iRobot designs and builds consumer, government, and industrial robots. It offers floor vacuuming robots, floor washing robots, pool cleaning robots, and other consumer products. It also provides small unmanned ground robots and underwater vehicles to government and industrial customers. The document discusses iRobot's business model, growth strategies, innovative products, intellectual property, target audiences, addressable markets, management team, and financial performance. An acquisition project for iRobot is being proposed, and the document analyzes iRobot as a potential acquisition target based on its financials, growth opportunities, and valuation using the APV and comparable company methods.

1. iRobot LBO Acquisition Project
Alin Dev
Ankita Jain
Sameer Mittal

2. iRobot - Business Model
 iRobot Corporation designs and builds robots for the consumer, government, and industrial
markets.
 The company offers consumer products, such as floor vacuuming robots, floor washing
robots, pool cleaning robots, gutter cleaning robots, and programmable robots.
 Its government and industrial products include the 510 PackBot line of small, unmanned
ground robots; and the 310 small unmanned ground vehicle (SUGV) and 320 SUGV multi-
purpose ground robots that perform battlefield reconnaissance and bomb disposal, as well as
the 210 Negotiator for state and local police, and first responders.
 The company also provides 1Ka Seaglider, an underwater vehicle designed for oceanic
missions to measure temperature, salinity, depth-averaged current, and other data for
scientific and military planners.
 It sells its robots through chain stores and other national retailers, as well as through its on-
line store to consumers, the U.S. military, and other government agencies worldwide.
 iRobot Corporation was incorporated in 1990 and is headquartered in Bedford,
Massachusetts.
12/16/2011 Source: Yahoo Finance
2

3. iRobot - Business Model
Focus on key robotic-specific technologies
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4. iRobot’s performance compared to the industry
 In the recently ended third quarter, iRobot's top line surged 28% year on year from increased
demand in the home robots division and higher product prices.
 There have been substantial increase in sales through internet retail channels. The bottom got an
impressive 101% boost to $14.1 million.
 Five-year revenue growth stands at an impressive 20.8% CAGR, along with five-year gross profit
growth of a strong 23.4%.
 Analyst projected EPS growth over the next 5 years is 22.50%.
 Net institutional shares purchased over the current quarter at 3.1M, which is 12.59% of the
company's 24.62M share float which indicates strong bullish sentiment for the stock.
 Entering iRobot at a higher multiple might be sensible given the strong product portfolio and
constantly growing product portfolio through innovative additions.
 iRobot is in advanced stages of product development for the health care & oil exploration industry.
These segments are not yet tapped fully to their potential by the existing players. We expect
significant growth in iRobot’s revenue in next couple of years.
 Several indicators point to the robotics industry being on an exponential growth path. Key enabling
technologies, such as Artificial Intelligence, energy storage, computer hardware, sensors, and
actuators are steadily improving, and revenues are also increasing
12/16/2011 4

5. Good LBO Candidate - iRobot
 Steady and predictable cash flow
There is significant growth potential in the automation sector. iRobot’s because of it’s technical
excellence has great potential in capturing a significant market segment.
 Heavy asset base for loan collateral
High Base asset base in terms of high quality research labs.
 Strong management team
Attracts talented young professionals from Ivy league schools like MIT. The Co Founders has over 20
years of experience in technical innovation and management.
 Strong, defensible market position
Current market leaders in automated home maintenance products. They are also market leaders in
the industrial and defense remote presence robots.
 Viable exit strategy
Strong business model and penetration into new market segments e.g. healthcare would easily
attract strategic and financial buyers.
 Limited working capital requirements
Minimal requirement except for normal recurring trade payables, expense accruals and operating
leases, all of which can be funded through working capital, CFO and the working capital line of
credit.
 Minimal future capital requirements
Management currently does not anticipate significant investment in property, plant and equipment,
and believe that the outsourced approach to manufacturing provides them with flexibility in both
managing inventory levels and financing the inventory.
 Potential for expense reduction
The company has insignificant debt compared to Equity. Credit Stats looks good even after
leveraging the company up to a level of 4-5 times EBITDA.
12/16/2011 5

6. iRobot – Innovative product line
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7. iRobot – Growth Strategies
WHAT WHY ?
• Focus on Core markets • Vast market opportunities
Floorcare $6 billion annual market
Unmanned Ground Robots 8,000 unit requirement for
SUGV/ 4000 unit requirement
for throwable robot
• Do Fewer things better • Play to market leading
technology strengths
Leverage technology developed
by others Platforms, autonomy/navigation,
manipulation
• Huge addressable market
• Invest in the Future
Health Care
Focused on emerging high
potential markets enabled by Oil & Gas
our technology Retail
12/16/2011 7

8. iRobot – Key Growth Potentials
 Expect strong growth in Home robots to continue in future years
Moving new products, such as the Roomba 700 series and new Scooba, into
mass retail from their current limited web-based distribution this year.
 Early stage in robotics industry; Likely to see Healthcare pilots
iRobot is developing robotic solutions to help people live independently for
longer to address current aging demographics and rising healthcare costs.
iRobot in association with InTouch health has already fielded 400 remote
presence robots to assist specialist doctors in urban areas.
 Passage of FY12 defense budget near-term will improve Government
visibility.
 Scope of expanding into emerging markets.
Organic growth in all three geographic areas, including North America,
Europe, and Asia, from current low market penetration and the higher
performance Roomba going mainstream.
 Outsourcing of Production.
iRobot has recently started outsourcing the manufacturing to Chinese
manufacturers. There are significant opportunities for cost savings and
expansion of EBITDA.
12/16/2011 8

9. iRobot – Innovative Products for future growth
12/16/2011 9

10. Intellectual Property – key asset for iRobot
92 US Patents to date with more than 148 pending US patent
applications
U.S. Patents Home Robot Patents
Home Gov't & Industrials Dry Floorcare Other
46% 41%
54%
59%
12/16/2011 10

11. iRobot’s - Target Audience
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12. Dry Floor Care – Huge Addressable Markets
US & Canada $1.75 billions Latin America – 200 Million
1% 8% 1%
1%
iRobot
iRobot
Vaccums
Vaccums
Others Others
91% 98%
EMEA $2.1 billions
Asia Pacific $1.7 billions
3%
3% 5%
10%
iRobot
iRobot Vaccums
Vaccums Others
Others
92%
87%
12/16/2011 12

13. Business Risks and Mitigating Factors - Suppliers
• Large dependence on several single • Gives iRobot the opportunity to
outsourced contract manufacturers. sell their products to countries
other than the United States.
• All contract manufacturers for home
robots located in China • Availability of skilled labor in the
emerging economies at a lower
• Lack of direct control over production price compared to the US.
capacity and delivery schedules
• Efficient Supply Chain and
• Lack of direct control over quality significant cost savings.
assurance, manufacturing yields and
production costs
• Lack of enforceable contractual
provisions over the production and
costs of consumer products
12/16/2011 13

14. Business Risks and mitigating factors – Customers
• Contracts with the government
• Dependence on the U.S. federal will lead to stable and significant
government for a significant portion of revenue
revenue approx. 50%
• Use of iRobot’s products in critical
• Contracts with the U.S federal government project improve the
government which could give priority technical credibility of iRobot’s
to the government orders before the product in the eyes of customer.
more profitable commercial orders.
• Plans to expand into the
• IP rights – harming ability to compete healthcare market
12/16/2011 14

15. Business risks and mitigating factors - Competitors
• Possible competition from • High Barriers to entry because of
 developers of robot floor High R&D Cost and lack of talented
cleaning products, employee pool.
 small unmanned ground
vehicles, • Already established government
 established government contracts are difficult for the
contractors competitors to break in.
 developers of small unmanned
underwater vehicles.
12/16/2011 15

16. iRobot – Committed & highly skilled Management
Colin M. Angle – Co Founder, CEO and Chairman of the board
Angle is an industry pioneer with more than two decades of experience.
B.S. in Electrical Engineering and an M.S. in Computer Science, MIT
Dr. Tom Wagner - Chief Technology Officer
Prior experience at the Defense Advanced Research Projects Agency (DARPA), the
research and development agency of the U.S. Department of Defense, where he
managed programs in robotics, communications, command and control, tele-
health and artificial intelligence.
Jeffery A. Beck - President Home Robots Division
Jeff Beck brings more than 20 years of high-technology leadership to iRobot. Prior
to joining iRobot, Beck served as senior vice president and general manager of the
aerospace and defense division of AMETEK, Inc.
Captain Robert L. Mosses - President Govt. & Industrial Robots Division
Prior to joining iRobot in 2003, Moses served as a career naval officer. As director
of contracts for the Naval Air Systems Command, he supervised more than 800
employees and planned, negotiated and administered contracts worth more than
$20 billion annually.
12/16/2011 16

17. iRobot - Financial Growth - Analysts
Revenue, USD Millions EBITDA, USD Millions
$920 $185.00
$800
$152.00
$695
$604 $124.00
$525 $101.00
$467
$401 $83.00
$71.00
$299
$47
$21
2009 2010 2011 2012 E 2013 E 2014 E 2015 E 2016 E 2009 2010 2011 2012 E 2013 E 2014 E 2015 E 2016 E
Assuming the growth rates as projected by the management and after adjustment by the
JP Morgan Analysts report. Approximately Growth Rate of 14%-15% YoY in Revenue
12/16/2011 17

18. iRobot - Financial Growth - Conservative
Revenue, USD Millions EBITDA, USD Millions
$836 $168
$745
$141
$663
$590 $118
$525
$467 $98
$401 $83
$71
$299
$47
$21
2009 2010 2011 2012 E 2013 E 2014 E 2015 E 2016 E 2009 2010 2011 2012 E 2013 E 2014 E 2015 E 2016 E
Assuming a conservative growth rate in the range of 10-12% YoY in Revenue
12/16/2011 18

19. iRobot Valuation – APV Method
APV Method
Assumptions:
Terminal Perpetuity Growth: 3.0% Assumed perpetual growth
Cost of Capital:
Pre-tax cost of debt 9.1% weighted average cost of debt
After-tax cost of debt 6.5% Assume 28.3% effective tax rate
Unlevered cost of equity 13.0% Risk free rate ( assumed 4%) + assumed 9% market premium for equity
Levered cost of equity 25.0% Assumed minimum LBO hurdle
Assumed LT Debt/Total Capitalization 46.7%
Target Wtd Avg Cost of Capital 16.4%
Projected Years Ending December 31,
Free Cash Flow 2012 2013 2014 2015 2016
EBITDA 82,922 100,640 124,112 152,036 185,125
Less: Depr & Amort 14,196 15,910 17,883 20,149 22,749 Perp growth vs. APV
EBIT 68,726 84,730 106,229 131,887 162,376 825,383
Taxes (19,468) (24,001) (30,091) (37,360) (45,996) 0.0% 681,431
After Tax EBIT 49,258 60,728 76,137 94,527 116,380 1.0% 721,417
Plus: Depr & Amort 14,196 15,910 17,883 20,149 22,749 2.0% 768,674
Less: Capex (17,629) (18,664) (21,477) (24,701) (28,386) 3.0% 825,383
Plus/Minus Ch in NWC (8,091) (5,965) (6,853) (7,876) (9,036) 4.0% 894,693
Free Cash Flow (Unlevered, After Tax) 37,734 52,009 65,690 82,100 101,707 5.0% 981,330
NPV of FCF @ Unlevered Cost of Equity 225,206
Terminal Value - - - - 1,047,587
Implied Multiple of EBITDA 5.7x
NPV of TV @ Unlevered Cost of Equity 568,588
Value of Tax Shield
Interest Expense 32,730 31,724 29,519 26,093 21,158
Tax shield 9,271 8,987 8,362 7,391 5,993
NPV @ Pre-tax cost of debt 31,588
Total APV 825,383
12/16/2011 19

20. iRobot – Peer Group Attributes
Company Industry/Sector Technology Based Market Leader Large Markets Expanding Markets
Appliances/Consumer Goods;
iRobot Defense Products & services *** *** *** ***
Defense Products &
FLIR Systems Inc Services/Industrial goods *** ** *** ***
Bruker Corporation Scientific instruments/Technology *** ** *** **
Defense Products &
Heico Services/Industrial goods *** *** *** **
Cognex Scientific instruments/Technology *** ** *** ***
United Technologies Aerospace Technologies *** *** *** ***
12/16/2011 20

21. iRobot Valuation – Comparable Company Analysis
Comparable Company Analysis
On the basis of Comparable
iRobot FLIR Bruker United Tech Heico Cognex analysis and the APV method we
Stock price(50 day avg) 31.8 26.0 13.1 76.3 57.7
P/E trailing 22.6 18.9 24.1 13.8 35.2 20.4 decide the to pay 730 million as
P/E forward 12.4 12.4 the base price for iRobot.
PEG Ratio 1.22 0.98 1.2 Though for the sensitivity
Profit Margin 8.15% 13.68% 5.18% 8.35% 9.64% 22.24%
Operating margin 10.21% 22.81% 11.0% 15.02% 18.21% 27.26% analysis we have considered a
EBIT ( Mn $) 45.74 358.10 172.70 235.81 285.90 427.98 range of purchase price and
Revenue ( Mn $) 448 1,570 1,590 58,090 725 318 calculated the corresponding IRR
EBITDA (Mn $) 55 442 226 10,000 150 97
EBITDA Margin 12.3% 28.1% 14.2% 17.21% 20.6% 30.37% for the equity sponsor. Range of
Total debt ( Mn $) - 248 313 11,360 100 - purchase price considered in the
Market capitalization ( Mn $) 800 3,910 2,010 66,370 2,420 1,450 analysis is 730 million to 805
D/E - 16.01 51.92 47.52 0.02 -
Enterprise Value ( Mn $) 800 4,158 2,323 77,730 2,520 1,450 million.
equity betas 1.47 1 1.19 1.15 1.2 1.41
EV/Revenue 1.54 2.4 1.34 1.25 3.30 3.88
EV/EBITDA 12.59 9.41 10.28 7.77 16.80 15.03
EV/EBITDA (median) 10.3
iRobot has a range of businesses, we have selected the median of the closest companies
9.3 10.3 11.3
EV/EBITDA(ttm) 659,523 730,602 801,680
EV/EBITDA(forward) 769,416 852,338 935,261
12/16/2011 21

22. iRobot – Peer Group Multiple Values
4 CGNX
3.5
3
FLIR
EV / REVENUE
2.5
HEI
2
IRBT
1.5 UTX
1 BRKR
0.5
0
6 7 8 9 10 11 12 13
EV / EBITDA
12/16/2011 22

23. iRobot Valuation – Model Basic Assumptions
• Available debt has been assumed to be 5 times of EBITDA. This is in accordance to the information available
in the Berkshire case.
• Though debt is only 48% in the recommended capital structure, we cannot go beyond this based on the
interest coverage and the information available in The Pitchbook decade report.
• Interest rate on the senior debt and the working capital line has been taken from the Berkshire case.
• We are assuming a 0.5% commitment fees on the unused working capital line.
• 3% is the financing fees
• 1% is the transaction expense
• Mezzanine gets an 8% warrant
• Management has 20% initial contribution in the equity. Their existing stake in equity is 12%.
• Management has further been given a 10% options. The strike price is the going in valuation.
12/16/2011 23

24. iRobot – LBO Model
SOURCES
Revolving Credit Facility 10,000 1.3% 0.1x
Senior Unsecured Note 250,000 33.4% 3.5x
Mezznine Debt and warrant 100,000 13.3% 1.4x
Total Debt 360,000 48.0% 5.1x
Common Equity
Management 77,862 10.4% 1.1x
Sponsor 311,446 41.6% 4.4x
Total Equity 389,308 52.0% 5.5x
Total Sources 749,308 100.0% 10.5x
USES
Purchase Price 730,602
Plus: debt assumed 0
less: excess cash 0
Total Purchase Price 730,602 97.5%
Financing Fees 11,400 1.5%
Transaction Expenses 7,306 1.0%
Total Uses 749,308 100.0%
w/o fees w/ fees
Purch Price/LTM Full Year 2011 EBITDA 10.3x 10.5x
Purch Price/Forward 2012 EBITDA 8.8x 9.0x
Assumption: the excess cash is given out in the form of dividends to the shareholders at the time of purchase
12/16/2011 24

25. iRobot – LBO Model ( Return Analysis)
RETURNS ANALYSIS 2011 2016
Investor Ownership % of $ Ownership Options Ownership
Sponsor 311,446 80.0% 65.6%
Management 77,862 20.0% 16.4%
Management options 10.0% 10.0%
Mezznine warrants 8.0% 8.0%
Total Equity 389,308 100.0% 0.0% 100.0%
Mult. Of
2011 2012 2013 2014 2015 2016 IRR Invest.
Equity Returns At 10.5x
Sponsor (311,446) - - - - 1,254,044 32.1% 4.0x
Management (77,862) - - - - 465,746 43.0% 6.0x
At 8.5x
Sponsor (311,446) - - - - 1,011,160 26.6% 3.2x
Management (77,862) - - - - 368,000 36.4% 4.7x
2016 EBITDA 185,125 185,125 185,125
Exit Multiple 8.5x 10.5x 11.5x
Total Ent. Value 1,581,327 1,951,578 2,136,703
Plus: Option proceeds 38,931 38,931 38,931
Plus: Warrant proceeds 31,145 31,145 31,145
Less: Net Debt (110,000) (110,000) (110,000)
Common Equity Value 1,541,403 1,911,653 2,096,778
Assuming the exit multiple remains the same as the entry multiple or even contracts
12/16/2011 25

26. iRobot-LBO Model ( Return Analysis)
Debt Returns At 10.5x
Mezznine debt (100,000) - - - - -
Closing Fee 3,000 - - - - -
Repayments - - - - - -
Balance payment - - - - - 100,000
Interest payment 12,000 12,000 12,000 12,000 12,000
Equity kicker 152,932
Net Loan (97,000) 12,000 12,000 12,000 12,000 264,932 30.1% 2.7x
At 8.5x
Mezznine debt (100,000) - - - - -
Closing Fee 3,000 - - - - -
Repayments - - - - - -
Balance payment - - - - - 100,000
Interest payment - 12,000 12,000 12,000 12,000 12,000
Equity kicker 123,312
Net Loan (97,000) 12,000 12,000 12,000 12,000 235,312 27.5% 2.4x
Senior debt (Rev, senior unsecured) (260,000) - - - - -
Closing Fee 8,400 - - - - -
Repayments - 12,570 27,566 42,827 61,692 105,345
Balance payment - - - - - 10,000
Interest payment 20,830 19,824 17,619 14,193 9,258
Net Loan (251,600) 33,400 47,390 60,446 75,885 124,603 9.0%
12/16/2011 26

27. iRobot – Return Sensitivity Analysis – Aggressive
Growth Assumptions
Spronsor returns Management returns
Exit Mult. IRR Exit Mult. IRR The sensitivity analysis is on the basis of
0 0 aggressive growth assumptions. These
8.5x 26.6% 8.5x 36.4%
9.5x 29.5% 9.5x 39.9%
assumptions are in sync with the management
10.5x 32.1% 10.5x 43.0% and the analyst reports.
11.5x 34.6% 11.5x 45.9%
12.5x 36.9% 12.5x 48.6%
13.5x 39.0% 13.5x 51.1%
Sponsor IRR
Mezznine returns
Exit Mult. IRR Purchase Price Exit Multiple Sponsor Contribution
0 0 8.5x 9.5x 10.5x 11.5x 12.5x
8.5x 27.5% 730,000 26.5% 29.4% 32.1% 34.5% 36.8% 370,000
9.5x 28.8% 745,000 25.5% 28.4% 31.1% 33.5% 35.8% 385,000
10.5x 30.1% 760,000 24.7% 27.5% 30.2% 32.6% 34.9% 400,000
11.5x 31.3% 775,000 23.8% 26.7% 29.3% 31.7% 33.9% 415,000
12.5x 32.5% 790,000 23.0% 25.8% 28.4% 30.8% 33.1% 430,000
13.5x 33.7% 805,000 22.3% 25.1% 27.6% 30.0% 32.2% 445,000
The column on the left has different purchase prices for
iRobot. We have assumed the debt to be constant at
360 million. The equity contribution from the financial
sponsor will increase with the increase in purchase
price.
12/16/2011 27

28. iRobot – Return Sensitivity Analysis – Conservative
Growth Assumptions
Spronsor returns Management returns
Exit Mult. IRR Exit Mult. IRR The sensitivity analysis is on the basis of
0 0 conservative growth assumptions. The
8.5x 24.1% 8.5x 33.5% analyst growth assumptions have been
9.5x 26.9% 9.5x 36.9%
10.5x 29.6% 10.5x 40.0%
reduced to account for uncertainty.
11.5x 32.0% 11.5x 42.8%
12.5x 34.2% 12.5x 45.5%
13.5x 36.3% 13.5x 47.9%
Sponsor IRR
Mezznine returns
Exit Mult. IRR Purchase Price Exit Multiple Sponsor Contribution
0 0 8.5x 9.5x 10.5x 11.5x 12.5x
8.5x 26.4% 730,000 24.0% 26.9% 29.5% 31.9% 34.2% 370,000
9.5x 27.7% 745,000 23.1% 25.9% 28.5% 31.0% 33.2% 385,000
10.5x 28.9% 760,000 22.2% 25.1% 27.6% 30.0% 32.3% 400,000
11.5x 30.0% 775,000 21.4% 24.2% 26.8% 29.1% 31.4% 415,000
12.5x 31.2% 790,000 20.6% 23.4% 25.9% 28.3% 30.5% 430,000
13.5x 32.2% 805,000 19.9% 22.6% 25.2% 27.5% 29.7% 445,000
The column on the left has different purchase prices for
iRobot. We have assumed the debt to be constant at
360 million. The equity contribution from the financial
sponsor will increase with the increase in purchase
price.
12/16/2011 28

29. Conclusion
 iRobot has excellent product portfolio and strong expected revenue growth.
 Entry multiple at 10.5 x trailing EBITDA
 The economy is pretty flat, so we are seeing market paying up for growth stories, and in
that case 10.5 x could be reasonable versus some other growing brands.
 Potentially a good buy since there is strong expected growth.
 Even after significant multiple contraction to 8.5 from 10.5 we can achieve an IRR of 27%
12/16/2011 29

30. References
• iRobot’s 2010 Annual Report 10k
• iRobot MorningStar Management Presentation - 11/10/2011
• Analyst Day Presentation Q3 2011
• JP Morgan Analyst Report - 11/01/2011
• Benchmark Analyst Report - 12/09/2011
• Yahoo Finance
• Bloomberg Terminal
• inFinancials
• Tuck School Note on LBO Valuation
• Berkshire Partners: Bidding for Carter’s
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