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Cirkul

Name

Institution

Course

Professor

Date
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Introduction

Cirkul is a producer of water bottles and cartridges that are aimed at making it more

convenient and fun to drink water. It is in the plastic products manufacturing industry. The

company produces its bottles in such a way that they facilitate users to flavor every sip of the

water. As such, it offers a departure from the drinking of plain water to the drinking of

flavored water that contains electrolytes, added vitamins, and natural flavors through its flavor

dial. This feature allows users to reap the benefits of staying hydrated with the help of flavors.

Cirkul was created by Andy and Garret, two former student-athletes due to their frustration

with the beverage options that were available at that time. Since the two had been athletes,

they knew how important it is to stay hydrated. Their problem was that they found it boring at

times to drink plain water (Cirkul, 2022). As a result, Andy used to drink sports drinks and

sodas, whereas Garrett frequently used drops and powders. Their situation led them to think

about better ways of getting delicious flavors in water to make drinking water fun while

obtaining the hydration they wanted. Therefore, the motivation for the creation of Cirkul was

to make it easier for people to drink water (Cirkul, 2022). The company strives to help people

drink more water by empowering people to drink more water and reducing the plastic waste

that is created by the bottled beverage industry. It aims at showing that it is possible to have

healthy and delicious beverages and make life more convenient (Cirkul, 2022).

The company makes a non-disposable water bottle with a flavor cartridge. The

company was launched in Boston in 2018 and was relocated to Tampa where it operates. The

company’s product offering is a simple, shatterproof, BPA-free bottle that has flavor

cartridges (TampaBayInno, 2020). The cartridges are designed in such a way that they can be

controlled to dispense the amount of flavor the user wants. The cartridges that Cirkul
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incorporates into its bottles range across six lines and forty-three flavors (TampaBayInno,

2020). These include teats, coffees, electrolyte packages, and caffeinated among others. All

these blends have no artificial flavors, no sugar, and no calories. One of the things the

founders of the company look forward to is giving people an option and increasing the

convenience of having flavored water (TampaBayInno, 2020). As a result of the bottle, many

people now have a chance to be hydrated without having to take plain water. Customers can

come with their own water and then make use of the cartridges in the bottles offered by Cirkul

to enhance that water because the main aim of the company is to get the customers to drink

more water (TampaBayInno, 2020). The company has 200 employees who operate in

specialized departments. During the Coronavirus pandemic, Cirkul and its business operations

were left largely unaffected (TampaBayInno, 2020). Cirkul continued to be operational at the

time when other local companies were forced to halt or slow down production

(TampaBayInno, 2020). Regarding the current situation of the business, Cirkul currently has

some issues with customer complaints that have not been addressed (Spencer Evening World,

2021). Many customers from across the United States have not received their orders by the

promised date. Consumers have also complained that after the initial trial, Cirkul charged

them more than the authorized charges. Although the products of the company were

advertised at a discounted price without obligation or as free trials, consumers were entered

into a subscription service, which incurred them subsequent charges at greater prices (Spencer

Evening World, 2021). Customers have also faced issues trying to cancel their subscriptions.

Another issue is that the company has not yet penetrated markets besides the United States,

although there are plans to start shipping Cirkul’s bottles to Canada.

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Deal Evaluation and Due Diligence

Industry Analysis

Cirkul operates in the plastic products manufacturing industry. This industry includes

companies that process plastics to make intermediate or final products. The companies in the

industry make use of processes such as extrusion molding, compression molding, casting,

blow molding, and injection molding (Abrigo, 2022). The industry is also made up of firms

that are involved in the manufacture of un-laminated film and sheets as well as plastic

packaging materials. The companies also produce polystyrene foam and plastic bottles

(Abrigo, 2022). Activities involved in un-laminated sheet and film manufacturing and plastic

packaging materials concert plastics to make plastics film, plastic bags, or sheets. Other

companies are involved in the manufacture of plastic pipes, un-laminated profile shape, and

pipe fitting (Abrigo, 2022). These ones create plastic pipes, plastic profile shapes such as a

tube, rod, and sausage casings, and pipe fitting. Polystyrene foam product manufacturing is

used in the creation of polystyrene foam products (Abrigo, 2022). Companies involved in the

manufacture of plastic bottles make bottles of different types for holding various types of

beverages and other substances. According to the most recent data from the Census Bureau,

the industry has approximately 12, 136 firms (Abrigo, 2022). Most of the firms in the industry

are involved in the manufacture of film and sheet, and plastic packaging materials (Abrigo,

2022). Sageworks industry data shows that in the past 12 months, the industry had a net profit

margin of 4.8%. At that time, the average gross profit margin was 26.98% (Abrigo, 2022).

This means that the industry is quite attractive for start-ups due to the high prospects of

realizing profits.
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The plastic products manufacturing industry has also responded to current events in the

business world. During the Covid-19 pandemic, the plastic products manufacturing industry

endured a poor manufacturing environment as a result of a fall in downstream demand that

stemmed from global lockdowns (IbisWorld, 2021). However, the industry is expected to

continue rebounding as the world economy reopens. China accounts for over 50% of the

industry’s imports into the United States. As the economy reopens and more certainty is

achieved in the economic environment, consumer demand is expected to increase (IbisWorld,

2021). The industry is expected to remain highly dependent on trends in automobile and

construction manufacturers, and its key downstream markets.

Over the five years from 2016 until 2021, the plastic products manufacturing industry

has experienced a moderate decline in revenue (IbisWorld, 2021). The fact that the industry is

dependent on consumer spending habits means that it is quite sensitive to the overall trends in

the economy, especially in the markets where plastic products are purchased (IbisWorld,

2021). Therefore, a weakening in demand in its downstream markets, especially the

automotive and construction sectors, had affected revenue growth (IbisWorld, 2021). Besides,

as a result of the current economic situation as a result of the Coronavirus pandemic, global

industrial production has continued to decline, which negatively affects demand for the

products of the industry.

However, it is expected that revenue for the plastic products manufacturing industry is

going to rebound within the next five years (IbisWorld, 2021). Although the products that the

industry manufactures are used in many downstream industries, it is expected that the rising

demand for the automobile manufacturing and construction markets is going to contribute to

an increase in the revenue for the industry (IbisWorld, 2021). Domestic firms such as Cirkul
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may even experience increased demand due to some downstream consumers who originally

bought from overseas shifting to buy products manufactured within the country (IbisWorld,

2021). These are companies that could be seeking to ensure a stable and secure supply chain

to shield from unexpected disruptions in the global market.

Company Analysis

The competitive advantage of Cirkul is the features that come with its bottle. The

company does not just offer a disposable bottle. Instead, it is an innovative product with a

flavor cartridge with a great value proposition for the consumer. Through its collection of

flavors, the bottle offers to make drinking water fun and convenient activity, allowing people

to stay hydrated while enjoying it (Cirkul, 2022). Another competitive advantage associated

with the company’s bottles is that they reduce the amount of plastic waste in the environment

since they are meant to be used over and over again. Therefore, the company’s products are

superior to those of its competitors both in terms of the value offered to the consumer and the

impact on the environment.

The company creates non-disposable water bottles with a flavor cartridge that is meant

to be sold to people of all ages. The area in which the company needs assistance is in the

hiring of employees to step up production. With the economy rebounding from the effects of

the Covid-19 pandemic, it is highly likely that demand is going to rise. Therefore, the

company needs to hire more employees to increase production so that the supply of the Cirkul

bottles can meet the demand for them.

Cirkul has a large market share as a result of its unique product offering, which attracts

customers based on their preferences and tastes. Having unique products is one of the

strengths the company leverages in attracting more customers. The company also uses gift
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cards in its efforts to attract more customers. Furthermore, its bottles are of a higher quality

compared to those of its competitors, coming in different colors and having a comfortable

grip. Cirkul uses a social media marketing strategy which allows it to reach more customers.

It has a Facebook account where it connects with many potential customers. The 40 natural

flavors that have no additional calories attract consumers who are sensitive about their health.

The company’s products also attract customers who are interested in environmental

conservation because its bottles are BPA-free and have 84% less plastic (TampaBayInno,

2020). The company also has a fair pricing policy that makes the products affordable to all

customers. These strategies attract customers, increasing the sales volumes and profitability of

the company.

Regarding the size of the future market, demand for clean water is likely to rise as a

result of an increase in the industrial use of water, reducing the amount of water available for

consumption. It is expected that there will be more innovations in the future to solve the

problem of water shortage. Cirkul is likely to grow because it has already demonstrated the

potential to grow. There will be a need for improved water monitoring techniques to ensure it

is safe for consumers. Globalization is also going to expand the market and allow Cirkul to

reach consumers in different parts of the world, increasing sales revenues and profits. One

interesting fact about the company is the way it recruits employees. Instead of focusing on

experience, Cirkul looks more into the applicants’ characteristics such as their diligence,

teamwork, patience, and kindness. This shows that the company is more concerned about the

quality of customer service.

The company partners with Weight Watchers and BrainTree, one of their payment

partners. The partnership with Weight Watchers benefits their reputation because Weight
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Watchers is highly reputable in encouraging a healthy lifestyle. It assures the prospective

customers of Cirkul that the products offered are healthy and appropriate for people seeking

to lead a healthy lifestyle. The relationship with BrainTree appears to be counterproductive

because the company has payment problems, including customers having problems canceling

their subscriptions. For their distribution channel, Cirkul works with DHL and UPS to deliver

products. Cirkul products can also be found in retail stores such as Walmart and others. One

of the areas where improvement is needed in the company is in the processing of orders and

shipment as well as its payment systems. Many consumers complain about not receiving their

orders at the promised time or receiving orders with wrong or missing products. The company

also needs to improve on customer service because it has many unanswered issues, leading to

it being graded F by Better Business Bureau (Spencer Evening World, 2021). Cirkul should

also change its payment partners to get a more efficient payment system and address customer

complaints about the payment process.

Company Valuation

The company picked for the terminal value calculation is Nifco American Corporation.

This company was chosen because of its success in the industry as a prototype of what Cirkul

wishes to become in the future.

Terminal value calculation:

The plastic products manufacturing industry is trading at ten times the EV/EBITDA multiple.

Therefore, the terminal value will be calculated based on A WACC of 9%, a 3.6% growth

rate, a debit of $100, cash of $60, and 200 shares. The perpetuity method is going to be used

in the calculation of terminal value. The figures are based on assumptions since financial data

on its competitors is not available online.

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**All values are in thousands.

Historical Data Forecast Data

Free Cash Flow to Firm 2019 2020 2021 2022 2023 2024
EBIT $60 $72 $80 $84 $90 $96
Free Cash Flow to Firm

EBIT x (1-t) $50 $54 $56 $60 $64 $68

Add: Depreciation $22 $26 $30 $42 $45 $50
Less: Capex $24 $28 $32 $45 $48 $54
Less: Change in Working Capital $4 $4 $4 $5 $5 $5
FCFF $30 $36 $38 $48 $58 $72

Assumptions
WACC 9%
Growth Rate 3.60%

Perpetual Growth Method 2022 2023 2024

Terminal Value 0 0 1381.333333

Therefore, the terminal value for Cirkul is $1381333.33 according to the assumption.

Key Parts in the Term Sheet

Investment protection refers to the strategies adopted to guard the investments a

business has made. It is an important part of financial planning and is intended to protect

investments from various types of risks. It can also be used to limit the access of creditors to

some valuable assets (Demirel, Leenderste, & Volker, 2022). One of the terms of protecting

investments is insuring them. This is meant to ensure that the business does not undergo a

huge loss in the case of an accident that could lead to the loss of investment. Besides, the

company can buy and sell index options as one of the ways for minimizing the risk on the

company’s investments (Demirel, Leenderste, & Volker, 2022). One of the outstanding things

about insurance for investments is that it is an expense and not an investment. It is useful in

creating resilience in the company’s investments in such ways as allocating an adequate

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amount of cash and high-quality, short-duration bonds (Demirel, Leenderste, & Volker,

2022). Any losses that are incurred in return potential from the ownership of bonds and cash

are likely to be less than the cost of insurance. This will be useful to ensure investments

remain unmolested whenever there is a cyclical downturn as any loss in return from the

ownership of bonds and cash is going to be less than the original cost of the insurance.

Another means of protecting investments will be to seek a return of capital through safe

havens such as income annuities and U.S treasuries because these guarantee a return of

principal. Investments will also be protected by keeping an eye on them (LeMay, 2018). It is

very important to ensure that an investment does not register huge losses. This is going to be

done by monitoring the investments to ensure that any small losses are managed so that they

do not become large losses (Demirel, Leenderste, & Volker, 2022). As a company that needs

to stay aware of its competitive environment, Cirkul is also going to protect its investments by

looking at situations from various perspectives. It is important to stay in the know of industry

dynamics and the macro-environment (Demirel, Leenderste, & Volker, 2022). Technical and

fundamental analysis of industry and company dynamics is important to know what to do to

keep investments afloat. Another term is diversification of investments (Demirel, Leenderste,

& Volker, 2022). One of the best ways of protecting investments is to maintain an appropriate

and broad degree of diversification across and within classes of assets (Demirel, Leenderste,

& Volker, 2022). Although diversification is not bullet-proof when it comes to investment

protection, it provides a lot of benefits in that a loss in one investment may be neutralized by a

profit in another.
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Expected Exit Channel

Cirkul is a business that is committed to delivering value to its customers. With the

rapid rate of growth of the business, it may need an exit strategy. The milestones that the

company wishes to achieve in the next few years are to obtain adequate funding to expand

and open locations in different places as well as increase the volume of production and

volume of sales. An exit channel refers to the method an entrepreneur uses to monetize their

investment in a firm. The exit channel chosen is usually one that provides a liquidity event

and matches the wants and needs of the entrepreneur. Some of the exit channels available are

an initial public offering, sale to a strategic buyer, sale to a financial buyer, and auction sale.

The best exit strategy for the founders of Cirkul is an initial public offering, in which the

company’s shares are going to be offered to the public. The two original owners may choose

to sell their shares in the market. To carry out an initial public offering, Cirkul needs to grow

and increase its sales volume and revenue since going public is costly and the requirements

for corporate governance and reporting are significant. Since Cirkul has a good value

proposition and is looking forward to increased growth, it is capable of generating a high

valuation premium. This means that an initial public offering is something that is going to be

manageable for the company.

Conclusion and Summary

Cirkul is a company with great growth potential. It has shown this through its ability to

create an innovative product that is quite appealing to the consumer. The company operates in

the plastic products manufacturing industry, which has a good outlook. Although the demand

for the products from the industry declined during the Covid-19 pandemic, it is likely to

rebound as the world economy recovers from the pandemic. The motivation for the creation
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of Cirkul was to make it easier for people to drink water. The company strives to help people

drink more water by empowering people to drink more water and reducing the plastic waste

that is created by the bottled beverage industry. It aims at showing that it is possible to have

healthy and delicious beverages and make life more convenient. During the Coronavirus

pandemic, Cirkul and its business operations were left largely unaffected. Cirkul continued to

be operational at the time when other local companies were forced to halt or slow down

production. Owing to the rapid rate of growth in the industry and the company’s prospects of

success, an initial public offering will be the most suitable exit strategy for it.
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References

Abrigo. (2022). Plastics product manufacturing (NAICS 326150) industry trends - Abrigo.

Abrigo. Retrieved 27 April 2022, from https://www.abrigo.com/blog/plastics-product-

manufacturing-naics-326150-industry-trends/#:~:text=According%20to

%20Sageworks'%20industry%20data,the%20plastics%20product%20manufacturing

%20industry.

Cirkul. (2022). Cirkul | Finally, Water Is Your Favorite Beverage.. Drinkcirkul.com.

Retrieved 27 April 2022, from https://drinkcirkul.com/pages/our-story.

Demirel, H. C., Leendertse, W., & Volker, L. (2022). Mechanisms for protecting returns on

private investments in public infrastructure projects. International Journal of Project

Management, 40(3), 155-166.

IbisWorld. (2021). IBISWorld - Industry Market Research, Reports, and Statistics.

Ibisworld.com. Retrieved 27 April 2022, from https://www.ibisworld.com/united-

states/market-research-reports/plastic-products-miscellaneous-manufacturing-

industry/.

LeMay, T. (2018). Protecting International Petroleum Investments during Geopolitical

Unrest: Arbitrating Disputes under Economic Sanctions. Tex. Int'l LJ, 53, 307.

Spencer Evening World. (2021). BBB Warning: Cirkul, Inc., a flavor cartridge and water

bottle company leave customers thirsty. Spencereveningworld.com. Retrieved 1 May

2022, from https://www.spencereveningworld.com/story/news/2021/05/17/bbb-

warning-cirkul-inc-a-flavor-cartridge-and-water-bottle-company-leaves-customers-

thirsty/46069249/.
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TampaBayInno. (2020). Meet Cirkul, the Tampa-based innovative water bottle that just

raised $6.6M. Bizjournals.com. Retrieved 27 April 2022, from

https://www.bizjournals.com/tampabay/inno/stories/profiles/2020/11/17/cirkul-the-

tampa-based-innovative-water-bottle.html.