1. business and industrial

New Venture Challenge – Business Plan
Team members:
Laura Shapland
NadimVasanji
Ali Jetha
AmitKoren
Table of Contents
EXECUTIVE SUMMARY .................................................................................................................................... 1
COMPANY OVERVIEW AND ACHIEVEMENTS ................................................................................................... 2
MARKET OPPORTUNITY .................................................................................................................................. 3
SERVICE DESCRIPTION..................................................................................................................................... 6
GO-TO-MARKET STRATEGY ........................................................................................................................... 10
CUSTOMER ACQUISITION STRATEGY ............................................................................................................ 13
COMPETITION ............................................................................................................................................... 14
MANAGEMENT TEAM ................................................................................................................................... 15
FINANCIAL PROJECTIONS .............................................................................................................................. 17
EXIT OPPORTUNITY ....................................................................................................................................... 20
BUSINESS RISKS ............................................................................................................................................ 21
APPENDIX ..................................................................................................................................................... 24
1. RE-USABLE PLASTIC CONTAINER SPECIFICATIONS ......................................................................................................24
2. RPC PROCESS FLOW DIAGRAM ............................................................................................................................25
3. SALES PROSPECTS ..............................................................................................................................................26
4. DETAILED INCOME STATEMENT ............................................................................................................................27
5. KEY FINANCIAL ASSUMPTIONS .............................................................................................................................28
6. WAREHOUSE ECONOMICS ...................................................................................................................................30
7. LIST OF TRADING AND TRANSACTION COMPARABLES .................................................................................................32
8. SALES HURDLES.................................................................................................................................................33
9. BOX SUPPLIERS .................................................................................................................................................34
10. WASHING MACHINES.......................................................................................................................................35
11. INTERVIEWS AND REFERENCES ............................................................................................................................36
12. ENDNOTES ....................................................................................................................................................37
Executive Summary
Boomerang Logistics facilitates the adoption of reusable plastic containers (RPCs) in the foodservice
industry, thereby enabling our customers to realize significant economic and environmental benefits.
Although restaurants are pushing for reductions in packaging waste, their suppliers currently do not
have the capabilities and resources to implement RPCs – Boomerang Logistics will change this.
Boomerang Logistics, will purchase the RPCs, rent them to the supplier, and through a partnership with
distributors, manage the reverse logistics. This solution will save manufacturers 10% on packaging costs,
eliminate underutilized freight by up to 25%, and reduce waste and disposal costs for restaurants.
Boomerang Logistics will initially target food manufacturers and processers that supply quick service
restaurant (QSR) chains. This is an attractive starting market because it features a number of attributes
that make the adoption of reusable containers both feasible and valuable, including frequent deliveries,
concentrated distribution, and an emphasis on efficiency and margins.
To drive substitution from corrugated cardboard to the RPC model, Boomerang will have to
incentivize all supply chain participants. Manufacturers reap the most benefits, through reduced
packaging costs, freight optimization, and less product damage. Distributors will generate a new
revenue stream by filling “empty miles” on the return trip to the distribution center. Finally, restaurants
will achieve drastic reductions in packaging waste reducing their disposal costs.
With this solution, Boomerang will be able to effectively compete against the corrugated cardboard
box, the de facto standard in the foodservice industry. In addition, Boomerang’s solution presents both
cost and technological advantages over competitors in the RPC space.
The company’s short-term goal is to secure a pilot customer and implement our service in that
customer’s supply chain. This will require $35,000 in initial funding from the founders and a value-added
investor. Boomerang Logistics’ 2-year goal is to build and fill a fully scaled 20,000 sq. ft. facility
supporting four washing lines, with a total capacity of 6 million box cycles per year. This single facility
1
will require $2.5MM in funding and is expected to generate a 10-year IRR of 37%, returning 4x invested
capital.
Once Boomerang has proven the economic model for a single new warehouse, the company will
aggressively expand by establishing new facilities regionally and then nationally. Within 5 years, the
company expects to reach EBITDA of $13.7MM with recurring revenues representing 60% of total
revenues. The attractive cashflow generation and recurring revenue will make Boomerang an attractive
acquisition target for both strategic and financial buyers. Based on comparables, Boomerang Logistics
estimates an enterprise value of close to $83MM generating significant returns for investors.
To execute on its strategy, Boomerang Logistics has assembled a strong launch team with diverse
professional and personal backgrounds. The team will be supported by a board of advisors with more
than 50 combined years of experience in food manufacturing and food service logistics. In the nearterm, Boomerang Logistics will seek to add to its team a President & COO with senior-level expertise in
operations within the foodservice supply chain.
Company Overview and Achievements
Boomerang Logistics’ mission is to enable our customers to realize the economic and environmental
benefits that RPCs offer. At present, Boomerang Logistics is in the inception phase. It will be
incorporated upon completion of the New Venture Challenge competition at the University of Chicago
Booth School of Business. To date, the founders have had very positive discussions with companies such
as Meat Works (a supplier of meat products to McDonald’s) and Dogs R Us (a Chicago-based hot dog
chain), who have both indicated interest in adopting Boomerang Logistics’ service. The company’s
immediate goal is to secure a pilot customer and implement the service in that customer’s supply chain.
The launch team has been working together since September 2009 and has demonstrated strong
commitment and a shared vision. The team also distinguished itself in Prof. Deutsch’s Building the New
Venture Class by winning 1st place in the operational execution competition. Upon completion of a
2
successful pilot, the team will bring on a President & COO with significant operations expertise within
the foodservice industry. Boomerang Logistics has also added two advisors to its team – Hank Lambert
and Nashir Vasanji – with over 50 years combined experience in foodservice operations and logistics.
Market Opportunity
The Problem
Consider a company such as Meat Works, a meat processor based in southern Wisconsin that
supplies McDonald’s with beef patties, bacon, and other meat products. From 2003 to 2009, input food
prices grew at an annual rate of 7.5%1 while fast food prices grew by only 4.2% per year.2 As a result,
profits of companies like Meat Works are being squeezed, with typical net margins of only 2-3%.3 At the
same time, McDonald’s is applying significant pressure on its suppliers to reduce packaging waste.4
Meat Works can address both of these challenges by replacing corrugated cardboard boxes with
reusable plastic containers (RPCs), enabling better net margins and less environmental waste.
Unfortunately, this option is not currently available to Meat Works because the company:
1. Lacks capabilities to retrieve containers from restaurants for re-use;
2. Is unable to invest the large up-front capital required to purchase the containers; and
3. Cannot integrate traditional RPCs into existing automated packaging processes.
The Boomerang Logistics Solution
Boomerang Logistics’ turnkey RPC solution solves each problem for Meat Works and allows it to
immediately realize the economic and environmental benefits of RPCs. In particular, Boomerang
Logistics will:
1. Partner with the restaurant and distributor, in this case McDonald’s and Martin-Brower, to
manage the reverse logistics process including retrieval, inspection, sanitization and finally
delivery back to Meat Works for re-use;
2. Purchase the containers and supply them to Meat Works on a pay-per-use basis, eliminating upfront costs and delivering savings immediately; and
3. Utilize new, innovative RPCs that can be easily integrated into the existing carton-erecting
equipment that manufacturers use.
3
The Benefits
By implementing Boomerang Logistics’ RPC solution, Meat Works could increase its bottom line by
10%. Meat processors like Meat Works generate approximately $75M in revenue and approximately
$2M in profit on sales volume of 1.25M cases. As corrugated cardboard prices have increased (including
a 10% increase as recently as April, 2010)5, packaging has become a significant expense for meat
processors. At $0.55 per corrugated cardboard case, Meat Works spends ~$690,000 per year on
transport packaging, more than one third of its total profit. Moreover, because the corrugated cases
Meat Works currently uses are not strong enough to support optimal pallet stacking, the freight
utilization of each truckload shipped is 25% less than it would be with RPCs6. This represents a savings
opportunity of 270 truckloads, reducing freight expense by $130K7. Overall, Meat Works could save 10%
on their packaging costs and eliminate underutilized freight, resulting in an immediate bottom line
improvement of $200K with no up-front investment.
In addition to cost savings, the Boomerang RPC solution would enable Meat Works to help
McDonald’s achieve its environmental sustainability goals8. RPCs, over their life-cycle (including reverselogistics and washing), require 39% less energy, produce 95% less solid waste and generate 29% less
greenhouse gas emissions compared to single-use corrugated cardboard cases.9 Finally, RPCs enable
value-added technology like RFID because costs can be amortized over the life of the container. This
type of technology can improve inventory management, product traceability and reduce recall size in
the foodservice supply chain.
Target Market
Boomerang Logistics will initially target food processers that supply quick service restaurant (QSR)
chains because they feature a number of attributes that make the adoption of reusable containers both
feasible and valuable:
1. Frequent deliveries –restaurants have high velocity product flows with low levels of overall
inventory, minimizing the float of containers required to operate the system;
4
2. Concentrated distribution –QSR chains are typically served by a single distributor in each region,
reducing pick-up locations for transport to Boomerang’s sanitization facility;
3. Standardized operating procedures – restaurant outlets follow stringent rules and regulations,
enabling rapid deployment of new procedures;
4. Potential for value added technology – new box technologies, such as RFID, have particular
value for food service companies including inventory tracking and recall management; and
5. Emphasis on efficiency and margins – QSR chains compete on price, and according to The Hale
Group10, supply chain optimization is the key to competing successfully.
In the United States, there are approximately 250,000 quick service restaurant outlets (defined here
as restaurants where consumers pay before service).11 Each outlet receives approximately 450 cases
packaged in corrugated cardboard per week12, which translates into 5.9 billion corrugated cases per year
in the US. At an average cost of $0.55 per case, this market represents a $3.2B opportunity of which 65%
($2.1B) is immediately addressable based on the current mix of packaging technology used by
restaurants. Boomerang Logistics will begin operations in the state of Illinois, which accounts for
approximately 5%, or $110M, of this market.13
Why Now?
A confluence of trends on both the demand and supply side of this target market make now the
optimal time for Boomerang Logistics to enter:
•
Rising input prices are causing manufacturers to seek new efficiencies, in particular in low valueadded items such as packaging;
•
Nationwide, demand for green packaging is projected to increase 3.4 percent annually to $43.9
billion in 2013, with foodservice and transport packaging growing the fastest14;
•
QSR chains are increasingly focused on sustainable practices and reducing packaging waste (e.g.,
McDonald’s 2009 Best of Green report states that the company is moving towards 100%
sustainable packaging in Europe by the end of 201015); and
•
In a recent survey completed by the National Restaurant Association, 62% of consumers
responded that they would choose a restaurant based on how environmentally-friendly it is16.
Further, 40% of restaurants and 31% of QSRs planned to devote more resources to green
initiatives in 201017.
5
Finally, innovations in container technology have enabled applic
applications of reusable plastic containers
(RPCs) that were previously unviable
unviable. Compared to other types of RPCs, those made from corrugated
plastic are less expensive and can be successfully integrated into automated carton-erecti
erecting machines.
However, corrugated plastic containers have typically not been used in foodservice18 because the
t fluted
construction (i.e., air flutes in the middle of the plastic) makes them difficult to wash and dry.
dry Recently,
innovations in the manufacturing process have enabled the efficient
icient production of “edge-sealed”
“edge
corrugated plastic containers,, which can be easily washed and dried. The combination of these market
and technology trends indicates that there is a unique opportunity in the U.S. foodservice market today.
today
As RPC penetration in the U.S. approaches levels achieved in Europe, this market represents a billion
dollar opportunity19 that is ripe for Boomerang Logistics.
Service Description
Let’s follow a Boomerang RPC as it moves through the system for Meat Works:
6
1. Meat Works receives and uses RPC to package goods
Meat Works receives palletized boxes from Boomerang Logistics. For manufacturers who hand-pack
their products or use carton-erecting machines, boxes are introduced into the manufacturing process
exactly as they are with current transport packaging. Boomerang’s RPCs, constructed from corrugated
plastic, are introduced into existing packaging machinery because they are very similar in form to
corrugated cardboard boxes. The plastic material, however, is thirty times stronger than corrugated
cardboard, and because of its resistance to moisture and humidity, can be reused up to 100 times20.
Moreover, the strength of the RPCs enables optimal pallet stacking, which can translate to significant
freight savings for Meat Works.
2. Martin-Brower delivers goods to restaurant
Martin-Brower receives shipments from the manufacture and delivers goods to restaurants as it
currently does today, tracking exactly the number of containers delivered to each location with its
existing systems.
3. McDonald’s unpacks, folds and stores RPCs
Upon receipt of the shipment, McDonald’s employees store boxes until needed. Once used,
employees fold the RPC and place it in the Boomerang portable RPC storage container. This process
requires no more time than it currently takes employees to unload, collapse and move transport
packaging to dumpsters or recycling bins. However, since McDonald’s reduces its quantity of waste, it
can save on disposal costs. The portable storage container has a footprint of only 3 sq. ft. and depth of 4
ft., and holds up to 75 containers. Since, distributors typically deliver between 2-3 times per week21, one
portable container supports between 150-225 RPCs/week, enough for a typical Boomerang customer.
4. Martin-Brower collects and returns RPCs to warehouse
The distributor’s driver collects the empty RPCs from the restaurant during the next regularlyscheduled delivery. For a typical delivery, the driver makes 3 trips22 from the truck to the facility with a
7
hand truck (dolly) to deliver goods. The new Boomerang process requires the driver to make one
additional trip – to pick up the portable container, empty the folded RPCs into a pallet-sized bulk
container on the truck, and then return the portable container to the restaurant. Back at the distribution
center, the pallet-sized containers are unloaded and stored until they are picked up by Boomerang
Logistics. This new process requires about three minutes of additional driver labor per stop, or thirty
minutes total (10 drop-offs per route). Boomerang will pay the distributor 130% of these costs (which
translates to $0.04 per RPC, or approximately $25 per route per day), creating a new source of revenue
for what would otherwise be “empty miles”.
5. Boomerang transports RPCs back to sanitizing facility
On a semi-weekly basis, a contracted 3rd Party Logistics provider (3PL) collects a truckload of RPCs
from the distributor’s warehouse and delivers them to Boomerang’s sanitizing facility.
6. Boomerang inspects, sanitizes and palletizes RPCs
Upon receipt of empty RPCs from Martin-Brower, containers are unloaded and put on a conveyor to
be scanned into the system. Prior to washing, a warehouse employee removes all labels and packaging
mastic (specially developed by 3M for easy removal23) from the RPCs. Containers deemed unfit for use
are returned to the RPC manufacturer to be granulated and then re-formed. Satisfactory RPCs are
sanitized in high-throughput washing/drying machine. Dry boxes will then be re-palletized according to
box size and shipped back to Meat Works.
7. Tracking throughout the system
The complexity of open loop systems increases the importance of diligently tracking the RPCs
throughout the supply chain. The containers are valuable assets for Boomerang Logistics, representing
relatively high capital costs and requiring an optimized turnover rate. Prior to each use, every RPC will
be labeled with a unique barcode. Within Boomerang Logistics’ facilities, automated barcode scanning
equipment will monitor the flow of RPCs. Throughout the rest of the RPC process, Boomerang Logistics
8
will leverage the existing information systems distributors use to monitor forward logistics of products.
These systems can be easily utilized to track the flow of empty containers back from the restaurants to
the distribution facility24.
Unit Costs to Provide the Boomerang Service
Once at scale in a given location, the cost of providing the Boomerang Logistics service for a typical
customer using boxes with dimensions of 15”x12”x12” would break down as follows:.
0.1
0.65-0.70
Freight
Savings*
Total Value
0.55 - 0.60
0.07
0.01
Box Washing
Tracking
0.08
0.37
Warehouse
overhead
Total Cost
0.09
0.13
Box Cost
(incl. loss)
Reverse
Logistics
Cardboard
Comparable
* Freight savings apply to customers with dense products
Based on these economics, Boomerang is able to profitably price boxes at a rental price of $0.50,
representing 10% cost savings for manufacturers. The key assumptions underlying these unit costs are:
•
Box Cost – (1) $7 cost per RPC; (2) 60 re-uses of the box; (3) 5% annual box loss – based on case
studies of corrugated plastic containers in closed-loop supply chains25
•
Reverse Logistics – (1) full truckloads at scale – based on discussion with foodservice
distributors and a bottom’s up costing of what it would cost the distributor to perform reverse
logistics tasks26. Includes hiring a third party logistics provider to perform logistics from
distribution facility to Boomerang’s warehouse and then on to the manufacturer.
•
Box washing – (1) 2 machine operators for each line (2) each machine can wash 6 boxes/minute
or ~1.5MM boxes per year (3) includes energy, water and detergent costs27
•
Tracking – Paper-based disposable barcode stickers will be utilized
•
Warehouse overhead – includes warehouse rent, and direct labor at the central warehouse
9
Asset management
A key operational consideration for Boomerang Logistics is to ensure appropriate asset utilization.
Box shrinkage and long cycle times through the supply chain generate large working capital costs for the
company. Competitors, including IFCO (containers) and CHEP (pallets), use bright colors to distinguish
their assets and provide convenient storage options, minimizing damage and loss to 5%. Boomerang
Logistics will implement similar strategies. In addition, a number of risk-sharing strategies could be
implemented as needed if loss rates exceed 5%:
•
Tiered pricing: manufacturers can be charged an initial price representing 5% cost savings with
an additional 5% rebate based on box cycle times;
•
Target-based incentives: distributor margins can be indexed to retrieval rates; and
•
Restaurant lottery: outlets receive lottery tickets based on box return rate; every quarter
restaurants are selected for financial rewards.
Go-To-Market Strategy
Boomerang Logistics has developed a stage-based go-to-market approach to appropriately scale and
grow the business. The go-to-market strategy is grounded in four key operational milestones:
1. Execution of a 6 month pilot project in a single supply chain
2. Establishment and scaling of initial warehouse facility
3. Regional roll-out
4. National roll-out
1. Pilot Program
To date, two potential pilot participants, Meat Works (a manufacturer) and Dogs R Us (a Chicagobased QSR) have expressed interest in a pilot program. The goal of the pilot will be to prove the
operational viability of the business model and to prove the benefits of the service offering. Upon
completion of the pilot, Boomerang Logistics will prove:
•
Average RPC durability and damage/loss rates;
•
Value to manufacturers of additional freight utilization per trip;
•
Effectiveness of tracking procedure;
10
•
Average RPC cycle time in days;
•
Value of reduced disposal costs to restaurant; and
•
Average reduction of environmental waste per month.
In addition, a successful pilot will enable Boomerang to use the pilot customer as a reference when
speaking with prospective customers in the following phase of the business.
In order to conduct the pilot with minimal capital costs, Boomerang will make three adjustments to
the future business process. First, Boomerang will outsource RPC washing and drying. Discussions are
on-going with potential service provider Corbi Plastics. Second, Boomerang will rely on the distributor’s
tracking infrastructure rather than build a tracking system for its own facility. Third, boxes will be
shipped directly to the manufacturer’s site such that Boomerang will not need a warehouse.
To fund the pilot, Boomerang will require $35,000 in initial funding. These funds will be used to pay
for start-up expenses, boxes, and service providers as well as to fund working capital. (Further details
provided in Financing Section).
2. Establishment of initial warehouse and scaling
Following a successful pilot, Boomerang Logistics will use the confirmed value proposition to sell its
service to additional customers. Upon obtaining three letters of intent from restaurant chains, the
company will confidently invest in the first warehouse, the fundamental scaling unit for the business.
The initial warehouse will be the prototype on which all future warehouses will be modeled. Through
operation of this facility, Boomerang will develop expertise in the sanitization and RPC handling process.
At its core, the scale of a Boomerang warehouse is limited by the geographic concentration of
potential customers. Given the importance of reverse logistics costs to the business economics,
maintaining reasonable transport costs and delivery times is paramount. Based on discussions with
distributors who also face a similar optimization problem, Boomerang will initially target manufacturers
and restaurants within a 150 mile radius of downtown Chicago.
11
A fully scaled Boomerang warehouse will be a 20,000 square foot facility, supporting 4 washing and
drying lines, with a total capacity 6 million box cycles per year (approximately 2 large national restaurant
chains and 7 medium-sized regional chains). The scaled facility will include state-of-the-art tracking and
sorting capabilities. For a facility of this size, the initial capital cost is $2,500,000, including $600,000 in
sales and marketing spend over the first two years to quickly build customer volume.
The economics of a single facility are highlighted below (excluding headquarters SG&A).
Single Warehouse - at scale (NOTE: first warehouse is forecasted to ramp more slowly)
Thousands
Year
1
2
3
4
5
Box Cycles
3,120
4,742
5,959
5,959
5,959
End Customer Outlets Served 1,352,000
119
149
149
149
Large restaurant chains
2
2
2
2
2
Regional restaurants
4
7
7
7
Revenues
$
1,560 $ 2,371 $
2,980 $
2,980 $ 2,980 $
6
5,959
149
2
7
2,980 $
7
5,959
149
2
7
2,980 $
8
5,959
149
2
7
2,980 $
9
5,959
149
2
7
2,980 $
10
5,959
149
2
7
2,980
Costs
Variable Costs
Warehouse Costs
Depreciation
Total Variable Costs
$
648
710
703
2,061
$
634
710
619
1,963
$
621
710
549
1,881
$
608
710
536
1,855
$
596
710
520
1,826
$
-
$
-
$
-
$
-
$
-
$
6
603
610
$
5
445
450
$
127
127
$
123
123
$
1,026
$
1,198
$
1,535
$
1,551
$
378
400
420
1,199
Marketing and Sales - start-up
Marketing
Sales
Total Marketing and Sales $
75
225
300
Capital Expenditures
Warehouse infrastructure
Boxes
Total CAPEX
Cashflow
IRR
$
$
328
1,938
2,266
$
562
710
628
1,900
$
45
135
180
$
86
1,027
1,113
(1,784) $
37%
$
691
710
787
2,188
$
676
710
826
2,212
$
30
90
120
$
662
710
867
2,239
$
-
$
-
$
5
792
797
$
193
193
$
203
203
$
13
1,121
1,134
(194) $
662
$
1,401
$
1,405
$
487
As highlighted, a single facility is expected to generate a 10-year IRR of 37% returning close to 4x
invested capital. For details of customer ramp-up, refer to the Customer Acquisition Strategy section.
3-4. Regional and national roll-outs
Once the company has established the economic model for a single new warehouse, growth will
come from the establishment of new facilities in the Midwest region and then nationally. Expansion will
be completed in a modular fashion – each warehouse will have the same tracking and washing setup.
Prior to establishing each warehouse, the company will secure letters of intent equivalent to half the
capacity of the warehouse by targeting restaurant chains in the region with whom Boomerang has
12
existing relationships. A national footprint will allow the company to serve national manufacturers
whose goods may be transported across geographic coverage areas.
Customer Acquisition Strategy
Selling Boomerang’s model will require agreement from all three participants in the quick service
restaurant (QSR) supply chain: the manufacturer, the distributor and the restaurant chain. Discussions
with executives in this supply chain have highlighted a delicate balance of power. For manufacturers and
distributors, the quick service restaurant’s business often makes up a large portion of total revenues. For
this reason, the QSR chain has strong market power and can push its objectives through the supply
chain. Thus, while the manufacturer will ultimately be the customer that leases our RPCs, Boomerang
Logistics will target QSR chains to make the initial sale.
To target these companies, Boomerang Logistics will employ a direct sales model at the corporate
level, pushing for chain-wide adoption of the RPC solution. Because QSRs are strongly motivated by the
environmental benefits of the RPC model, Boomerang will sell to the VP of sustainability or equivalent.
Once the company has entered preliminary discussions with an interested QSR chain, it will seek
introductions to regional distributors and manufacturers. Given the complexity of this sales process,
Boomerang will direct significant sales efforts towards large, national chains (e.g., McDonald’s, KFC,
Burger King, etc.). The goal is to sign up two such chains, which would account for about 50% of total
RPC rental volume. As Boomerang adds warehouses, these large customers (~250 outlets per region)
will be the first ones served, enabling the company to quickly build scale in new markets. The remaining
50% capacity in each regional facility will be filled by seven medium-sized regional chains (~65 outlets
each).
For the first warehouse and the regional roll-out, Boomerang will target chains in Illinois (see
Appendix 3 for a preliminary list of potential chains).
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Based on discussions with potential customers to date, we anticipate certain common objections to
arise from each party during the sales process. The key to minimizing the sales cycle and closing the
deals will be anticipating these potential hurdles and our responses. For example:
•
For manufacturers, food safety is a crucial element to ensure longevity of the brand - past
recalls have put companies out of business28. Boomerang’s sanitization process fully
complies with FDA and USDA regulations. Furthermore, all washing facilities will obtain AIB
Gold Standard certification;
•
For distributors, there may be concern that retrieved Boomerang boxes would contaminate
other deliveries on the distributor’s truck. To combat this concern, Boomerang will provide
pallet-sized containers on each truck to isolate returned containers; and
•
For QSRs, storage space in restaurants is extremely limited so it is essential that the RPC
storage bin has a very small footprint. As such, the storage bin has been designed to take up
only 3 sq. ft.; 80% of restaurants surveyed indicated that this amount of space was
available29.
For a comprehensive list of the hurdles we expect to encounter most frequently, see appendix 8.
Competition
The primary competition for Boomerang Logistics is the cardboard box, the de facto standard in the
foodservice industry. The corrugated cardboard industry has historically responded aggressively to the
introduction of reusable plastic containers in other applications, including intense public relations efforts
to discredit the viability of RPCs. However, this industry has significantly less leverage moving forward,
due to their low net margins (2% to 5%) and a growing emphasis from restaurants on waste reduction.
Boomerang Logistics will face additional competition in the RPC space from container pooling
incumbents such as IFCO (International Food Container Organization), Tosca Ltd, and CAPS (Container
and Pooling Services). However, the market is at a nascent stage, offering tremendous growth
14
opportunities. One final source of competition may be plastic container manufacturers, who currently
have a strong position selling RPCs to closed-loop supply chains. However, the operational complexity of
moving into open-loop systems would represent a strong barrier to entry for RPC manufacturers. The
table below illustrates Boomerang Logistics’ advantages over each key competitor in addressing the
foodservice industry.
Competitor
Examples
International
Paper
Key Advantages
Boomerang Advantage
• Dominant packaging
material (~90% of market30)
• Lower cost, reduced waste, less
product damage
• Concentrated industry
• Cardboard industry net margins
are only 2-5% so will not be able
to match price aggressively31
IFCO
• Open-loop pooling model
for produce distributed
through grocery stores
• Focus on foodservice and quick
service restaurants
Tosca
• Open-loop pooling model
for produce and meat
distributed both through
grocery stores and food
service outlets
• Use of corrugated plastic
containers that integrate
seamlessly into existing
manufacturing and packaging
processes
CAPS
• Pooling model principally
geared towards pallets and
bulk containers
• Focus on individual cases rather
than bulk containers
Buckhorn
• Lower cost, reduced waste,
less product damage
• Rental model lowers up-front
capital investment requirements
• Strong presence in closedloop systems
• Turnkey solution including
reverse logistics and asset
management
Cardboard Box
Smurfit Stone
Manufacturers
Georgia
Pacific
Container
Pooling
Services
Orbis
Plastic Box
Manufacturers Technology
Container
Corp.
Management Team
Boomerang Logistics has assembled a strong launch team with diverse professional and personal
backgrounds. The team will be supported by a board of advisors with more than 50 combined years of
experience in meat manufacturing and foodservice logistics. After the pilot, the team will bring on a
15
President & COO. This individual will have significant senior-level foodservice and logistics expertise
(e.g., supply chain management, network optimization, etc.). At that time, we also expect that key
members of our Board of Advisors would join the Board of Directors of the company. The company is
currently led by the following individuals:
•
Laura Shapland, Chief Executive Officer: Laura worked as manager of a restaurant. In addition,
she brings over 7 years of experience with BP working across the energy supply chain. Her indepth understanding of complex energy logistics led to millions of dollars in cost savings. Laura
will be responsible for coordinating the team’s efforts to launch the pilot and will represent
Boomerang Logistics for the sales and financing activities.
•
Nadim Vasanji, Chief Financial Officer: Nadim has significant experience in financial modeling
and analysis, new product development, sales strategy execution and development of go-tomarket strategies through his experience at McKinsey & Company and TD Capital Private Equity
Investors. Nadim will monitor project execution relative to the financial plan and will be
responsible for fundraising efforts at each stage of growth.
•
Ali Jetha, Chief Operating Officer: Ali has a background in organizational management, business
process engineering and performance improvement gained during his management consulting
experience at Arthur D. Little. Ali has also worked on start-ups in the entertainment and solar
generation spaces. Ali will ensure the sourcing, procurement and set-up of the facilities is
carried out according to plan and that potential operational problems are handled appropriately
and rectified swiftly. Ali will take on the role of VP Logistics once the new President and COO is
hired.
•
Amit Koren, Chief Marketing Officer: Amit brings 5 years of experience in management
consulting with Monitor Group, including significant work in manufacturing, logistics,
information technology, and sales force management. Amit will be working closely with Laura
on the sales effort to raise awareness of the services provided by Boomerang Logistics. Amit will
build the sales pipeline to ensure the warehouse capacity is rapidly optimized.
The Board of Advisors is comprised of the following individuals:
16
•
Hank Lambert. Hank has over 30 years experience in the food service industry. Most recently,
Hank served as Senior Vice President at Arrowstream, Inc., a supply chain management software
solution provider. Prior to Arrowstream, Hank served as VP & GM of Pinnacle Foods Corp, a
branded foodservice operator, and before that as President of Nabisco Foodservice Company as
well as the Director of the International Foodservice Manufacturers Association. Hank was also
the founder and CEO of EFS Network Inc, a supply chain management company for the
foodservice industry.
•
Nashir Vasanji. Nashir has over 20 years of experience in the meat processing industry. He
currently serves as Director at Canada Gold Beef, a food manufacturing and distribution
company. Prior to this role, he served for 20 years as COO of New Foods Classics, a value-added
food service manufacturer.
Financial Projections
Boomerang’s financial projections are based on a bottom’s up assessment of the number of warehouses
the company can roll-out. A snapshot of the company’s 5-year income statement is displayed below:
Thousands
Number of warehouses
Number of box cycles
Rental Price
Revenue
Recurring Revenue
Year
$
1
2
3
1
3
6
2,371
11,388
24,804
0.50 $
0.50 $
0.50 $
1,186
5,694
12,402
21%
46%
4
5
10
15
44,585
70,325
0.50 $
0.50
22,292
35,162
56%
63%
Variable Costs
Gross Margin
Gross Margin
$
287 $
898
76%
1,366 $
4,328
76%
2,949 $
9,453
76%
Warehouse Costs
SG&A
$
$
400
709
1,510
1,577
3,330
2,514
EBITDA
EBITDA Margin
$
(211) $
-18%
1,241 $
22%
3,609 $
29%
7,910 $ 13,695
35%
39%
Depreciation Expense
EBIT
$
$
319 $
(530) $
1,495 $
(254) $
3,290
319
5,951
1,958
Interest Expense
Net Income
Net Margin
$
$
$
(530) $
-45%
113 $
(366) $
-6%
$
$
$
$
$
$
$
$
394 $
(75) $
-1%
5,256 $ 8,225
17,036
26,937
76%
77%
5,860
3,267
$
$
$
$
788 $
1,171 $
5%
9,100
4,142
9,479
4,215
1,294
2,922
8%
The company makes positive net income starting in year four with strong EBITDA margins beginning in
year two. EBITDA generated in year 5 is in excess of $13MM. Additionally, the rental business model has
17
an added feature of delivering a strong recurring revenue stream – by year 4, over half of the company’s
revenues are recurring.
Financing strategy
Boomerang’s financing strategy is tightly linked with the operational milestones set out in the go-tomarket strategy. The company will seek to first fund a pilot program, then fund the establishment of a
scaled warehouse and subsequently fund expansion on a warehouse by warehouse basis.
Pilot Program
The company’s founders will invest $35,000 to fund the pilot described in the go-to-market section.
Activity
Start-Up Expenses (Incorporation, etc.)
Purchase of 2,000 boxes (@ $9 each)
Payment to service providers
Box rental income
Other (including sanitation audit)
Total Pilot Funding Required
Cost
(10,000)
(18,000)
(3,810)
4,000
(5,000)
(32,810)
Sources of Funding
Founder Investment
Total Funding
35,000
35,000
First Warehouse
Subsequent to a successful pilot, Boomerang will seek to raise $2,500,000 in venture capital to fund
the first warehouse to be located in Chicago, IL. This round of funding will be used to outfit the
warehouse with the required tracking and washing technology as well as to finance initial boxes and
sales and marketing expenses to build scale.
Activity
Warehouse Setup
Marketing
Sales
Operating Costs and Initial Box Procurement
Other SG&A and buffer
Total Warehouse Funding Required
Sources of Funding
VC Investment
Total Funding
Cost
(395,000)
(150,000)
(450,000)
(1,400,000)
(105,000)
(2,500,000)
2,500,000
2,500,000
18
Regional Roll-Out
After establishing the economic viability of a single warehouse/washing facility, Boomerang will
embark on an aggressive regional roll-out. Funding for the roll-out is expected to be a mix of debt and
equity. Given the attractive economics and cashflow generation of a single warehouse unit, Boomerang
forecasts that 45% of each warehouse’s start-up expenses can be funded with debt. Additionally, to
support the aggressive roll-out, Boomerang will seek $4.5MM from a value-added growth equity
investor. The growth equity investment will be staged over two years and bridge the company to the
point whereby equity portions of new facilities can be funded internally through company cashflows.
National Roll-Out
Starting in the 4th year of operations, subsequent new warehouses can be funded entirely through a
mix of 45% debt financing and internal cashflows.
5-Year statement of cashflows:
Cash Flow
Operations
Net Income
Add: Depreciation
Total Cashflow Operations
(32,810)
Investing
Boxes
Washing Equipment
Tracking Infrastructure
Machinery
Other
Total Cashflow Investing
Financing
Equity
Founders
VC
Growth Equity
(529,986)
319,116
(210,869)
(366,072)
1,494,753
1,128,681
(74,731)
3,289,749
3,215,018
(1,473,231)
(160,000)
(15,000)
(30,000)
(39,700)
(1,717,931)
(5,191,757)
(640,000)
(30,000)
(60,000)
(97,300)
(6,019,057)
(7,225,967)
(880,000)
(45,000)
(90,000)
(145,000)
(8,385,967)
2,500,000
2,000,000
Cash Beginning Balance
Net Cashflow
Cash Ending Balance
2,921,572
9,479,463
12,401,034
(9,926,134) (12,067,471)
(1,200,000)
(1,520,000)
(60,000)
(75,000)
(120,000)
(150,000)
(200,800)
(255,000)
(11,506,934) (14,067,471)
35,000
2,500,000
Debt (45% of each new warehouse)
Total Cashflow Financing
1,170,880
5,951,124
7,122,004
35,000
0
2,190
2,190
2,250,000
3,375,000
4,500,000
5,625,000
2,500,000
4,750,000
5,375,000
4,500,000
5,625,000
2,190
571,200
573,390
573,390
(140,376)
433,014
433,014
204,051
637,066
637,066
115,070
752,136
752,136
3,958,563
4,710,699
19
While the company requires significant funding over time to build a national model, the company
will cease to need external equity starting in Year 5.
Exit Opportunity
After five years, the scale and attractive recurring revenue characteristics of Boomerang Logistics
will make the company an attractive acquisition target for numerous industry players. Potential
acquirers and acquisition rational are presented below:
Potential Acquirer
Acquisition Rationale
Distributor
•
Competitor
•
•
3PLs
•
Plastic box manufacturer
Financial buyer
•
•
•
•
Environmental benefit can differentiate distributor to both
retailers and suppliers
Platform to expand service offering into foodservice
Leverage warehouse footprint to cross-sell complementary
service
Attractive way to solve reverse-logistic capacity utilization
problem
Offer service to other industries
Improve ability to market and sell core plastic box product
Attractive cashflow generation and recurring revenue
Use company as a platform to expand service offering to other
geographies and industries
Investor Returns
After 5 years, based on comparables, Boomerang Logistics could be worth close to $80MM. At this
exit valuation, equity investors will all realize significant returns on their invested capital.
Exit Model
EBITDA in Year 5
EV/EBITDA Multiple at Exit
13,694,784
6.1x (Based on transaction and trading comps)
Enterprise Value
Debt
Equity Value
82,974,643
15,750,000
67,224,643
Equity Holders
Founders
VC Investor
Growth Equity
Funded
35,000
2,500,000
4,500,000
Ownership
25%
40%
35%
Proceeds
16,806,161
26,889,857
23,528,625
MOIC
480.2x
10.8x
5.2x
20
There have been several prior successful equity investments in this space. For example, iGPS, a
private company funded by Pegasus Capital Advisers, was formed in 2006 by the former CEO of CHEP
Americas, a wooden pallet pooling company. Additionally, Container and Pooling Solutions (CAPS) a bulk
container pooling company has developed a pooling solution for business-to-business reusable liquid
and dry material containers. The company is owned by Lazard Alternative Investments and has grown
73% over the past 3 years32.
Additional Growth Opportunities
Once Boomerang Logistics develops operational expertise in QSR supply chains, there are a number
of additional attractive growth opportunities. Pharmaceutical companies, for example, could benefit
tremendously from value-added technologies made possible by RPCs, such as end-to-end temperature
monitoring of certain products. Implementing such technologies in single-use disposable containers is
cost-prohibitive, but with RPCs, the costs of sensors and recording devices can be amortized over many
uses.
Fast moving consumer goods (FMCG) that are shipped to “break-bulk” facilities represent an
additional opportunity. As an example, consider shampoo sold at the pharmacy chain CVS. In order to
minimize the inventory carried at the stores, CVS no longer sends entire cases of each type of shampoo
to its outlets. Instead, it takes a few bottles of several types of shampoos and places them in a plastic
tote, which is then delivered to the store, emptied, and returned to the distribution facilities. CVS has
achieved significant savings by utilizing RPCs in the closed-loop part of its supply chain (distribution
center to stores), but the open-loop part (manufacturers to distribution centers) still utilize corrugated
cardboard containers.
Business Risks
Long sales cycle – open-loop model requires obtaining agreement from multiple parties across the
entire supply chain. We will mitigate this by targeting quick service restaurant chains that have
21
significant leverage within the supply chain, standardized operating procedures at outlets, and sufficient
scale to justify the sales investment.
Raw material costs – business model depends on ability to procure plastic containers costeffectively. Plastic prices will move in-line with oil prices – a key raw material input, but variable margins
are high enough (~20%) to absorb temporary price increases. Additionally, RPCs can be ground and
reconstituted into new containers, thereby reducing the economic impact of the input prices.
Container loss – economic viability of business depends on the number of paid uses for each
container. A provision of 5% annual loss/damage has been built into the financial projections, which is
slightly higher than the current loss at comparable container pooling companies such as CHEP and IFCO.
Boomerang Logistics will mitigate this risk by providing positive incentives for supply chain partners to
appropriately manage assets. Data integration with the information systems of manufacturers and
distributors will enable accurate tracking of containers and enforcement of this policy.
Sanitization– sanitizing RPCs in compliance with FDA regulations and AIB (American Institute on
Baking) standards is a baseline requirement for Boomerang Logistics. Based on discussions with plastic
manufacturers, food service executives, and FDA officials, there is considerable evidence that the
sealed-edge, corrugated plastic box will enable full sanitization and adhere to all regulatory
requirements for incidental food contact.
Duration of contractual terms with customers – the typical duration of contracts between food
manufacturers and their corrugated cardboard suppliers is one year. Because Boomerang Logistics is
investing in customer-specific assets, it would be desirable to obtain longer-term contracts with
customers to ensure Boomerang Logistics can recover its investment in those containers. If customers
balk at this request, there is a risk that some customers will depart after the first year, leaving
Boomerang Logistics with customized containers not suitable for any other applications. This risk is
mitigated by several factors: 1) containers can be ground and recycled into new containers for
22
significantly less than the price of purchasing a brand new container; 2) because the RPC solution is
embedded with multiple parties in the supply chain, it tends to be naturally “sticky”; 3) the major
investments in Boomerang Logistics’ washing and distribution facilities are not customer-specific, and so
the investment at risk with each customer is limited only to their containers.
23
Appendix
1. Re-usable plastic container specifications
PROPERTIES
PLASTIC CORRUGATE
PAPER CORRUGATE
Weight for test
0.15 lbs. / sq. ft.
0.15 lbs. / sq. ft.
Water Absorption in 24 hrs
0.02%
75%
Edge Crush Test
45 lbs. sq. ft.
5 lbs. sq. ft.
Flat Crush Test
80 lbs. / sq. inch
3 lbs. / sq. inch
Tear Strength
1700 grams
10 grams
Tensile Strength
4,000 lbs. / sq. inch
200 lbs. / inch
Impact Dart Test
320 inches / lb.
32 inches / lb.
Heat Def. Load @ 66 lbs. per sq. inch
174 degrees
Not Applicable
Living Hinge
21,000 cycles
Source: http://www.coroplast.com/advan.htm
1,000 cycles
24
2. RPC process flow diagram
25
3. Sales prospects
Pilot phase
No.
1
2
3
4
5
6
7
8
9
10
11
12
Company
Mr. Submarine
Pockets
Taco Fresco
Dogs R Us
Wow Bao
Brandy's
Superdawg
Gold Coast Dogs
Al's Beef
Portillo’s
HomeMade Pizza Co.
Alonti
# U.S.
IL as a % of
Segment
Locations
# IL Locations total business
Sandwich
26
26
100.0%
Sandwich
12
12
100.0%
Mexican
11
11
100.0%
hot dogs
4
4
100.0%
Asian
3
3
100.0%
gyros
3
3
100.0%
hot dogs
2
2
100.0%
hot dogs
8
8
100.0%
hot dogs
18
16
88.9%
hot dogs
18
16
88.9%
pizza/pasta
26
16
61.5%
catering
26
5
19.2%
Source: http://www.centerstagechicago.com/restaurants/styles/fast-food.html
First Warehouse Phase
Revenues
# U.S.
No.
Company
($M)
Locations
1 Jimmy John's
$497
970
2 Culvers
$644
394
3 White Castle
$568
415
4 Steak n Shake
$700
502
5 Chipotle
$1,330
837
6 Boston Market
$648
541
7 Panera Bread
$2,648
1,323
8 Popeye’s
$1,593
1,582
9 Dunkin' Donuts
$5,500
6,395
10 Einstein/Noah's Bagels
$393
496
11 Qdoba
$448
454
12 Hardee's
$1,680
1,758
13 Jamba Juice
$444
729
14 Little Caesars
$1,055
2,500
15 Long John Silver's
$800
1,022
Source: QSR.com Fast 50, company websites and Google
Approximate #
IL Locations
500
76
76
69
90
51
105
120
478
34
30
104
42
119
47
IL as a % of
total
business
51.5%
19.3%
18.3%
13.7%
10.8%
9.4%
7.9%
7.6%
7.5%
6.9%
6.6%
5.9%
5.8%
4.8%
4.6%
26
4. Detailed Income Statement
Year
Pilot
Revenues
Number of warehouses
Number of new warehouses
Large Chains (250 outlets)
Number of regional customers (65 outlets)
Number of box cycles
Rental Price
1
2
3
4
5
1
1
3
2
6
3
10
4
15
5
2
2,371,200
0.50
2
5
11,388,000
0.50
2
15
24,804,000
0.50
2
33
44,584,800
0.50
2
58
70,324,800
0.50
1,185,600
5,694,000
12,402,000
22,292,400
35,162,400
208,904
54,673
23,712
287,289
76%
989,682
262,576
113,880
1,366,139
76%
2,129,149
571,913
248,040
2,949,102
76%
3,782,438
1,028,005
445,848
5,256,291
76%
5,900,513
1,621,499
703,248
8,225,261
77%
Fixed Warehouse Costs
Warehouse Rental
Warehouse Labor
Fixed Warehouse Costs
90,000
310,000
400,000
270,000
1,240,000
1,510,000
540,000
2,790,000
3,330,000
900,000
4,960,000
5,860,000
1,350,000
7,750,000
9,100,000
Depreciation Expense
Boxes (Including Loss)
Washing Machine
Storage Bins
Other Infrastructure
Depreciation Expense
294,646
16,000
970
7,500
319,116
1,402,583
64,000
5,670
22,500
1,494,753
3,093,849
136,000
14,900
45,000
3,289,749
5,615,644
232,000
28,480
75,000
5,951,124
8,967,903
352,000
47,060
112,500
9,479,463
250,000
225,000
60,000
75,000
10,000
26,000
63,180
709,180
500,000
585,000
60,000
195,000
100,000
10,000
53,000
73,680
1,576,680
750,000
1,035,000
120,000
345,000
100,000
10,000
82,000
72,130
2,514,130
750,000
1,485,000
180,000
495,000
100,000
60,000
114,000
82,605
3,266,605
750,000
1,935,000
300,000
645,000
200,000
60,000
145,000
107,355
4,142,355
(210,869)
(529,986)
1,241,181
(253,572)
3,608,768
319,019
7,909,504
1,958,380
13,694,784
4,215,322
112,500
393,750
787,500
1,293,750
(529,986)
-
(366,072)
-
(74,731)
-
1,170,880
-
2,921,572
-
(529,986)
-45%
(366,072)
-6%
(74,731)
-1%
1,170,880
5%
2,921,572
8%
Revenue
Variable Costs
Reverse Logistics
Washing Supplies
Tracking Labels
Variable Costs
Gross Margin
-
9,600
7,620
3,600
SG&A
Management Salaries
Sales
Customer Service
Marketing
Finance
HR
Legal/Insurance
HQ Costs
Total SG&A
EBITDA
EBIT
1,980
(1,620)
Interest Expense (10%)
-
Taxable Income
Taxes (@39%)
Net Income
Net Margin
(1,620)
27
5. Key Financial Assumptions
Box Costs:
• $7 per box to start based on quotation from edge-sealed manufacturer Carter Associates
• 8% price decline for first 5 years resulting from increasing volume
o Scale discounts provided by Carter Associates
o Assumption that edge sealing process becomes more efficient
• 60 uses per box based on comparable data from box suppliers and Wal-Mart Canada case study
Customer Volume:
• Mix of large national customers (average of 250 outlets per customer) and regional chains
(average of 65 outlets per customer)
• 40 boxes delivered per product line per outlet (based on discussions with distributors)
• 3 product lines per customer converted to Boomerang Logistics solutions
• 4 week box cycle time based on interviews with industry experts and competitors
Provision for box loss:
• 5% provision based on implementation of incentive pricing model and comparable information
from analogues (IFCO, Technology Container Corporation)
Reverse Logistics costs:
• $0.05 per case delivered from distributor warehouse to Boomerang washing facility and to
manufacturer
o Full truck-load freight rates
o 100 miles of trucking distance
• $0.04 per case fee paid to distributor for retrieval from restaurant
o 120 boxes per pick-up location (3 product lines)
o 2 pick-ups per week
o 3 minutes per pick-up, 10 locations per delivery run
o Driver wage of $19.50 per hour (source: payscale.com)
o 30% distributor margins on service
• Costs fall by 3% per year as a result of scale with distributor
Box washing costs:
• $80,000 cost per machine (dryer and washer), 10 year life
• Machine capacity of 1.5MM boxes per year (6 boxes per minute)
• 750 gallons of water per day per machine ($0.00108/gallon of water)
• 724.64 kW/shift of energy cost ($50/shift)
• $8,000 of detergent cost per year (estimate from washing machine supplier)
• 2 workers per machine per hour ($8 in fully loaded cost per hour)
Tracking costs:
• $15,000 in CAPEX per warehouse (estimate from American Bar Code and RFID)
o Includes conveyors, IT license, scanning sensor and 3 hand-held scanners
28
•
Variable cost of $0.01 per box for printed barcode label
Warehouse Marketing and Sales
• $150,000 over first two years for marketing – regionally promotion
• $450,000 over first two years for sales – sales rep and relevant selling budget
Other warehouse costs:
• Warehouse rental at $4.50/sq ft for 20,000 sq ft facility
• 3 forklifts at a cost of $10,000 each
• Warehouse furniture and IT at $30,000
Other warehouse capital costs:
• $20 per storage box at each restaurant’s facility
• $30 per collapsible pallet box, 10 boxes provided to each distributor
Corporate SG&A:
• Management Salaries - 5 person management team with fully-loaded salaries starting at
$50,000 in year 1 ramping to $150,000 by year 5
• Customer service – scales based on 15 customers per rep, $60,000 fully-loaded cost
• HR – 1 resource starting in year 4 at $50,000 fully loaded cost, $10,000 each year for outsourced
payroll and benefits management
• Legal/Insurance - $1,000 legal fees per new customer, insurance of $24K in year 1 scaling to
$120K in year 5 (based on quote for property and workers comp insurance).
• Finance – 1 FTE at $100,000 fully-loaded cost in year2 scaling to 2 FTEs in year 5
Headquarters expense:
• Headquarters expenses were scaled based on estimates of HQ headcount noted below:
HQ People
Management
CSR
Finance
HR
Total
•
•
•
5
1
5
1
1
5
2
1
6
7
8
5
3
1
1
10
5
5
2
1
13
Occupancy costs at 150 sq ft/person, $30/sq ft
IT costs at $5,000 per person
Furniture and other costs at $1,000 per person
Interest expense:
•
10% interest rate based on rates reported by the SBIC
29
6. Warehouse Economics
First Warehouse (slow ramp)
Year
1
2
3
4
5
6
7
8
9
10
Revenues
Number of Large Customers
Number of Medium Customers
Product Lines per Customer
Number of new large customers
Number of new med customers
Number of box cycles
Rental Price
1
2
3
1
2
2,371,200
0.50
2
5
3
1
3
5,148,000
0.50
2
7
3
0
2
5,959,200
0.50
2
7
3
0
0
5,959,200
0.50
2
7
3
0
0
5,959,200
0.50
2
7
3
0
0
5,959,200
0.50
2
7
3
0
0
5,959,200
0.50
2
7
3
0
0
5,959,200
0.50
2
7
3
0
0
5,959,200
0.50
2
7
3
0
0
5,959,200
0.50
Revenue
1,185,600
2,574,000
2,979,600
2,979,600
2,979,600
2,979,600
2,979,600
2,979,600
2,979,600
2,979,600
Variable Costs
Reverse Logistics
Washing
Tracking
Operating Expenses
Gross Margin
208,904
54,673
23,712
287,289
76%
439,935
118,699
51,480
610,114
76%
493,981
137,403
59,592
690,976
77%
479,161
137,403
59,592
676,156
77%
464,786
137,403
59,592
661,781
78%
450,843
137,403
59,592
647,838
78%
437,317
137,403
59,592
634,312
79%
424,198
137,403
59,592
621,193
79%
411,472
137,403
59,592
608,467
80%
399,128
137,403
59,592
596,123
80%
Fixed Costs
Warehouse Rental
Warehouse Labor
Washing Labor
Other Labor
Fixed Costs
90,000
310,000
120,000
190,000
400,000
90,000
620,000
240,000
380,000
710,000
90,000
620,000
240,000
380,000
710,000
90,000
620,000
240,000
380,000
710,000
90,000
620,000
240,000
380,000
710,000
90,000
620,000
240,000
380,000
710,000
90,000
620,000
240,000
380,000
710,000
90,000
620,000
240,000
380,000
710,000
90,000
620,000
240,000
380,000
710,000
90,000
620,000
240,000
380,000
710,000
Depreciation Expense
Boxes (Including Loss)
Washing Machine
Storage Bins
Other Infrastructure
Depreciation Expense
294,646
16,000
970
7,500
319,116
627,199
16,000
3,070
7,500
653,769
744,680
16,000
4,520
7,500
772,700
782,869
16,000
4,840
7,500
811,209
823,016
16,000
4,840
7,500
851,356
708,667
16,000
4,840
7,500
737,007
560,845
16,000
4,840
7,500
589,185
511,286
16,000
4,840
7,500
539,626
498,338
16,000
4,840
7,500
526,678
482,717
16,000
4,840
7,500
511,057
Warehouse SG&A
Marketing Expense - Warehouse
Sales Expense
Total Warehouse SG&A
75,000
225,000
300,000
45,000
135,000
180,000
30,000
90,000
120,000
-
-
-
(120,806)
-10%
420,117
16%
685,925
23%
782,235
26%
756,463
25%
884,755
30%
1,046,102
35%
1,108,781
37%
1,134,455
38%
1,162,420
39%
(1,519,620)
36%
(760,177)
868,019
1,402,500
1,407,083
710,573
700,336
1,305,596
1,534,930
1,550,845
Income
Margin
Cashflow
IRR
-
-
-
-
30
Subsequent warehouses (faster ramp)
Year
1
2
3
4
5
6
7
8
9
10
Revenues
Number of Large Customers
Number of Medium Customers
Product Lines per Customer
Number of new large customers
Number of new med customers
Number of box cycles
Rental Price
2
0
3
2
0
3,120,000
0.50
2
4
3
0
4
4,742,400
0.50
2
7
3
0
3
5,959,200
0.50
2
7
3
0
0
5,959,200
0.50
2
7
3
0
0
5,959,200
0.50
2
7
3
0
0
5,959,200
0.50
2
7
3
0
0
5,959,200
0.50
2
7
3
0
0
5,959,200
0.50
2
7
3
0
0
5,959,200
0.50
2
7
3
0
0
5,959,200
0.50
Revenue
1,560,000
2,371,200
2,979,600
2,979,600
2,979,600
2,979,600
2,979,600
2,979,600
2,979,600
2,979,600
Variable Costs
Reverse Logistics
Washing
Tracking
Operating Expenses
Gross Margin
274,874
71,939
31,200
378,012
76%
405,274
109,347
47,424
562,045
76%
493,981
137,403
59,592
690,976
77%
479,161
137,403
59,592
676,156
77%
464,786
137,403
59,592
661,781
78%
450,843
137,403
59,592
647,838
78%
437,317
137,403
59,592
634,312
79%
424,198
137,403
59,592
621,193
79%
411,472
137,403
59,592
608,467
80%
399,128
137,403
59,592
596,123
80%
Fixed Costs
Warehouse Rental
Warehouse Labor
Washing Labor
Other Labor
Fixed Costs
90,000
310,000
120,000
190,000
400,000
90,000
620,000
240,000
380,000
710,000
90,000
620,000
240,000
380,000
710,000
90,000
620,000
240,000
380,000
710,000
90,000
620,000
240,000
380,000
710,000
90,000
620,000
240,000
380,000
710,000
90,000
620,000
240,000
380,000
710,000
90,000
620,000
240,000
380,000
710,000
90,000
620,000
240,000
380,000
710,000
90,000
620,000
240,000
380,000
710,000
Depreciation Expense
Boxes (Including Loss)
Washing Machine
Storage Bins
Other Infrastructure
Depreciation Expense
387,692
24,000
1,300
7,500
420,492
593,046
24,000
3,240
7,500
627,786
751,434
24,000
4,360
7,500
787,294
789,969
24,000
4,840
7,500
826,309
830,481
24,000
4,840
7,500
866,821
667,077
24,000
4,840
7,500
703,417
582,348
24,000
4,840
7,500
618,688
513,022
24,000
4,840
7,500
549,362
499,808
24,000
4,840
7,500
536,148
483,889
24,000
4,840
7,500
520,229
Warehouse SG&A
Marketing Expense - Warehouse
Sales Expense
Total Warehouse SG&A
75,000
225,000
300,000
45,000
135,000
180,000
30,000
90,000
120,000
-
-
-
61,495
4%
291,369
12%
671,330
23%
767,134
26%
740,998
25%
918,345
31%
1,016,600
34%
1,099,045
37%
1,124,985
38%
1,153,248
39%
(1,784,474)
37%
(194,013)
661,883
1,400,768
1,405,262
487,319
1,025,765
1,198,294
1,534,529
1,550,515
Income
Margin
Cashflow
IRR
-
-
-
-
31
7. List of trading and transaction comparables
Transaction Comparables
Company
Transaction Value Transaction Valuation
$MM
EV/EBITDA
LMS Intellibound
41
N/A
Transerra International Logistics
52
N/A
World Commerce Services, LLC
8
7.84x
Adcom Express, Inc.
11
12.26x
Concert Group Logistics, Inc.
18
20.67x
ICS Logistics, Inc.
45
8.81x
Christian Salvesen plc
775
7.43x
Average Transaction comparable (excl. Concert, Adcom)
8.03x
Acquiror
Msouth Equity Partners
CH Robinson
WLG Inc.
Radiant Logistics, Inc.
Express-1 Expedited Solutions Inc
Prime Infrastructure Group
Norbert Dentressangle SA
Trading Comparables
EV
$MM
Multple
EV/EBITDA
Description
Competitors
Brambles (CHEP)
IFCO Systems
Average competitors
12,689
759
7.62x
8.50x
8.06x
Pallet and bulk container pooling company
Container pooling company
Material Handling and Packaging Company
Ball Corporation
Bemis Co. Inc.
British Polythene Industries plc
Constar International Inc.
Intertape Polymer Group Inc.
Myers Industries Inc.
Pactiv Corp.
Silgan Holdings Inc.
AEP Industries Inc.
Material Handling and Packaging Group average
7,428
3,581
184
207
409
447
4,752
2,979
396
7.75x
7.68x
3.84x
3.92x
9.40x
7.99x
6.60x
6.69x
7.74x
6.85x
Supplier of metal and plastic packaging
Manufacturer of pressure sensitive flexible packaging
Manufacturer of polythene products including printed film for food industry
Producer of plastic containers for food
Develops plastic and paper based products and associated packaging systems
Manufacturer and distributer of polymer products
Manufacturer of consumer/foodservice packaging
Supplier of metal and plastic packaging
Manufacturer of plastic films and polypropelene packaging solutions
Logistics and Transport Companies
CH Robinson Worldwide
Con-way Inc.
Expeditors International of Washington Inc.
JB Hunt Transport Services Inc.
Werner Enterprises Inc.
Logistics and Transport Group average
10,208
2,448
7,486
5,204
1,554
16.62x
8.38x
17.55x
11.27x
6.12x
11.99x
Third party logistics provider
Transport, logistics and supply chain services
Logistics services include air and ocean cargo
Surface transportation and delivery services
Truckload shipment surface transport
Weighted Average (30% transaction, 30% competitors, 30% Material Handling, 10% T&L)
25% discount for size and liquidity
8.1x
6.1x
For the purpose of valuation estimations and equity returns, 6.1x EV/TTM EBITDA used. This multiple
reflects a 25% discount to the average computed transaction and trading multiple.
32
8. Sales Hurdles
Sales Hurdle
Manufacturer The value of the transport packaging
itself is small compared to the product
inside (typically valued around $2633).
Therefore, manufacturers are very
sensitive to any process change which
may production downtime
Food safety is a crucial element to ensure
longevity of the brand - past recalls have
put companies out of business35
Distributor
Manufacturers bear most product
damage costs and will carefully scrutinize
packaging changes
Labor drives cost. It will require
additional labor to track and retrieve
Boomerang boxes
Boomerang boxes will break the cold
chain, bacteria will multiply and goods
will become unfit for sale
Restaurant
Retrieved Boomerang boxes may
contaminate other deliveries on the
distributor’s truck
With limited storage space, QSRs will
struggle to store empty containers until
the next scheduled distributor visit
(typically 2-3 days).
Plastic is not green
Solution
The Boomerang solution integrates
seamlessly into current processes at cartonerector and pre-formed automated facilities
(while we currently cannot accommodate
wrap-around packaging, this process is used
in only 35% of production facilities34)
Boomerang’s sanitization process fully
complies with FDA and USDA regulations.
Furthermore, all washing facilities will obtain
AIB Gold Standard certification. In addition,
our proprietary tracking system will increase
traceability – a key concern when there is
an outbreak
RPCs typically reduce product damage by up
to 2%36
Based on discussions with distributors, they
will be able to utilize their current tracking
systems to track boxes. Distributors will be
paid for incremental labor cost from picking
up boxes at restaurants
RPCs are impermeable, enabling distributors
to reduce the quantities of damaged goods
due to icepacks. At a later stage, Boomerang
Logistics will expand its service offering to
include RPCs that provide enhanced
insulation and temperature sensors.
Pallet sized containers on truck will separate
empty containers. Distributors already
provide service for milk crates
The foldable nature of our RPCs mean
storage space required is limited. To
facilitate this process, Boomerang Logistics
will provide each outlet with a portable
container that can be used to store the RPCs
until the distributor can retrieve them. The
dimensions of this container will be 24” L x
18” W x 48” D (footprint of 2 sq. ft), and it
will be able to hold approximately 100
empty RPCs.
99% of damaged Boomerang RPCs will be
recovered37 and granulated to make new
RPCs, reducing overall waste.
33
9. Box suppliers
The following RPC box price quotations have been received:
Asset
Material
Source
Quote
Corrugated Plastic RPC
(12”x16”x18” unsealed)
Corrugated Plastic RPC
(15”x12”x12” sealed
edge)
Corrugated Plastic RPC
(12”x16”x18” unsealed)
Flip-Box
(400mmx400mmx220mm)
4mm polypropylene
Kiva Plastics
$5.85 for 10,000
4mm polypropylene
Carter Associates
$7.71 for 50,000
$8.47 for 10,000
4mm polypropylene (Tri-Ply)
Amatech/Polycel
$4.86 for 5,000
Expanded polypropylene
Overath GmBH
€15 each
34
10. Washing machines
Boomerang is currently exploring a number of conveyor based washing machines and blow-off
dryers. Example drawings and pictures of the machine can be found below. It is estimated that a
suitable washing and drying machine can be acquired for $80,000.
Manufacturer/
Distributor
Equipment Quote
Condition
Includes
Dryer?
Douglas Machines Corp.
Sorma USA
Better Engineering
Loeb Industrial
Fintech Inc.
New
New
New
Used
New
Yes
No
Yes
No
Yes
Douglas Machines Tunnel Washer
$92,042
$57,770(delivered)
$225,000
$10,000
N/A
Sorma USA – RPC washing Machine
Water
Conservation
Design
Yes
Yes
No
Leasing/
Rental
Option?
Leasing
Leasing
Leasing
Rental
Leasing
Loeb Industrial – Used machine
35
11. Interviews and references
Name
Nashir Vasanji
WITHHELD
Mike Thompson
Manolis Alpogianis
Jessica Moore
Robert Nagel
Meredith Neizer
David Barber
Paul Knechtel
Eric Hahn
Andrew Parkinson
Rick Blasgen
Kevin Dolan
Kevin Sproule
Tayler Wilkerson
Dan Trainor
Dan Delorey
Jim Kulbeth
Tom Stafford
Richard Smith
Al Farrell
Fred Heptinstall
Kevin Gillespie
Anita Ricklefs
John Koontz
Bob Aiken
Jay Greyson
Joe Marcy
Bob Fox
Title
Former COO
President and CEO
Founder
Marketing Associate
Partner
President
President of Operations
Founder
Founder
Founder of Peapod
President & CEO
Transportation & Logistics expert
Manager
Supply Chain Expert
Sales
Reusable Packaging Specialist
President
Executive VP, Sales & marketing
Manager
CFO
President of RPCs
Representative
Office Manager
Research Chemist
Partner, Former CEO of US Foodservices
Managing Director & Principal
Professor & Department Head
Consultant - Food Packaging
Company
New Foods Classics
Fair Oaks Farms
America's Dog
HomeMade Pizza Company
CEO Partners, Inc.
Alliant Logistics (Arm of U.S. Foodservices)
Gordon Food Services, Canada
100 Mile Market
Locavore Distributors
Peapod
Council of Supply Chain Management Professionals
McKinsey and Company
McMaster-Carr Industrial Supply
Logistics Management Institute
American Barcode and RFID
Technology Container Corp
Universal Package Systems
Kiva Plastics
Corbi Plastics
iGPS
IFCO North America
USDA
AIB
IIT NCFST/FDA Division of Food Processing Science and Technology
Bolder Capital
Supply Chain Equity
Food Science & Technology at Virginia Tech
Bob Fox Consulting
Sector
Manufacturer
Manufacturer
End-Customer
End-Customer
Foodservices Experts
Distribution & Logistics
Distribution & Logistics
Distribution & Logistics
Distribution & Logistics
Distribution & Logistics
Distribution & Logistics
Distribution & Logistics
Distribution & Logistics
Distribution & Logistics
Tracking Systems
RPC Manufacturer
RPC Manufacturer
RPC Manufacturer
Outsourced Washing
Incumbent competitor
Incumbent competitor
Regulatory Agency
Regulatory Agency
Regulatory Agency
Private Equity
Private Equity
Food Sanitation
Food Sanitation
36
12. Endnotes
1
Food and Agriculture Association of the UN: http://www.fao.org/worldfoodsituation/FoodPricesIndex/en/
Big Mac Index, Economist Magazine
3
Based on conversations with WITHHELD, former COO of New Foods Classic, a Canadian meat processor
4
McDonald’s social responsibility report: http://www.McDonald’s.ca/en/community/environment_reduce.aspx
5
http://www.purchasing.com/article/455776-Corrugated_box_prices_hiked_by_9_5_10_.php
6
Interview with WITHHELD, former COO of New Foods Classics a food processor;
http://www.fhwa.dot.gov/reports/tswstudy/Vol2-Chapter3.pdf; http://www.fhwa.dot.gov/reports/tswstudy/Vol2Chapter3.pdf
7
Interview with WITHHELD, former COO of New Foods Classics a food processor
8
2003 McDonald’s environmental scorecard program; Green and Growing; Restaurants & Institutions Sept 2007.
9
Live cycle inventory of reusable plastic containers and display-ready corrugated containers used for fresh product
applications. Prepared for Reusable Pallet & Container Coalition by Franklin Associates, a Division of Eastern
Research Group, Inc. , November 2004
10
Hale Group, Foodservice 2020: Global, Consolidated and Structured, 2010
11
Sources: http://www.census.gov/epcd/naics02/def/ND722211.HTM; http://en.wikipedia.org/wiki/Restaurant;
McDonald's 2010 10-K; http://www.wikinvest.com/industry/Fast_Food_Restaurants_(QSR)
12
Interview with WITHHELD, President of Operations at Gordon Foods Canada (Distributor)
13
Calculated based on McDonald’s store share in Illinois. http://www.nationmaster.com/graph/foo_mcd_res-foodmcdonalds-restaurants; http://www.mcillinois.com/all-restaurants/
14
Green Packaging to 2013, report by the Freedonia Group
15
http://www.scribd.com/doc/19454153/2009-McDonald’s-Best-Of-Green-09
16
National Restaurant Association’s 2008 Restaurant Industry Forecast
17
National Restaurant Association’s 2010 Restaurant Industry
18
Conversations with corrugated plastic suppliers Kiva Plastics and Amatech Inc.
19
European RPC penetration levels http://www.palletenterprise.com/articledatabase/view.asp?articleID=638
20 80 lbs/sq in flat-crush test for corrugated plastic as compared to 3 lbs / sq in for corrugated cardboard
(http://www.coroplast.com/advan.htm)
21
Interview with WITHHELD, former President and COO of Peapod
22
Interview with WITHHELD, President of Operations at Gordon Foods Canada (Distributor)
23
Interview with WITHHELD at Kiva Plastics
24
Interview with WITHHELD, CIO of Reyes Holding, the parent company of Martin-Brower
25
Interview with WITHHELD at Technology Container Corporation
26
Interviews with foodservice distributors
27
Interview with WITHHELD at Better Engineering regarding specifications of their washing machine for
foodservice applications
28
http://www.nj.com/news/index.ssf/2007/10/topps_meat_co_folds_after_mass.html
29
Phone survey with restaurant managers at 15 quick service restaurant chains in Illinois
30
2008 Fibre Box Association Annual Report. http://www.fibrebox.org
31
Datamonitor USA. Industry Profile: Containers & Packaging in the United States. December 2009.
32
http://www.usecaps.com/about/index.html
33
Interview with WITHHELD, former President of Peapod
34
Need reference here
35
http://www.nj.com/news/index.ssf/2007/10/topps_meat_co_folds_after_mass.html
36
http://www.foodlogistics.com/print/Food-Logistics/The-ABCs-Of-RPCs/1$88
37
Recovery rate based upon interview with IFCO RPC President WITHHELD
2
37