Barbasol Acquisition Pitch BookFor: Diversified Products Inc.Prepared by: Rook Consulting Cohort C – Team 2December 13, 2010

Rook Consulting Project Team:Hythem AbdelwahabTejas AtawaneEszter HamoriKevin HarderMolly PlimptonCarl Uttaro

• Executive Summary

• Company Profile

• Shaving industry overview

• Current Valuation

• Adjust Pricing

• Launch Economy Gel Product

• Valuation of Acquisition

• References

Table Of Contents

Executive Summary

i

Executive Summary

Gel/Foam Usage by Age

Note: Data for responses other than gel or foam preferences (such as cream, oil or water) are not shown on chart.

18-24 25-340%

10%

20%

30%

40%

50%

60%

13%

23%

50%

31%

always use foamalways use gel

Age Groups

% o

f Res

pons

es p

er A

ge G

roup

s

Please Note: Because Barbasol provides 89% of the manufacturer revenue for its parent company Perio Inc., it is proposed that Diversified Products Inc. purchases Perio in its entirety. As a result, The financial valuations in this pitch book are based off of the entire Perio, Inc. organization. However, all other analyses relate specifically to the Barbasol brand and its competitors among the men’s shaving cream market only.

IntroductionThe recent US economic recession has shifted consumer purchasing towards economy products, a trend which is forecasted to persist for the foreseeable future. In a recent study, 94% of consumers surveyed stated they were “likely” or “very likely” to continue buying lower-priced products. As Barbasol is the dominant low price men’s shaving product, it is uniquely positioned to capitalize on the post-recession consumer.

Company ProfileBarbasol was founded in 1919 by MIT professor Frank Shields and was an instant innovator being the first pre-lathered shaving cream. The brand is well-known for its “barber-pole” striped packaging and has been famous throughout the years being endorsed by male figures such as baseball star Babe Ruth and football coach Knute Rockne. The company was run independently for its first 43 years until it was acquired by pharmaceutical giant Pfizer from 1962. Barbasol was then purchased by Perio Inc. in 2001. The company has seen increasing revenues from $18 million in 2001 to approximately $26.7 million in the most recent 12 months. This success is in spite of the recent US economic recession and the failed launch of a Barbasol Ultra line which was misaligned with corporate strategy and culture.

Industry Overview & CompetitionThe $338M men’s shaving cream market, a segment of the personal care and grooming products industry, is comprised primarily of two major product segments – shaving gel accounting for 66% and shaving foam accounting for 29% of retail sales. Barbasol is positioned as a low-price, high volume product within the men’s shaving foam market – Barbasol products account for 49% of foam units sold but only 37% of foam retail sales dollars. Barbasol’s largest competitor in the men’s shaving foam market is Gillette, a subsidiary of Proctor & Gamble Co. (PG), which offers two foam product lines, Gillette Foamy and Gillette Series Foam, which account for 45% of foam units but 51% of foam retail sales respectively. Although Barbasol is very successful in the foam segment, the market share of foam units sold compared to the entire industry has been decreasing steadily.

Source: Rook Consulting Shaving Cream Survey 2010

n = 69

ii

Executive Summary

US Male Shaver Facts:

Purchase shaving cream themselves.

Think all grooming products work the same

Occasionally or regularly try new shaving products

Buy shaving cream and razor from the same brand

51%

79%

23%

55%

Gillette and Edge – a subsidiary of Energizer Co. (ENR) – have captured much of the younger age segments by offering several types of shaving gel, a product used on average more than twice as often by 18-34 year old males as foam. As a market segment, gel accounts for 66% of retail sales for all shaving cream product types, showing the high margins that the product offers. Because Barbasol does not currently offer a gel product, it is not taking advantage of a large and profitable area of the industry.

Adjust the pricing of existing foam products Rook Consulting’s first recommendation upon acquiring Barbasol is to raise the price of its current products in order to capture untapped value in the market. Although Barbasol is the primary low-price shaving foam, there is room for a price increase because of the 7-cent gap in per unit price between Barbasol and Gillette Series Foam. After analyzing price elasticity, Barbasol foam products can be increased 0.5-cents per ounce in order to maximize profits. This price adjustment will result in a 1% loss of unit sales in the first year but generate $0.86M additional contribution margin in the first year and increase the firm’s value in perpetuity by $2.3M.

Launch Shaving Gel productUS men’s shaving consumers, particularly 18-34 year old males, clearly prefer gel products as shown by the disproportionate breakdown in sales figures between the two categories. We believe that Barbasol must re-enter the gel market after their failed attempt at a premium line and do so using a similar positioning and strategy that has been successful in foam – low price and high value. There are very few brands in the gel economy segment and there is an opportunity to provide a lower price alternative to Gillette Series gel and Edge Gel. Barbasol will be able to maintain a cost advantage over Gillette and Edge because they have 50% spare capacity. A gel product launch will generate $2.5 million in the first year and increase the firm’s value by $21.5 million.

ConclusionBarbasol is a stable and fairly strong brand as it currently stands, but under its current management and strategy, it is not taking full advantage of the opportunities in the market, specifically in regards to price and product availability. Rook Consulting estimates the total current value of Perio to be $52.7 million. With our projected future growth opportunities, the range of prices that DPI should offer are between $45 million and $68.8 million. Based on this investment, Barbasol is an attractive acquisition target that we estimate to produce an ROI of between 73% and 13.6% over the next five years.Source: Mintel Data

Company Profile

Barbasol was introduced to the market by the Napco Corporation. Barbasol quickly took off in popularity among US shavers and Frank Shields, the inventor (see sidebar), established The Barbasol Company in 1920.

The Barbasol Company owned the brand for the next 42 years. Barbasol’s innovative product immediately helped it become a market leader. Throughout the years, Barbasol was even endorsed by various sports superstars, such as Babe Ruth in 1923 (pictured right).

The company changed the product format from a thick cream in a tube to a “softer, fluffier” composition we now recognize as shaving foam and began packaging in the aerosol cans that are ubiquitous today.

Throughout Barbasol’s history, the brand has been identified by the characteristic red stripes of traditional barber shop poles.

“No brush, no lather, no

rub in.”

- Original 1920 Barbasol slogan

1

An Old and Well Known Shaving Brand

Success through Innovation

Barbasol Inventor

In 1919, MIT Professor Frank Shields succeeded with the invention

of a shaving cream that did not have to be worked into a lather.

Source:Babe Ruth Barbasol endorsement (1923); Perio Inc. Company homepageFor Best Results: shave with Barbasol (1949); Westervin.com.

Barbasol Original Shaving Cream in a Tube (1920)

Company Profile

Early Barbasol Advertising Messages

Source: Perio Inc. Company homepage

Source: Perio Inc. Company home page

2

2008 Recession Boosted Value Oriented Products

Barbasol Brand HistorySource: Nielsen Data

Background on Perio

Perio, Inc. began as Columbus Dental in 1903. In 2001 they transformed from a dental company to a shaving products company by purchasing Barbasol in 2001. Perio now owns aftershaves and body wash. 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000 2010 2020

1919:Barbasol Invented

2001: Barbasol bought by

1962: Barbasol bought by

1949:Created Aerosol Shaving Cans

1923:Babe Ruth endorses Barbosal

Recession has Changed Consumers

Company Profile

Barbasol Unit Sales Market Share

Highlights: Consumers are more likely

than ever to be buying lower-price shaving cream products.

Source: Bernstein US Consumer Survey

WHEN ASKED: “HOW LIKELY ARE YOU TO CONTINUE BUYING LOWER-PRICED PRODUCTS?”

94%“LIKELY” OR “VERY

LIKELY”3852138633

3874538857

3896939081

3919339305

3941739529

3964139753

3986539977

4008940201

403130%

5%

10%

15%

20%

25%

30%

Barbasol Gillette FoamGillette Gel Edge

2007: Launch Barbasol Ultra

2010: Barbasol Ultra Pulled

3

Company Has Expanded Accordingly

Building the Community• Both management and workforce are hired

predominantly from Ohio• Local town applicants first in line for new jobs

Conservative values• Keeping Jobs in Ohio and America• Family-oriented operations

Tom MurrayOwner(2001)

Atef Halaka President / SVP Operations

(2009)

JC RiceVP Shared Services

Jill CrumbacherVP Product Management.

(2009)

Jerry FogtVP of Distribution

(2006)

Darian ParsonsR &D Manager

Dick Mandrell SVP Sales

Don BuckinghamExec. VP

(2004)

Source: Perio Inc. LinkedIn Company Profile

Perio Inc. Senior Management TeamA Company That Stands on American Values

Consumer Perception of the Company

“The Perio company reflects the values and attitudes that we so cherish here in Ohio.”

- U.S. Rep. John Boccieri

“I was impressed with the fact that the president began the groundbreaking ceremony with prayer. That's an indication of the type of company they are and will be.”

“[The speech given by the CEO o Perio at the grounding of the new Ohio factory was] impressive and I hope is a true indication of how the company is run.”

Source: Ashville Times Gazette. Barbasol press release: May 25, 2010

"This is a family-oriented operation and a great place to work."

New Barbasol Factory

August 13, 2009: Perio senior management with local Political leaders at the ground breaking of a new plant in Ashville, OH.

Source: Ashville Times Gazette.

Company Profile

Organizational Structure

• Senior management team is vertically-oriented

• Total employees have grown from 4 to 35 since 2006, due to increasing growth and in-house manufacturing

• Majority of staff managed under Operations Group

10

Expansion of Shaving Product Portfolio - Mixed Results

Highlights: 89% of Perio Inc. revenues

from the Barbasol brand.

Perio’s other products include a women’s shaving gel and body wash.

Because of the single Management Team, we recommend buying Perio as a whole.

Barbasol Soothing Aloe is #1 retail SKU of all men’s shaving cream products.

Uniform packaging shows characteristic stripes modeled after traditional barber’s pole.

Barbasol Aftershave

Barbasol Original

Barbasol Ultra

Current Perio Manufacturer Revenue by Product

Source: Nielsen Data adjusted for Wal-Mart

4Company Profile

Source: Barbasol.com

$26.7M, 89%

Other Products $3.2M, 11%

(Discontinued in 2010)

5

Failure of Previous Product Launch - Barbasol Ultra

• Company specifically positions itself as a “value brand” according to VP of Product Management, Jill Crumbacher.

• Barbasol’s strategy and competitive advantage has always been cost leadership, not differentiation.

• Barbasol “Ultra” product line originally launched in 2007 as a premium brand of foam with higher-end ingredients.

Company Profile

Highlights:

New product line was not aligned with corporate strategy & culture.

Misalignment with Company Strategy and Core Values Brand “Echo”

• Barbasol is a “historic brand”

• Barbasol is “inexpensive and works well with my skin.”

• I chose this shaving cream brand because it’s “cheap, old fashioned and works”.

• “It [Original Barbasol] is effective and priced the way a daily use product should be priced: reasonably.”

• I chose Barbasol because of its “price”, it’s “cheap”.

• “I think it’s good quality”.

90% of respondents who took this survey age between 24-34 years.

Failure in Targeting Consumers

• Barbasol Ultra attempted to be a premium product targeting less price sensitive consumers. However Perio failed to support the launch by advertising to a new target group.

• Since Barbasol Ultra’s target segment was not clearly identified the new product’s inherent weakness was the cannibalization potential of Barbasol’s original product.

As a Result…

• Manufacturer sales of Barbasol Ultra in 2009 had only reached approximately $2 million or 4% of company revenues.

• In 2010, the Company began pulling the gel product from shelves, citing poor performance and its intention to focus on core Barbasol products.

Source: Rook Consulting Shaving Cream Survey 2010

$0.94Manufacturer’s Price

39% Retail Margin

$1.54Average Retail Price

6

Channel Distribution of Original Barbasol Products

$0.84Manufacturer’s Price

25% Wal-Mart Margin

$1.12Average Wal-Mart Retail

Price

$1.23Manufacturer’s Price

20% Distributor Margin

39% Retail Margin

$2.52Small Merchant Retail Price

Retail Direct:Supermarket & Chain Drug Wal-Mart Distributors

Company Profile

Highlights: Manufacturer Sales

Dollars by Channel:

Retail Direct: 36% Wal-Mart: 48% Distributors: 16%

Overall, according to Barbasol’s VP of Product Management, approximately 75% of total manufacturer sales are direct purchases by retailers.

Consequently, distributors are only used by smaller, independent retailers that cannot afford the minimum order shipment quantity.

Thus, distributors are offered the same MSP as other customers in order to maintain direct purchases from the largest buyers.

7

Perio Inc.’s Key Strengths and Opportunities

Company Profile

Performance of a Target Acquisition Company

Highlights: Perio, Inc. is a strong

company, but not perfect.

Rook Consulting believes the company is near its maximum potential in the current state.

Barbasol needs additional capital resources to support long-term growth in sales and product development.

Perio Inc. has a history of core asset divestitures as exemplified by selling Franklin Dental

High Performance,

Bad Team

WeakPerformance,

Bad Team

Weak Performance,Strong Team

High Performance,Strong Team

• The Barbasol brand and its parent company, Perio, are in perfect position to be acquired.

• Company has seen increasing revenues since Perio acquisition and the US economic recession, but failed with the launch of Barbasol Ultra because of misalignment with corporate strategy and culture.

• Perio has divested before – in 2001 when it acquired Barbasol, it sold its core asset at the time, Franklin Dental Company.

• Systems: “Select International” administrative software to streamline application process and shorten time-to hire process and high-end technology such as Six-Sigma and Lean manufacturing practices.

• Staff/Skills: Company has hired mostly manufacturing staff in the last year now that it runs production internally at new factory, but the sales and marketing staff could be expanded in order to foster continued growth in revenues.

• Strategy: Perio has been successful with its core products but has not yet had the vision to achieve success in truly growing the company from good to great – such as having more products and creating higher margins.

• Shared Values: Rook Consulting believes that one of Barbasol’s strongest traits is its long-standing tradition of being a company based on values such as hiring locally and having a conservative, family-oriented culture.

Source: http://www.free-press-release.com/news-select-international-announces-benchmarks-successes-with-new-client-barbasol-1274109461.html

Barbasol’s key strengths and opportunities to improve using the 7-S model:

Shaving Industry Overview

The men’s “shaving cream” market is made up of sales from several product types: gel, foam, cream and others such as butters and oils.

Shaving gel and foam make up approximately 94% of sales revenues in the whole industry, so as a result of the lack of demand for other shaving products, Rook Consulting does not believe those markets should be of interest to Barbasol.

One of the most powerful forces in the industry as a whole is the power of retail buyers. In fact, Wal-Mart makes up 44.9% of all retail sales in the market.

The industry is very reliant on macro-level growth factors such as the overall growth in the male population of the US. Overall, the men’s shaving cream market is projected to by grow 2.7% per year for the next 5 years.

8

Men’s Shaving Cream Industry Overview

Industry Analysis

Source: Nielsen Data adjusted for Wal-Mart

Highlights: Last Twelve Months (LTM)

Men’s shaving cream retail sales of $338M.

Forecasted growth rate of 2.7% annually for the next 5 years.

Wal-Mart comprises and estimated 44.9% of retail sales.

Comparison of LTM Retail Sales by Product Type

Source: Nielsen Data adjusted for Wal-Mart

Industry Overview

Men’s Shaving Cream Retail Sales

Last 12 Months Retail Sales by Product Category:

Gel: $221M

Foam: $99M

Cream: $15M

Other: $3M

Total: $338M

Source: Nielsen Data adjusted for Wal-Mart and Mintel Report

Gel66%

Foam29%

Cream4%

Other (butter, oil, etc)1%

2005 2007 2009 2011 2013 2015$100M

$200M

$300M

$400M

$500M

Actual ProjectedYears

Reta

il Sa

les

37%

51%

Other 12%

• Each major product segment is highly fractured – two major players in each that dominate the market share.

• In foam, Barbasol and Gillette account for 88% of retail sales dollars with the remainder coming from fewer than 10 competitors.

• In the gel segment, Edge and Gillette make up 75% of retail dollars, and the other 25% is spread among approximately 100 other companies.

• Currently, Barbasol does not offer any products in the gel segment – the former “Ultra” product line did offer a gel line extension (from its initial launch as a premium foam), but the company began to discontinue the entire line in 2010.

9

Gel and Foam Segments

Comparing the Gel and Foam Market Segments

Highlights: Barbasol is one of the two

prominent market leaders in foam, but does not offer a gel product.

Product variety and ability to segment the market have benefited the competition. Retail Sales Market Share - Foam segment

Source: Nielsen Data

Retail Sales Market Share – Gel segment

Industry Overview

Total Foam Retail Sales: $99 million Total Gel Retail Sales: $221 million

32%

43%

Other25%

10

Price Analysis of the Gel and Foam Segments

US Shaving Foam Price Points

Economy

Mid-price

Premium

0% 20% 40% 60% 80%

38.4%

61.5%

0.1%

51.5%

48.5%

0.0%

Mkt. Share (Equiv. Unit ) Mkt. Share ($)

Price

Seg

men

t

Highlights: Foam market is evenly

divided between Economy and Mid-Price Segments.

Mid-Price is the largest Gel segment with little competition from Economy.

Gel market has substantial Premium and Super Premium consumers

US Shaving Gel Price Points

Economy

Mid-price

Premium

Super Premium

0% 20% 40% 60% 80%

1.3%

68.4%

17.9%

12.4%

1.9%

75.9%

13.8%

8.4%

Mkt. Share (Equiv. Unit ) Mkt. Share ($)

Price

Seg

men

t

Price segments were identified using scatter plot analysis of price per can which is how the typical consumer perceives the price point. All products which deviate significantly from the standard 11oz foam and 7oz gel size have been removed. The exceptions are Schick Hydro Gel which is an 8.4oz can and Gillette Series Foam which is a 9oz can.

Industry Overview

Price-Quality Segment Main Brand

Average Retail Price Can Price

Premium BRUT FOAM $8.23 $9.36 MEN'S SERIES $7.11

Mid-priceGILLETTE SERIES FOAM

$2.63$3.10

CTL BR $2.53 GILLETTE FOAMY $2.26

Economy

BARBASOL

$0.97

$1.50 COLGATE $1.41 PERSONAL CARE $0.85 MEN'S CHOICE $0.75 PERCARA $0.36

Price-Quality Segment Main Brand

Average Retail Price Can Price

Super Premium

CLEARASIL

$4.65

$5.61 EVERY MAN JACK $4.79 NEUTROGENA RAZOR DEFENSE $4.66 EDGE ACTIVE CARE $4.32 AVEENO POSITIVELY SMOOTH $4.28 AVEENO $4.27

PremiumGILLETTE FUSION HYDRA GEL

$3.75$3.79

GILLETTE COMPLETE SKINCARE $3.74 NXT $3.71

Mid-price

NIVEA FOR MEN

$2.87

$3.10 EDGE INFUSED $2.98 GILLETTE MACH 3 COMFORT GEL $2.97 EDGE ENERGY $2.95 SCHICK HYDRO $2.93 GILLETTE MACH 3 $2.72 GILLETTE SERIES GEL $2.73 EDGE $2.62

Economy

OLD SPICE HIGH ENDURANCE

$2.03

$2.24 EDGE PRO GEL $2.23 EDGE ACTIVE CARE ADVANCED $2.19 EDGE ADVANCED $1.99 CLUBMAN $1.92 ADIDAS ACTIVE $1.87 BRUT GEL $1.79

Current Valuation of Perio, Inc.

11

Assumptions for Initial Financial Analysis

Revenue Assumptions Balance Sheet Assumptions

• Wal-Mart if 44.9% of Total Sales• 75% of non-Wal-Mart Sales are purchased from

the company directly and do not go through a distributor

• Wal-Mart margin is 25%• Retail margin is 39%• Distributor margin is 20%• Growth rate of 5% in first year, slowing to 2.7%

by year five• Perio’s other product revenues growing at

Barbasol’s growth rate

• 2:1 Debt to Equity remains constant• Straight-line depreciation over 5 years• Building value of $3.67 million1

Income Statement Assumptions Cash Flow Assumptions

• COGS 52.7% of Sales• Fixed COGS as a 20% of Total COGS• SG&A as a 40.3% of Sales• 38% Tax rate• 8% Interest expense

• Capital expenditures at 20% of PPE

Highlights:

To purchase Barbasol, DPI must purchase the parent company, Perio, because Barbasol provides 89% of the manufacturer revenue for Perio.

Current Valuation

Benchmarking: % of 2010 Sales

Profitability Ratios

12

Perio Company Projected Income Statement

Current Valuation

13

Perio Company Projected Balance Sheet

Short-TermLiquidity Risk

Long-TermLiquidity Risk

Current Valuation

NPV Valuation

M&A ValuationWACC Calculation

14

Perio Inc. Valuation

Highlights: We believe a valuation of

$52.7 million would be attractive to Perio.

At 1.68x 2011E Revenue, this valuation is in line with personal care companies in the market.

Current Valuation

15

Notes to Financial Statements: Revenues

Current Valuation

Competitor Retail Margins

Gillette 47%Edge 33%Private Label 51%

#1: Adjust Pricing for Existing ProductsRecommendations

16

Company Consumers

CollaboratorsCompetitors

Context

Threats:• Consumers tendency to switch to higher quality

products at more competitive price points or other cost / price competitors.

Opportunities:• No price competitor in economy segment (at a

retail price $1.69)• 60% of consumers trading down during the

prior 12 Months, considered themselves unlikely to trade back Up.2

Threats:• Failure to secure adequate shelf space at new

price point.

Opportunities:• Capitalize on Barbasol‘s high penetration and

huge shelf space available.• Lack of current cost / price competitors.

Threats:• Competitors decreasing their prices to reach

more competitive price points.• Introduction of a lower priced shaving foam by

current competitors or new entrants.

Opportunities:• Capitalize on Barbasol‘s high penetration and

mega-volume cost advantage in a highly saturated market.

Threats:• Barbasol‘s failure to drive satisfactory net

income despite huge unit market share and sales revenues.

Opportunities:• Capitalize on Barbasol‘s high penetration and

consumer perception as value brand.• Capitalize on Perio’s competitive cost efficiency.• Large bottom line (8%) net income increase

associated with minor price change (1%)1

• Indicators of economic recovery from current recession.

Situational Analysis: Re-Pricing Foam

Adjust Pricing

Sources:1 Compustat: McKinsey Analysis2 Bernstein US Consumer Survey

17

Raise Prices on Existing Foam Products

Capture more Value

Highlights: $0.76 per can gap

between Barbasol and next major competitor.

Adjust Pricing

Source: Nielsen Data

$0.50 $1.00 $1.50 $2.00 $2.50 $0M

$5M

$10M

$15M

$20M

Average Retail Sales Price

Tota

l Con

trib

ution

Total Contribution

Price Elasticity for Barbasol and Gillette FoamyFactors that identify New Barbasol Price Point

150000 250000 350000 450000 5500000

0.05

0.1

0.15

0.2

0.25

f(x) = − 0.091559222756658 ln(x) + 1.34273510120911

Gillette FoamyLogarithmic (Gillette Foamy)

Equivalent Unit Sold

Price

per

Uni

t

• Barbasol Foam is currently positioned at the top of the Economy price segment. As Barbasol grew, it forced out many of the small shaving foam brands and is now 96.7% of the US Shaving Foam units sold in the economy segment.

• The price elasticity suggests a price increase of 15 cents on the retail price from $1.54 to $1.69. This translates to a corresponding MSP increase of 5 cents from $0.92 to $0.97.

• Price elasticity for Barbasol and similar products (such as Gillette Foamy) was taken into account and was adjusted for the price difference between the two product unit prices.

• The prices that assured a higher contribution margin than earlier is considered even if it meant reducing sales volume.

Scenario Analysis Assumptions

Variables Assumptions Probability of NPV

Net Present Value of Future Cash Flows from Price Increase

18

Monte Carlo Simulation of Foam Price Raise

($ in thousands)0 1 2 3 4 5

Sales growth rate 2.70% 2.71% 2.71% 2.72% 2.72%Total Sales 1,199$ 460$ (301)$ (1,083)$ (1,888)$ Variable COGS (2) - 116 428 749 1,080 1,420

Gross Profit - 1,315 888 449 (3) (468) SG & A - 28 104 182 262 345

EBIT - 1,343 992 631 260 (122) Change in NWC (3) - 34 91 94 96 99 Taxes - (510) (377) (240) (99) 47 Perpetuity (4)

Free Cash Flow -$ 866$ 706$ 485$ 258$ 23$ 501$

PV of FCFs -$ 819$ 632$ 411$ 206$ 18$ 379$

NPV of Future CFs 2,465$

Monte Carlo Avg. NPV 2,385$

(1) All numbers based on incremental benefit/loss due to an increase in MSP by 5 cents with a 1% sales volume hit due to the increase.(2) Variable COGS reflects savings due to decreased unit sales.(3) NWC decreases due to decreased inventory due to decreased units sold.(4) Perpetuitygrowth at population growth rate of 0.9%.

Year

Points to note

Two key variables were simulated:1) Sales growth rates (from -0.13% to

13.35%)2) WACC (varies from 3.74% to 7.45%)

The base assumption for sales volume hit of 1% is from the price elasticity curve described earlier. The sales growth rate is the industry average rate of 2.7% for the first year and simulated thereon.

The Scenario analysis is based on the assumption that in the case of no price increase, sales would have grown at the same rate they grow with a 5 cent increase.

Although this option has a 24.51% probability of being in the red, Rook Consulting believes promotions and operating efficiency improvements in subsequent years, should reduce loss probabilities.

Adjust Pricing

Recommendation #2: Launch Gel Product

19

Company Consumers

CollaboratorsCompetitors

Context

Opportunities:• Consumer low brand loyalty levels and their

willingness to try new brands• Consumers price sensitivity, despite their

willingness to pay more for gel based shaving products.

• Opportunity to target younger age groups, whom are more likely to buy new products based on ads or celebrity endorsement.

Threats:• Failure to secure adequate shelf space for the

Barbasol’s new Gel.

Opportunities:• Utilize Barbasol’s existing shelf space and

extended network of collaborators. • Introducing economy gel product that appeal to

budget-conscious men.

Threats:• Competitors decreasing their prices to reach

more competitive price points. • Potential of introducing a new economy gel

products.• Competitors diluting Barbasol’s gel launch

promotions and advertisements.Opportunities:• Capitalize on Barbasol high penetration and

mega-volume cost advantage.• Gillette 8.4% drop in sales and revenues during

the year of 09/10.

Threats:• Barbasol relatively lower penetration in to

younger age groups (18 – 34).

Opportunities:• Capitalize on Perio’s competitive cost efficiency,

and high end manufacturing process.• Opportunity to increase Perio’s low

manufacturing capacity utilization (50%).• Opportunity to increase Barbasol low

contribution margin ratios, and revitalize its brand perception through introducing a gel based shaving product.

- Aging pop. spells, industry challenges, since they shave less frequently and tend to use power shavers.

- General male apathy towards kind of shaving cream they use.

Launch Economy Gel

Situational Analysis: Introducing an Economy Gel

Sources: Mintel Data

20

Launching an Economy Gel product

Highlights: Currently there are no

major players in the Economy gel segment.

A new Barbasol gel would target the Economy segment of the gel product market.

Choosing a Competitor – “Strong vs. Weak”1

• Although Edge (owned by Schick) has a retail sales dollar share in the gel segment, there are other core products in Schick’s portfolio.

• Gillette Series is Gillette’s oldest brand but does not receive as much marketing support as Gillette’s premium brands such as Fusion, thus leveling the playing field.

• Moreover, Gillette Series accounts for approximately $16 million in sales, but is only 13% of Gillette’s total shaving cream retail sales

• However, gaining a portion of these sales would be a major increase to Barbasol’s revenues

• Therefore, our competitors would be both, the strong Gillette and the relatively weak Edge.

Shaving Gel Market

• There are over 100 shaving gel products currently on the market serving a highly segmented consumer base.

• The products can be clustered into four distinct groups based on can price.

• Sales volume is outstanding for the two most well-known brands in the shaving cream market, Gillette and Edge.

• There are no major players in the Economy gel segment.

Super premium$4.27-$5.61

Premium$3.71-$3.79

Mid-price$2.62-$3.18

Economy$1.79-2.24

Source: Nielsen Data

Future customer base

BARBASOL GEL

BRUT GELADIDAS ACTIVE

CLUBMANEDGE ADVANCED

EDGE ACTIVE CARE ADVANCEDEDGE PRO GEL

OLD SPICE HIGH ENDURANCEEDGE

GILLETTE SERIES GELGILLETTE MACH 3

SCHICK HYDROEDGE ENERGY

GILLETTE MACH 3 COMFORT GELEDGE INFUSED

NIVEA FOR MENGILLETTE COMPLETE SKNCR MLTGEL

NXTGILLETTE COMPLETE SKINCARE

GILLETTE FUSION HYDRA GELAVEENO

AVEENO POSITIVELY SMOOTHEDGE ACTIVE CARE

NEUTROGENA RAZOR DEFENSEEVERY MAN JACK

CLEARASIL

0 50000000 100000000 150000000

Based on Retail Price per Can for 7oz cans (except Schick Hydro Gel which is 8.4oz per can.

Price

Segm

ent

Shaving Gel Market

Launch Economy Gel

Source: 1 “Marketing Management” - Kotler & Keller

EDGE

21

Barbasol Gel Positioning

Highlights: Barbasol Net Promoter

Value is high.

Barbasol is perceived as value brand.

Consumers prefer cheaper products.

Brand Positioning Map in the Shaving Cream Market

Source: 1 Rook Consulting Shaving Cream Survey 2010

• Currently Barbasol has the second highest Net Promoter Score amongst the major shaving cream brands and is perceived as a low price, good value product1.

• 46% of survey respondents believe that the Barbasol has a good value for price and 34% of them believe the brand stand for values1.

• Barbasol gel will be positioned as a low price, good quality gel product.

• Though overall brand loyalty is highest for Gillette, Gillette Series gel users would be less likely to recommend the product than other users would recommend other brands.

• 37% of males between ages 18-34 perceives gel as a fashionable type of product and over 33% of them use it regularly1.

• Gel consumers care about skin-friendly and moisturizing products and over 20% of them would be willing to try them1.

Targeted Consumer Behavior

• Consumers, especially in the economy market segment are price sensitive.

• Rook Consulting survey shows that consumers would switch to a product if it was cheaper1.

• Report data shows that consumers who buy cheaper during recession are unlikely to switch back to more expensive products 2.

• Barbasol gel users will come from current low mid-price segment users who cannot find a known brand in the economy segment.

Where will New Barbasol Gel Users Coming from?

Launch Economy Gel

0% 20% 40% 60% 80% 100% 120%$0.00

$0.10

$0.20

$0.30

$0.40

$0.50

$0.60

Perceived Value (NPS*)

Price

per

Uni

t

Source: 2 The “Great Recession“ and Shifts in Consumer Behavior, Bernstein Research; 2009

22

Introducing Barbasol Gel

New Product Design

Highlights: Initial product launch will

include Regular and Soothing Aloe

Sensitive Skin is planned to launch in three years

Meeting Customer Needs

Alternative Packaging Colors:

Barbasol Gel will continue to display the characteristic barber shop strips, but in an updated and more youthful style.

The new product packaging was designed by José Luis García Eguiguren of Barcelona Spain as a design concept to launch Barbasol in Europe.. However, we think that this design can be re-purposed for the US launch of Barbasol Gel and will provide a starting point for the final packaging creative design.

Barbasol Gel will be packaged using the traditional 7oz can that is instantly recognizable to consumers as a gel product.

Barbasol Gel will use the existing Barbasol formula and ingredients but in a gel format.

Initial Barbasol Gel Offerings

Barbasol Gel when launched will be available in two varieties: Regular and Soothing Aloe. We will maintain the option of introducing Sensitive Skin in the third year to continue growing Barbasol’s gel portfolio.

The designer also created a variety of striking color combinations that can be used in the future to differentiate the gel varieties.

Launch Economy Gel

Source: Copyright José Luis García Eguiguren, http://www.packagingoftheworld.com/2010/02/barbasol-re-styling.html

23

Operational Requirements for Barbasol Gel

Unlike a can of shaving foam, a shaving gel can uses a “bladder” system to be installed inside of the can. The bladder contains the gel and keeps it separated from the isobutane propellant gas which would turn it into a foam. Currently, foam is mixed together without a separate bladder.

During the production process, while in a pressurized tank, liquid butane is added to the formula (along with coloring) to create the familiar “gel” consistency that you see come out. It then turns to foam once exposed to air and/or agitated.

Highlights: There are very few

ingredient or production differences between gel and foam shaving cream.

Gel and Foam products are easily and commonly made in the same factories.

Barbasol has the future option of expanding their new production facility to double it’s capacity.

Source: Interview with Tom Gallerani - former VP of Shaving Technology Lab, Gillette Company

Launch Economy Gel

Manufacturing a Shaving Gel

These additional steps in the production process cause an estimated 15% increase in variable costs per unit to create a gel product. However, capital expenditures are not needed to increase overall manufacturing infrastructure because the same PP&E used to produce foam can also produce gel.

In 2009, Barbasol opened a brand-new factory to take production in-house for the first time and at this point in time the factory is still only running at approximately 50% capacity.

Production Costs

Manufacturing Logistics

Because Barbasol has the spare manufacturing capacity and there is no specialized equipment needed, there will be no incremental fixed costs associated with the project.

There will be incremental costs associated with the purchasing of cans with bladders designed for gel use. There is in total an estimated 15% increase in variable production costs to produce gel as compared with producing foam.

Perio Inc. already has the expertise to produce gel shaving products because of their women’s shaving gel brand, Pure Silk.

The Barbasol production and operating division will be responsible for producing the Barbasol Gel product line.

$1.43Manufacturer’s Price

39% Retail Margin

$2.35Average Retail Price for

channel

24

Channel Distribution for Barbasol Gel

$1.39Manufacturer’s Price

25% Wal-Mart Margin

$1.85Average Wal-Mart Retail

Price

$1.74Manufacturer’s Price

20% Distributor Margin

39% Retail Margin

$3.56Small Merchant Retail Price

Retail Direct:Supermarket & Chain Drug Wal-Mart Distributor

Launch Economy Gel

Highlights: Expected manufacturer

Sales Dollars by Channel:

Retail Direct: 32% Wal-Mart: 47% Distributors: 21%

Barbasol will offer the same margins on the gel product to direct retail buyers as with core products

However, an extra 10% on top of SG&A will be allotted each year to allow for various promotional allowances and expenses to support the growth of the product (see projected financials)

Barbasol’s retail partners primarily determine shelf placement independently – the key is to sell high volumes in order to attain multiple “facing” slots on the shelf, even for one SKU

25

Marketing Mix and Competitors’ Reactions

Launch Economy Gel

Highlights: Economy Barbasol gel will

be supported by heavy ESPN.com and online advertising.

Distribution strategy will follow what is already in place for Barbasol foam.

Intense counter-advertising is expected from major competitors.

No relevant reaction is expected from niche market product manufacturers.

62% Contribution Margin expected from gel.

Product • Basic and Soothing Aloe gel product• 7-oz can size to

emulate market standard size for gel products

- • New product line: Barbasol Gel Skin Conditioner

• No more product line extension

Price • $2.17 per 7oz gel can

• In case competitors lower their prices, lower the price to reach 48% contribution margin (same as Barbasol foam’s).• Option to realign foam price.

Placement • Focus on larger channels – primarily grocery stores, drug stores and mass retailers• Leverage strength of Soothing Aloe and Barbasol brand as a whole to earn additional

SKU(s) at each channel• No planned changes in placement, but monitor competitors’ and Wal-Mart’s

reactions

Promotion • Positioned in the market as a low-price gel alternative to Gillette “Series”, Gillette’s oldest and most vulnerable brand• Advertising through ESPN.com

Expected reaction from major competitors (Gillette and Edge)

• Advertise heavily to Barbasol’s target age group, build on brand name• Potentially lower the price

• Launch new advertising campaign

• Advertise heavily to Barbasol’s target age group, build on brand

Year 1 Year 2 Year 3 Year 4 Year 5

Target ESPN.com Audience Cost to Reach Audience

Projected Revenue and Contribution Margin from ESPN.com Advertising

26

Advertising Plan - ESPN.com

Highlights: Rook Consulting believes

the most effective method of advertising for Barbasol is to partner with ESPN.com because of its strong 18-34 year old male demographics.

Overall, online advertising is more cost-effective and fits Barbasol’s overall operating strategy of maintaining fairly low costs.

(1) Source: ESPN.com advertising sales representative, Doug Yearick. (2) Source: Mintel data.            (3) Rook consulting estimate.            

Launch Economy Gel

Target Male 18-34 Demographic

Projected Revenue and Contribution Margin from Price-Sensitive Gel Users

27

Project Sales of Price-Sensitive Gel Users

Highlights: As mentioned earlier, the

US economic recession has had a significant impact on shaving cream consumers, leading to more price-sensitive purchases.

Positioning the new Barbasol gel at a low price-point in the gel market will allow Barbasol to capture these sales from the main competitors – Edge and Gillette “Series” gel.

Launch Economy Gel

28

Effect of Acquisition and Product Launch on the Organization

Launch Economy Gel

Consumers

• Currently Barbasol foam is targeting mainly the 35+ age groups. However, we recognize a need to cater to the 18-34 age group with a new gel product.

• To ensure reaching out to the 18-34 age group Rook Consulting suggests to launch ad campaigns on ESPN.com and promotional allowances to increase awareness and sponsorship for college events.

Employees

• DPI should maintain Barbasol’s core management and operational teams. In order to support the proposed marketing activity, Rook Consulting suggests to hire a senior marketing professional as part of the leadership team.

• Hiring 2 new sales force is also necessary to support new product launch and lead the gel division.

• Compensations and benefits need to be in line with DPI’s existing salary structure with a net increase of 5% across the board.

Collaborators

• Rook Consulting suggests to leverage Perio’s existing channel partnerships in gel distribution. In order to strengthen partnership the new product will provide partners higher or better margins than competition; the company will provide 39% margins against Edge’s 33%. The company will also provide distributors with 10% promotional allowances.

Scenario Analysis Assumptions

Variables Assumptions Probability of NPV

Net Present Value of Future Cash Flows from Gel Product

29

Monte Carlo Simulation of Gel Launch

Launch Economy Gel

Points to noteThree key variables were simulated:1) First Year Sales (Varied between 0

and $ 2.55M) 2) Subsequent Sales growth rates

(Varied form a min. of -0.11% to a max. of 37%)

3) WACC (Varied between 3.84% and 7.58%)

The year 1 sales estimate of $2.53M are based off the Espn.com marketing plan. The base year gel growth rate of 7.15% is based off of the gel industry growth estimate. Subsequent growth rates are simulated.

With an average NPV of $21.58M and an extremely narrow margin of error, the economy gel option is financially strong.

Valuation of Perio Inc. after Acquisition

CM by Product

30

Projected Financials: Income Statement

Valuation After Acquisition

31

Projected Financials: Balance Sheet

Valuation After Acquisition

32

Projected Financials: Valuation

Valuation After Acquisition

33

• Keep President and SVP of Operations

• Replace VP of marketing to manage product launch, keep the rest of the marketing staff

• Perio Six-Sigma and Lean manufacturing practices are in good alignment with Perio’s operational practices and systems - DPI will not change staff or practices.

• DPI to maintain Barbasol’s autonomy and foster its long-standing tradition of being a company based on values such as hiring locally and being a conservative, family-oriented culture.

• Continue hiring practice of prioritizing local applicants for all non-executive positions.

• DPI Should maintain Barbasol’s historical preposition as a true American value brand.

Projected Increasing Cumulative Free Cash Flow

A win-win situation for DPI

• Potential ROI on buying Perio ranges from 13.6% to 73% for offers of $45 M to $68.8 M respectively.

• Perio’s strong infrastructure in terms of a newly setup plant running at only 50% capacity, gives us operational flexibility to manufacture both gel and foam using the same infrastructure.

• Strong HR systems management systems would help us cut turnaround time in employee hiring to keep pace with company growth rate.

• An opportunity for DPI to diversify into the shaving cream industry with a brand name that’s over 90 years old and is the classic American brand.

2011 2012 2013 2014 2015$0M

$2M

$4M

$6M

$8M

$10M

$12M

$14M

With Recommendations Base Case

Cum

ulati

ve F

ree

Cash

Flo

w

A win-win situation for Perio

• Foam as an industry is almost saturated. At growth rates of only around 2.7% compared to the gel industry’s 7.15%, a declining sales in the next few years is imminent.

• Perio doesn’t have the financial arm to bail itself out or diversify into other shaving products.

• DPI not only offers to buy Perio in an all cash deal, but also intends to keep Perio’s core value system intact. This would be done by providing various employee incentives and entrusting Perio’s executive board with higher responsibilities such as managing the gel launch.

• DPI’s recommendation of launching into the gel segment also revives Barbasol’s brand loyalty amongst the 18-34 segment

Negotiating Goals and Concessions

Investment Summary

Valuation After Acquisition

1. Perio Inc. Linked Company Profile. Accessed 12th December 2010: http://www.linkedin.com/companies/perio-inc.-barbasol-brands 2. Indianapolis Motor Speedway, Indianapolis 500 official website historical box scores. Accessed 12th December 2010. 1938:

http://www.indy500.com/stats/view/boxscore/year/1938, - 1939: http://www.indy500.com/stats/view/boxscore/year/1939 3. Perio Inc. Company homepage; Accessed 12th December 2010, http://www.perio-inc.com/ourstory/history4. Barbasol breaks ground; Christ, Ginger, Ashland Times-Gazette, August 13th, 2009. http://

www.times-gazette.com/news/article/4646958 5. Barbasol has grand opening for Ashland facility; Christ, Ginger, Ashland Times-Gazette, May 20th 2010. http://

www.timesgazette.com/news/article/4830421 6. Barbasol gives Syracuse the brush-off, picks Ohio for new plant, By Marie Morelli Syracuse.com - The Post-Standard, Published: Friday,

August 07, 2009. http://www.syracuse.com/news/index.ssf/2009/08/barbasol_gives_syracuse_the_br.html 7. Barbasol coming to Ohio, News Home Executive Team, Vindy.com, A service of The Vindicator Published: Tue, May 26, 2009. http://

www.vindy.com/news/2009/may/26/barbasol-coming-to-ohio 8. Mintel Reports USA “Shaving and Hair Removal products – US – May 2008”, Accessed 12th December 2010. http://

academic.mintel.com.ezproxy.bu.edu/sinatra/oxygen_academic/my_reports/display/id=482893&anchor=atom/display/id=548163 9. Mintel Reports USA “Men’s Grooming – US – September 2010”. Accessed 12th December 2010. http://

academic.mintel.com.ezproxy.bu.edu/sinatra/oxygen_academic/my_reports/display/id=296601&anchor=atom/display/id=34384510. AC Nielsen database, The Nielsen Company - United States, Accessed 12th December 2010. 11. Barbasol press release: May 25, 2010. http://perfectshave.blogspot.com/2010/05/new-barbasol-plant-opens-in-ashland 12. THE "GREAT RECESSION" AND SHIFTS IN CONSUMER BEHAVIOR, BERNSTEIN RESEARCH; 2009. 13. Mckinsey & Co., Compustat: Mckinsey Team Analysis.14. Today's Facility Manage, August 2009 issue, By Anne Vazquez http://

www.todaysfacilitymanager.com/articles/manufacturing-case-study-room-to-grow.php 15. Industry profile; Personal Care Products Manufacturing, quarterly update; 8.9.2010 SIC CODES: 2844 - NAICS CODES: 325620, First

Research, a D&B company.16. Professor Aimin Yan, OB 713 Lecture notes, MBA Class 2012 - Boston University School of Management – Cohort (C).17. Tom Gallerani, Former VP of Shaving Technology Lab, Gillette Company, Personal Interview.18. Select International Announces Benchmarks, Successes with New Client Barbasol, May 17, 2010 . http://

www.free-press-release.com/news-select-international-announces-benchmarks-successes-with-new-client-barbasol-1274109461.html19. A Framework for Marketing Management 4th ed. (2009), by Philip Kotler and Kevin Keller

20. Westervin.com, A Fine Design: Old Stuff, Posted: February 19th, 2010 Author: Brian | Filed under: A Fine Design | Tags: 50's, 60's, advertisement, past, shaving, time travel, vintage | http://www.westervin.com/blog/tag/past

21. Town and Country Hobbies, Billboards; Barbasol Shaving Cream (2602-36). www.towncountryhobbies.com/Billboard_pictures/2602-36 22. Barbasol home page; Accessed 12th December 2010. www.barbasol.coms 23. Ashland Times-Gazette “Barbasol breaks ground”; Christ, Ginger, August 13th, 2009. http://

www.times-gazette.com/news/article/4646958 24. Barbasol gel can designed by José Luis García Eguiguren | Jan 20, 2010 | Country: Spain©2010 | Published by Lovely Package®

http://lovelypackage.com/student-work-jose-luis-garcia-eguiguren/#more-10446

References

Documents:

Images: