Kona Adventures is a leading provider of travel and entertainment services that maintains its market position through organic and inorganic growth. Valuation analyses place Kona's enterprise value between $560-600 million based on 2016E revenue of $206.2 million and EBITDA of $52.6 million. Comparable analyses and precedent M&A transactions support a valuation range of $552.1-604.7 million. It is recommended that Kona pursue a near-term sale to a strategic buyer given compelling financials and historically strong market conditions.
3. Kona presents an attractive opportunity in a peak marketExecutivesummary
Sell-side advisory
Valuation overview
Enterprise Value ($mm)
Potential buyers
3
Kona Adventures is a leading
provider of travel and entertainment
services with a primary focus on
corporate travel
Maintains its market position with a
loyal customer base, strong
management team, and significant
organic and inorganic growth
drivers
Valuation analyses place Kona’s
enterprise value between
$560mm — $600mm
2016E revenue: $206.2mm
2016E EBITDA: $52.6mm
Analysis of past transactions and
the potential for synergies along
with historically strong market
conditions leads to a
recommendation of pursing a near-
term sale to a strategic buyer
Compelling story & financials
Source: Team projections
$500 $550 $600 $650 $700
Leveraged Buyout (10.3x - 11.4x)
DCF - Exit Multiple (12.0x - 12.7x)
DCF - Perpetuity (10.8x - 11.8x)
Comparable Analysis (10.5x - 11.5x)
Precedent Analysis (11.0x - 12.0x)
5. Continuing growth in the broad travel marketIndustrydrivers
Growth in the overall travel
industry will remain steady and
continue to drive the need for
global travel services
Consumer behavior will
continue to change quickly,
and consumer needs will
become increasingly diverse
Supply-side services, (e.g.
hotels and destination
services) will remain
fragmented, and there will
always be the need for an
intermediary
Developing regions will
experience strongest growth in
demand for travel
Kona’s recent expansion into
Asia will allow the company
to capitalize on this growth
Travel services industry revenue growth
4
Projection for number of outbound trips by region
Commentary
$0
$10,000
$20,000
$30,000
$40,000
2009 2010 2011 2012 2013 2014 2015 2016P 2017P
0
100
200
300
400
500
600
North America Europe LATAM MEA APAC
2013 2018E
($ in millions)
(in millions)
Sources: Euromonitor, IBIS world, investor presentations
6. Positioning within the travel industryIndustrydrivers
Players in the global travel
service industry are providers
of high value, real-time
information related to travel
and entertainment itineraries
Companies provide value-add
services to both travel providers
and buyers
Requires strong relationships
with both vendors and
customers
Consumers can now bypass
traditional brick-and-mortar
travel agencies, conduct their
own research, and purchase
directly online
Travelers
5
Commentary
Travel buyers
Value-add services
Providers
Airlines Cruise Car rental Hotels Airlines
Leisure Business
Online travel agencies
Offline travel agencies
Travel management companies
Corporations
Tour operators
Meta-search
Secure efficient B2B payment solutions
Improved efficiency of complex/high volume operations
Expanded addressable customer base and offering
Efficient workflow automation and improved productivity
Reduced operating costs
Source: Investor presentations
7. Travel services have outperformed the broader marketIndustrydrivers
Within the broader travel industry, travel service providers have outperformed significantly
Low-barriers to entry and highly-fragmented conditions, particularly among smaller companies, are
conducive to acquisition activity
Further integration of travel services that are provided by these companies is making it much
easier for consumers and businesses to plan trips while also providing a more dynamic
experience
Indexed travel industry performance (weighted by market capitalization)
6
Commentary
Source: Bloomberg
70
90
110
130
150
170
190
Comparable set Dow travel & tourism index S&P500
9. Strong positioning with room for growthCompanyoverview
Kona Adventures is a leading provider of
travel and entertainment services to
primarily small and medium size
businesses
Includes airfare accommodation, hotel
booking, transportation services, and
entertainment planning
For each transaction that Kona facilitates,
it receives a percentage of the total cost
The company provides “service”
transactions, which are those done by
Kona employees, as well as “digital”
transactions, which are those made by
clients using an app or online means
Strong projected EBITDA growth as the
company moves to expand into new
markets through acquisition and grow an
already large and diverse customer base 22.0%
24.0%
26.0%
28.0%
30.0%
$0
$20
$40
$60
$80
$100
2015A 2016E 2017P 2018P 2019P 2020P 2021P
EBITDA EBITDA Margin
EBITDA growth and margins
45.0%
25.0%
20.0%
10.0%
Small to medium business
(SMB)
Large corporations
Personal (luxury)
Local business
2016E sales by end market
7Sources: Team projections and company materials
($ in millions)
10. Customer and service diversificationCompanyoverview
Recent emphasis on
entertainment planning allows
for diversification of revenue
Complete integration from
air travel to event
attendance
Kona creates value for its
customers by removing the
need for an in-house
administrative travel process
Strong vendor relationships
provide superior access for
customers
The company maintains and
continues to grow its global
presence through its
multinational customer base
25% of 2016E sales are
through European markets
Service / solution offerings breakdown by revenue
8
Customer concentration trends
Commentary
58.5%23.8%
11.3%
6.5%
Aircraft accomodation Hotel booking Transportation services Entertainment planning
54.8%
24.7%
10.0%
10.4%
44.4%
28.4%
8.4%
18.9%
2013 2016 2021
0%
10%
20%
30%
40%
50%
Small to medium
business
Large corporations Personal (luxury) Local business
2011 2016E
Sources: Company materials and team projections
11. Positioning analysisCompanyoverview
9
W
TO
S
Second to market in fast growing
service offerings and geographic
segments
Focused in business travel, which
is growing slower than leisure
travel
Growth of direct booking
that allows for greater
discounts
Low barriers to entry and high
fragmentation lead to a very
competitive landscape
Cyclical nature of travel industry poses
macroeconomic risk
Current portfolio offering and
strong vendor relationships allow
customers broad access
Strong and committed
management team
Diverse geographic
presence
Further expansion into
Asia and other developing
areas
Pursuing acquisitions to expand
offerings, such as education services
Development of new vendor
relationships
Source: Company materials
14. Comparable company analysisValuationanalysis
($ in millions, except for price. Data as of November 3, 2016)
Company name
Ticker &
exchange Price
% of 52 Market
Cap
Enterprise LTM 2016E EBITDA Enterprise Value EBITDA
week high value EBITDA Revenue EBITDA Revenue margin LTM EBITDA 2016E EBITDA 2016E Revenue YOY Growth
Corporate Travel Management CTD AU A$18.12 94.1% $2,346 $2,308 $90 $339 $116 $437 26.5% 25.7x 19.9x 5.3x 29.1%
eDreams Odigeo SL EDR SM € 2.70 87.6% 314 674 105.2 546.0 111.6 543.7 19.3% 6.4x 6.0x 1.2x 13.3%
Lastminute.com NV LMN SW CHF 13.70 87.0% 195 122 13.1 253.1 14.6 260.5 5.2% 9.3x 8.4x 0.5x NA
MakeMyTrip Ltd. MMYT US $27.00 84.6% 1,140 1,125 (76) 374 (53) 224 (20.2%) NA NA 5.0x NA
Sabre Corp. SABR US $23.46 78.2% 6,573 9,764 924 3,248 1,084 3,393 28.5% 10.6x 9.0x 2.9x 29.0%
Smiles SA SMLE3 BZ R$54.75 91.9% 2,148 2,025 171 459 166 468 37.2% 11.9x 12.2x 4.3x 24.3%
Travelport Worldwide Ltd. TVPT US $13.44 88.3% 1,667 3,976 527 2,310 608 2,491 22.8% 7.5x 6.5x 1.6x 11.8%
Travelzoo Inc. TZOO US $9.15 69.0% 127 102 13 131 12 129 9.6% 8.1x 8.3x 0.8x 9.1%
WebJet Ltd. WEB AU A$9.31 76.3% 1,183 1,104 48 198 72 277 24.3% 22.9x 15.4x 4.0x 56.8%
Kona Adventures $52.6 $206.2 25.5% 15.4%
High $6,573 $9,764 $924 $3,248 $1,084 $3,393 37.2% 25.7x 19.9x 5.3x 56.8%
3rd Quartile 2,148 2,308 171 546 166 544 26.5% 14.6x 13.0x 4.3x 29.1%
Median 1,183 1,125 90 374 112 437 22.8% 10.0x 8.7x 2.9x 24.3%
Mean 1,744 2,356 202 873 237 913 17.0% 12.8x 10.7x 2.8x 24.8%
1st Quartile 314 674 13 253 15 260 9.6% 7.9x 7.8x 1.2x 12.6%
Low 127 102 (76) 131 (53) 129 (20.2%) 6.4x 6.0x 0.5x 9.1%
Commentary Derived valuation
Comparable companies are similar in size
and derive revenue from around the world
Much of the North American market has
been consolidated into three large players
Travel technology companies were chosen
to represent Kona’s scalable platform
Kona Adventures' 2016E EBITDA $52.6
Comparable Multiple Range 10.5x 11.5x
Enterprise Value Range $552.1 $604.7
Source: Bloomberg 11
15. ($ in millions, except for price. Data as of November 3, 2016)
Target company Acquirer
Transaction Announcement Transaction
Premium
Transaction Value
type date value Revenue EBITDA EBIT
eLong Inc. China E-Dragon Holdings Ltd Strategic 2/4/2016 $75.8 27.5% 2.0x -- --
Ikyu Corp. Yahoo Japan Corp. Strategic 12/15/2015 774.2 39.1% 13.0x 35.7x 36.9x
Orbitz Worldwide Inc. Expedia Inc. Strategic 2/12/2015 1,595.5 26.5% 1.7x 11.4x 19.5x
Wotif.com Holdings Ltd. Expedia Inc. Strategic 7/7/2014 584.2 32.6% 4.0x 8.5x 9.6x
Astaka Holdings Ltd. Corporate Travel Management Strategic 11/20/2013 49.2 40.5% 2.2x 8.1x 9.1x
Qunar Cayman Islands Ltd. Ocean Management Ltd. Sponsor 6/23/2016 4,067.4 7.9% 6.0x -- --
Kuoni Reisen Holding AG EQT Partners AB Sponsor 2/2/2016 1,351.3 25.0% 0.4x 10.0x 16.6x
Opodo Ltd. AXA SA Sponsor 7/1/2011 613.2 -- 4.1x 11.7x 17.2x
High 13.0x 35.7x 36.9x
3rd Quartile 4.6x 11.6x 18.9x
Median 3.1x 10.7x 16.9x
Mean 4.2x 14.2x 18.1x
1st Quartile 2.0x 8.9x 11.3x
Low 0.4x 8.1x 9.1x
Precedent transaction analysisValuationanalysis
Commentary Derived valuation
Precedent transactions were chosen from
similarly sized companies with comparable
growth rates
North America’s consolidation has taken
place with far larger companies
Recent sponsor activity has been in
emerging markets as middle class develops
Kona Adventures' 2016E EBITDA $52.6
Comparable Multiple Range 11.0x 12.0x
Enterprise Value Range $604.7 $657.3
Source: Bloomberg 12
16. Discounted cash flows analysisValuationanalysis
Derived valuation
($ in millions, except for price. FY ended December 31,)
Estimated Projected
2016E 2017P 2018P 2019P 2020P 2021P
EBITDA 52.6 60.7 66.7 73.4 84.0 91.3
Less: D&A 0.5 0.5 0.6 0.5 0.7 1.0
EBIT 52.1 60.2 66.1 72.9 83.2 90.4
Tax Effect @ 35.0% 18.2 21.1 23.1 25.5 29.1 31.6
NOPAT 33.9 39.1 43.0 47.4 54.1 58.7
Add: D&A 0.5 0.5 0.6 0.5 0.7 1.0
Less: CapEx (0.7) (0.7) (0.7) (0.8) (0.9) (1.0)
Less: Acqusition Costs 0.0 0.0 0.0 0.0 0.0 0.0
Less: Changes in NWC (14.8) (2.3) (2.6) (2.6) (3.0)
Free Cash Flow 24.1 40.5 44.5 51.4 55.7
PV of FCF 20.0 30.5 30.5 32.1 31.6
Assumptions
Revenue growth peaks in
2019 at 10%+
Normalized margins
WACC of 9.9%
Comparable assumptions
Comparable unlevered betas
were used in determining
Kona’s systematic risk
Cost of debt was estimated
using debt comparables
Exit multiple method led to
higher valuation due to double
digit EBITDA growth
Low capital expenditures
result in higher FCF
Commentary
Exit Multiple Method
Exit Multiple 10.0x
Terminal Value 913.4
PV of Terminal Value 517.9
Plus: PV of Future FCF 144.6
Enterprise Value 662.4
Perpetuity Growth Method
Perpetuity Growth Rate 2.75%
Terminal Value 798.3
PV of Terminal Value 452.6
Plus: PV of Future FCF 144.6
Enterprise Value 597.2
Sources: Bloomberg and team projections 13
17. Leveraged buyout analysisValuationanalysis
Leveraged assumptions
Leverage 5.5x EBITDA
consisting of term loan B at
6.5% fixed interest
Consists of a 3.0%
repayment rate per year
Debt comprised 50% of
initial sources
Multiple assumptions
Assumes a 10.5x exit
multiple, which implies a
10.5x entry multiple
Limited capital expenditures
maximize cash flow available
for debt repayment
Asset-light base results in
sizable goodwill creation
CommentaryCapital structure
Exit Multiple
SponsorTarget
IRR
9.5x 10.0x 10.5x 11.0x 11.5x
21.0% 568.2 586.2 604.2 622.3 640.3
23.0% 543.3 559.8 576.4 592.9 609.4
25.0% 520.9 536.1 551.3 566.5 581.7
27.0% 500.7 514.7 528.7 542.7 556.7
29.2% 480.7 493.5 506.3 519.1 531.9
EV sensitivity analysis
Sources: Bloomberg and team projections
($ in millions)
14
$0
$200
$400
$600
$800
$1,000
$1,200
$1,400
2017P 2018P 2019P 2020P 2021P
Equity Debt
18. Historically long bull market brings downside riskValuationanalysis
Industry revenue is driven by
discretionary spending, which is one of
the first metrics affected during a
recession
Extravagant corporate travel is first to
go when earnings slide
In a modeled recession, revenues drop
~5% in consecutive years as travel
spending is curtailed
Earnings rebound in 2021P
Low asset base allows for high variable
costs and low overhead
Projected downside beginning in 2019P
results in a valuation ~20% below the
current valuation range
Use of debt allows for less downside in
leveraged buyout scenario
Valuation impact
Top-line numbers hit hardest in a 2019P recession
$150
$200
$250
$300
$350
2014A 2015A 2016E 2017P 2018P 2019P 2020P 2021P
Base Downside
$0
$200
$400
$600
$800
Base Downside
DCF - Exit multiple DCF - Perpetuity Leveraged buyout
$168mm of cumulative
revenue lost
Sources: Team projections and company materials
($ in millions)
($ in millions)
15
20. Potential acquisition targetsStrategicoptions
Source: Company websites 16
Kona Adventures
Choose to enter a new,
fast-growing market
segment, that has seen
a flurry of recent deal
activity
Continue to develop
technology platform
as a value proposition
for clients through
acquisition
Studentuniverse.com, Inc. provides
ticket booking, hotel book, and
activity booking services exclusively
for students
BeatnPaths, Inc. is a B2B cloud
platform connecting global
attractions and activities with
agencies, hotels, and airlines to
enhance travel experience
Kona’s proven acquisition history and financial capacity
continue to make it an acquiror of choice
21. Potential acquisition financial impactStrategicoptions
Proposed acquisition takes place in 2017P and has small financial impact
Penetration into new market allows for further acquisitive actions in 2018+
In a levered buyout situation, initial cash outlay is mitigated by additional cash available for
debt repayment in subsequent years
Acquisition can result in a valuation increase that is 2.0x initial investment $12.2 million
EBITDA impact
$0
$20
$40
$60
$80
$100
2013A 2014A 2015A 2016E 2017P 2018P 2019P 2020P 2021P
Organic Incremental Addition
Commentary
Sources: Team projections and company materials
($ in millions) ($ in millions)
17
Cash available for debt repayment
($15)
$0
$15
$30
$45
$60
2017P 2018P 2019P 2020P 2021P
Organic Incremental Source (Use)
22. Strategic buyer universeStrategicoptions
Initial Outlay
Integrated / Operators Technology platformTravel service
Due to Kona’s attractive value proposition in a consolidating market, the company would be
very attractive to a strategic industry player
Asset-light base and tech-enabled platform provide further incentives for acquisition
The company can be expected to draw interest from various players within the travel industry
Sources: Travel Weekly, Bloomberg, CapIQ 18
23. TTS is a global leading
player in the development
of innovative solutions for
the travel and tourism
industry
Targeted strategic buyersStrategicoptions
RationaleMetrics
Size and legacy platform motivates acquisition
Current dependency on brick-and-mortar locations
Stated expansion plans for online booking and
research capabilities
Sources: Company websites, CapIQ
Privately Held
$3.8B in sales in
2015
Privately Held
$2.5B in sales in
2015
LTM sales of
£14.6B
LTM EBITDA of
£1.3B
Private Held
$2.8B in sales in
2015
Description
AAA Travel, a subsidiary of
AAA, offers products and
services directly to
consumers via brick-and-
mortar locations and online
Altour is the largest
independently owned travel
management company in
the U.S., serving luxury and
mid-markets
TUI Group is a leading
tourism company. Based in
Germany, it boasts 1,800
travel agencies, six airlines,
and 300 hotels
Travel and Transport is a
full service travel
management company
headquartered in Omaha,
Nebraska
An American Express Travel Representative
Four acquisitions in the last 12 months
Concentration within corporate travel fits Kona’s
current revenue concentration
Provides international growth platform
Fully-integrated business model creates expansion
opportunity for Kona’s event segment
Market-leading expertise in technology solutions for
the travel and tourism industry
Platform for growth in domestic and international
markets
Concentrates on corporate event management
Looking to enter faster growing luxury tourism
management
Recent Gallup market study confirmed commitment
to advancement in travel industry
Privately Held
19
24. Financial sponsors universeStrategicoptions
Rationale
Invests in media, communications, business, and information services
companies
Partners with management to help build the business and allow synergies
Currently maintains investments in corporate travel management companies
Criteria
Equity value of
~$150mm
N/A but recently
partnered to invest
$900mm in equity
Partners with company management to create long-term value
Invests in the travel, transportation, hospitality, and payment sectors
Current investments; American Express Global Business Travel and Travel
Leaders Group
Multi-stage investment firm exclusively focused on global travel private equity
and venture capital investments
80% of firm investments are as private equity
Supports a robust travel portfolio
Equity value between
$30-250mm
Seeks to find high growth businesses in a variety of industries
Invested in several travel companies including Reed & Mackay, CTC Aviation
Group and Griffin Global
Equity value of
~$120mm
Source: Company websites 20
25. Financial sponsors universeStrategicoptions
RationaleCriteria
Source: Company websites
Equity value of $30-
100mm but is able to
partner for
more equity
Equity value above
$250mm
Equity value between
$100-500mm
N/A
First independent private equity firm focused on Chinese travel and tourism
sector
Invests across all aspects of the travel industry; hotels and resorts, attractions,
online and offline travel agencies and operators, transportation services, and
related business solution providers.
Focused on business services and technology
Current investments in travel industry include Odigeo, which is the leading
online travel agency in Western Europe
Invests in a wide range of industries including the transport & travel sectors
Recently purchased Kuoni group, a leading service provider to the global travel
industry
Financial capacity
Involved in the middle market travel services industry
Three related transactions during the past 30 months
21
26. Selected buyersStrategicoptions
Source: Company websites
Certares focuses exclusively on the travel, transportation, hospitality, and
payment sectors. The management team has significant experience operating
companies within the travel sector, particularly travel management companies.
The firm owns American Express Global Business Travel and Travel
Leaders group. Because of these portfolio companies, we believe that Kona
would be a strong fit to provide new growth opportunities and product
offerings, which would likely allow for a higher price to be paid.
Altour is an established travel management company through its American
Express Travel Representative membership. Additionally, they are one of the
few asset-light travel management companies to be involved in corporate,
leisure, and event management services. With over $2.5B in sales in 2015,
Altour’s size would make an acquisition possible, with the potential for
significant synergies as a result of the transaction.
22
27. Favorable time for saleStrategicoptions
Recent run-up in comparable
equity prices has been due to
investor sentiment, not
financial results
Run almost solely driven by
multiple expansion
Spurred-on by acquisition
rumors
Overall M&A market has
been stagnant
Multiples have leveled out
during the past 24 months
Combination of factors make
it an ideal time for Kona
Adventures to go to market
Middle-market multiples have stagnated…
…But travel service comparables are at historic highs
Commentary
Sources: Team projections and Pitchbook
0.0x
4.0x
8.0x
12.0x
16.0x
1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q
2014 2015 2016
(EV/EBITDA multiples for transactions with EV>$250mm)
6.0x
10.0x
14.0x
2/10/2016 4/8/2016 6/7/2016 8/4/2016 10/3/2016
(Comparable companies EV/EBITDA multiples)
23
29. Kona presents an attractive opportunity in a peak marketFinalthoughts
Strategic vs. sponsored
Alternative growth opportunities
Valuation overview
Enterprise Value ($mm)
Final recommendation
A sale to a strategic buyer offers
Kona a number of advantages
Larger global platform to
continue to penetrate
international markets and grow
share in existing segments
Stronger synergies from cross-
selling opportunities
Current management will be left
on to spearhead new growth
opportunities
An acquisition of StudentUniverse would
begin a move into the fast-growing,
fragmented student travel industry
BeatnPaths would build on an already solid
technology platform to connect clients
with travel experience opportunities
We recommend that Kona Adventures engages in a sale
to Altour International, Inc.
Strong synergies along with the opportunity for
entirely new growth channels
This sale should take place in the near-term given strong
current market conditions
Implied valuation range of $560 — $600mm
24
$500 $550 $600 $650 $700
Leveraged Buyout (10.3x - 11.4x)
DCF - Exit Multiple (12.0x - 12.7x)
DCF - Perpetuity (10.8x - 11.8x)
Comparable Analysis (10.5x - 11.5x)
Precedent Analysis (11.0x - 12.0x)