This spreadsheet supports STUDENT analysis of the case “OutReach Networks: First Venture Round,” (UVA-F-1683).
Rev. Nov. 26, 2012
This spreadsheet was prepared by Professor Susan Chaplinsky. Copyright © 2012 by the University of Virginia Darden School Foundation, Charlottesville, VA. All rights reserved. For customer service inquiries, send an e-mail [email protected]. No part of this publication may be reproduced, stored in a retrieval system, posted to the Internet, or transmitted in any form or by any means—electronic, mechanical, photocopying, recording, or otherwise—without the permission of the Darden School Foundation.
Financial Performance and Projections (dollars in millions) 2009 2010 2011 2012P Revenue $9.00 $22.00 $63.00 $137.00 Year-on-year growth 144% 186% 117% COGS $4.20 $10.90 $37.20 $82.40 Gross Profit $4.80 $11.10 $25.80 $54.60 Operating Expenses $2.79 $4.32 $8.50 $15.76 EBITDA $2.01 $6.78 $17.30 $38.84
Depreciation and Amortization $0.05 $0.11 $0.32 $0.69
EBIT $1.97 $6.67 $16.99 $38.16
EBIT margin 21.83% 30.32% 26.96% 27.85%
Interest Expense $0.00 $0.00 $0.00 $0.00
Profit before Taxes $1.97 $6.67 $16.99 $38.16
Taxes 30% $0.59 $2.00 $5.10 $11.45
Net Income $1.38 $4.67 $11.89 $26.71
Capital Expenditures $1.00
Increase in Net Working Capital $6.00
Free Cash Flow $1.42 $4.78 $12.20 $20.39
Financial Performance and Projections 2013P 2014P 2015P 2016P 2017P $198.00 $260.00 $335.00 $425.00 $525.00 45% 31% 29% 27% 24% $117.10 $153.40 $194.30 $242.30 $290.00 $80.90 $106.60 $140.70 $182.70 $235.00 $20.78 $29.90 $41.85 $57.35 $77.15 $60.12 $76.70 $98.85 $125.35 $157.85 $0.99 $1.30 $1.68 $2.13 $2.63 $59.13 $75.40 $97.18 $123.23 $155.23 29.86% 29.00% 29.01% 28.99% 29.57% $0.00 $0.00 $0.00 $0.00 $0.00 $59.13 $75.40 $97.18 $123.23 $155.23 $17.74 $22.62 $29.15 $36.97 $46.57 $41.39 $52.78 $68.02 $86.26 $108.66 $1.45 $1.90 $2.45 $3.10 $3.83 $8.67 $11.39 $14.67 $18.61 $22.99 $32.26 $40.80 $52.58 $66.67 $84.46
Comparable Company Valuation Data
(dollars in millions)
Company Name (Ticker) Revenue
Acme Packet, Inc. (APKT) $2,244 $295 45.6% 30.1% - 13.7×
Aruba Networks, Inc. (ARUN) $2,258 $433 48.2% 3.0% - 13.3×
Aviat Networks, Inc. (AVNW) $108 $463 3.9% 0.2% 7.6% 4.2×
Cisco Systems (CSCO) $100,206 $43,724 4.7% 25.3% 26.3% 6.4×
Summary Statistics
Mean $26,204 $11,229 25.6% 14.6% 17.0% 9.4×
Median $2,251 $448 25.2% 14.1% 17.0% 9.9×
Notes: Valuation multiples are as of November 2011. The 10-year U.S Treasury rate was assumed to be 5% and the market risk premium 6.0%. Company descriptions:
Acme Packet provided session delivery network solutions that enabled the delivery of voice, video, data, and unified communications services and applications across Internet protocol (IP) networks.
Data source: Capital IQ.
Market
Capitalization Revenues, 1Yr Growth % Margin % EBITDA Total Debt/ Capital % TEV/ Forward EBITDA
Aruba Networks, incorporated in 2002, was a provider of next-generation network access solutions for the mobile enterprise. Its products unified wired and wireless network infrastructures into one seamless access solution for corporate headquarters, mobile business professionals, and remote workers.
Aviat Networks designed, manufactured, and sold wireless networking products, solutions, and services in North America and internationally. It offered point-to-point digital microwave transmission systems for first- and last-mile access, middle mile/backhaul, and long-distance trunking applications. It also provided broadband wireless access base stations and customer premises equipment. Cisco Systems designed, manufactured, and sold IP-based networking and other products related to the communications and IT industry worldwide. It offered routers that interconnected public and private IP networks for mobile, data, voice, and video applications, and switching products, which provided connectivity to end users, workstations, IP phones, access points, and servers.
Comparable Company Valuation Data
Forward P/E Beta
24.3× 1.50 31.5× 1.95 21.3× 1.35 10.3× 1.20 21.8× 1.50 22.8× 1.43 Notes: Valuation multiples are as of November 2011. The 10-year U.S Treasury rate was assumed to be 5% and the market risk premium 6.0%.
Acme Packet provided session delivery network solutions that enabled the delivery of voice, video, data, and unified communications services and applications across Internet protocol (IP) networks. Aruba Networks, incorporated in 2002, was a provider of next-generation network access solutions for the mobile enterprise. Its products unified wired and wireless network infrastructures into one
Aviat Networks designed, manufactured, and sold wireless networking products, solutions, and services in North America and internationally. It offered point-to-point digital microwave transmission systems for first- and last-mile access, middle mile/backhaul, and long-distance trunking applications. It also provided broadband wireless access base stations and customer premises equipment. Cisco Systems designed, manufactured, and sold IP-based networking and other products related to the communications and IT industry worldwide. It offered routers that interconnected public and private IP networks for mobile, data, voice, and video applications, and switching products, which provided connectivity to end users, workstations, IP phones, access points, and servers.
Qn No 1. DCF Method
FCF(at year 6) $84,460,000
Growth rate 4% (Assuming inflation rate as 2.5% and real growth rate as 1.5% for the company)
WACC 14.00% (Assuming beta to be same as that of industry mean after 6 years)
Terminal Value $878,384,000.00
PV of terminal value $400,179,934.10
Probability of failure 50% (we assume it to be 50%)
Postmoney value $200,089,967.05
Initial Investment $30,000,000.00
Premoney Value $170,089,967.05
(Assuming inflation rate as 2.5% and real growth rate as 1.5% for the company) (Assuming beta to be same as that of industry mean after 6 years)
Venture Capital Method
Annual Earnings(Projected NI) $108,660,000.00
In Year 6
PE(multiple) 24.3 (Acme Packet,Inc. has similar levels of EBITDA margin,so its P/E ratio has been taken for reference)
Required Rate of Return 50% (The venture capital investor uses the target rate of return to calculate the present value of the projected terminal value. The target rate of return is is 40-60% for investing in frist stage with a holding period of 5-10 years)
Terminal Value of firm $2,640,438,000.00
Post Money Value $231,808,000.00
Initial Investment $30,000,000.00
Pre money Value $201,808,000.00
Ownership Stake 12.94%
Qn No 2 From VC method we find that the VC offer is worth 13%
Given the high equity stakes Everest Partners is demanding Outreach networks should npot go for the offer as from our calculations we see that the offer is worth 13% (Exit
year)
(Acme Packet,Inc. has similar levels of EBITDA margin,so its P/E ratio has been taken for reference)
(The venture capital investor uses the target rate of return to calculate the present value of the projected terminal value. The target rate of return is is 40-60% for investing in frist stage with a holding period of 5-10 years)
From VC method we find that the VC offer is worth 13%