803 $ 51,131 $114,949 $110,952 $ 58,910 $ 56,623 $237,661 $228,705
Median Purchase
Price Multiples
(LTM)
- ---------------
Enterprise
Value/EBITDA 6.5x 5.7x 8.7x 8.6x 6.6x 11.0x 7.6x 6.9x
Enterprise
Value/EBIT 8.8 7.6 11.6 11.5 9.0 13.1 9.7 10.7
Enterprise
Value/Revenue 0.9 0.8 1.6 1.4 1.3 2.7 1.1 1.1
Thompson Financial and Robert W. Baird & Co. Incorporated M&A Research
17
GRAPH: U.S. Middle-Market Median Acquisition Premiums. The y-axis shows acquisition premiums, ranging from 20.0%
to 50.0%, in intervals of 10.0%. The x-axis shows December 1992 through December 2002, annually, as well as
January 2003 (LTM). There are two lines on the graph. The first line plots 1-week premiums while the second line
plots 4-week premiums. The source of the graph is Thompson Financial and Robert W. Baird & Co. Incorporated M&A
Research.
1/03
12/92 12/93 12/94 12/95 12/96 12/97 12/98 12/99 12/00 12/01 12/02 (LTM)
----- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- -----
1-week
premium 37% 33.3% 27.8% 27.4% 26.7% 27.0% 29.9% 34.8% 36.8% 36.4% 31.9% 31.1%
4-week
premium 40% 37.3% 32.9% 35.6% 31.7% 30.4% 34.5% 43.0% 44.2% 41.5% 33.6% 31.6%
GRAPH: U.S. Middle-Market Enterprise Value to Median EBITDA Multiples. The y-axis shows EBITDA multiples,
ranging from 0.0x to 15.0 times, in intervals of 5.0x. The x-axis shows December 1992 through December 2002,
annually, as well as January 2003 (LTM). There are four bars for each date: deals less than $100M; deals between
$100M-$499M; deals between $500M-$1,000M; and the total middle-market. The source of the graph is Thompson
Financial and Robert W. Baird & Co. Incorporated M&A Research.
1/03
12/92 12/93 12/94 12/95 12/96 12/97 12/98 12/99 12/00 12/01 12/02 (LTM)
----- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- -----
< $100M 6.6x 9.2x 9.6x 7.9x 8.9x 9.4x 8.2x 8.3x 6.6x 6.5x 5.7x 5.7x
$100M-
$499M 7.6 8.8 9.9 9.7 10.7 11.0 10.4 9.6 8.8 8.6 8.3 8.6
$500M-
$1,000M 8.5 7.9 11.4 9.5 10.4 11.8 9.1 9.9 9.7 6.6 9.8 11.0
Total
Middle-
Market 7.0 8.9 9.8 8.8 9.8 10.7 9.6 9.2 8.0 7.6 6.8 6.9
18
Table B: Transatlantic Middle-Market M&A Deal Statistics
GRAPH: Transatlantic M&A by Number of Deals and Dollar Volume. The left side y-axis shows the number of deals, ranging from 0
to 1,200, in intervals of 200. The right side y-axis shows deal value, ranging from $0.0 to $60.0 billion, in intervals of $20.0
billion. The x-axis shows December 1992 through December 2002, annually, as well as January 2003 (LTM). The source of the graph is
Thompson Financial and Robert W. Baird & Co. Incorporated M&A Research.
01/02 1/03
12/92 12/93 12/94 12/95 12/96 12/97 12/98 12/99 12/00 12/01 12/02 YTD (LTM)
----- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- -----
U.S. Targets -
Disclosed 89 92 123 156 154 210 232 299 361 229 161 23 9
U.S. Targets -
Undisclosed 53 71 75 105 132 153 230 289 348 212 136 9 7
European Targets
- - Disclosed 139 142 168 178 223 314 380 319 272 220 183 11 15
European Targets
- - Undisclosed 223 323 327 418 496 579 680 571 543 379 286 23 22
U.S. Deal Value $2.8 $4.4 $10.4 $11.0 $13.2 $20.0 $27.6 $38.0 $40.7 $19.6 $12.6 $1.3 $0.7
European Deal
Value $7.4 $8.0 $9.4 $11.8 $18.8 $25.1 $30.6 $32.9 $28.3 $24.7 $21.6 $2.0 $1.4
19
CHART: Middle-Market Segments.
-------------------- --------------------
U.S. Targets European Targets
-------------------- --------------------
2002 2003 2002 2003
-------- -------- -------- --------
Month
- -----
Number of Deals 32 16 34 37
Value of Deals $1,281 $740 $1,988 $1,359
Year-to-Date
- ------------
Number of Deals 32 16 34 37
Value of Deals $1,281 $740 $1,988 $1,359
LTM
- ---
Number of Deals 435 282 570 477
Value of Deals $18,900 $12,058 $23,540 $20,981
Median Purchase
Price Multiples
(LTM)
- ---------------
Enterprise
Value/EBITDA 9.1x 5.4x 12.5x 6.8x
Enterprise
Value/EBIT 12.2 7.9 9.6 8.9
Enterprise
Value/Revenue 1.1 0.6 1.2 0.6
-------------------- -------------------
Thompson Financial and Robert W. Baird & Co. Incorporated M&A Research.
20
GRAPHIC: U.S./Europe Cross-Border Middle-Market Median Acquisition Premiums. The
y-axis shows the premium percentage, ranging from 0.0% to 80.0%, in intervals of
20.0%. The x-axis shows December 1994 through December 2002, annually, as well
as January 2003 (LTM). The source of the graph is Thompson Financial and Robert
W. Baird & Co. Incorporated M&A Research.
01/03
12/94 12/95 12/96 12/97 12/98 12/99 12/00 12/01 12/02 (LTM)
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
U.S. Target
Premiums - 1 week 21.5% 36.4% 30.2% 39.1% 35.0% 33.3% 48.3% 50.9% 58.1% 51.6%
U.S. Target
Premiums - 4 week 31.9% 38.6% 58.8% 37.8% 37.8% 37.4% 63.7% 61.3% 26.6% 26.1%
European Target
Premiums - 1 week 21.4% 16.7% 24.4% 44.5% 38.8% 36.9% 54.8% 29.8% 18.3% 18.1%
European Target
Premiums - 4 week 31.8% 26.6% 23.4% 35.9% 40.5% 46.3% 49.5% 32.6% 24.8% 22.5%
Leverage Multiples
The lower level of activity reflects both a tighter debt market and
depressed valuations. Debt multiples were at 2.7 times EBITDA at the end of 2002
versus an average of 3.6 times in 1997; equity portions have risen to 41% of
total capitalization in 2002, nearly double the 20% average ten years ago and
30% five years ago. (Exhibit 3)
EXHIBIT 3: The y-axis shows EBITDA multiples, ranging from 0.0 to 6.0, in
multiples of 2.0. The x-axis shows the years 1997-1991, as well as the period
from January 1, 2002 to September 30, 2002. The source of the graph is Standard
& Poor's Leveraged Commentary & Data.
Senior Debt, as a Other Debt, as a Total Debt, as a
Multiple of EBITDA Multiple of EBIDTA Multiple of EBITDA
------------------ ------------------ ------------------
1997 3.6 2.1 5.7
1998 3.5 1.8 5.3
1999 3.3 1.2 4.5
2000 3.2 1.2 4.4
2001 2.7 0.8 3.5
Through 9/30/2002 2.7 1.0 3.7
21