This spreadsheet supports STUDENT analysis of the case “OutReach Networks: First Venture Round,” (UVA-F-1683).
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 email
[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. Rev. Nov. 26, 2012
Financial Performance and Projections (dollars in millions)
Revenue Year-on-year growth COGS Gross Profit Operating Expenses EBITDA Depreciation and Amortization EBIT EBIT margin Interest Expense Profit before Taxes Taxes Net Income
30%
2009
2010
2011
2012P
$9.00
$22.00 144% $10.90 $11.10 $4.32 $6.78 $0.11 $6.67 30.32% $0.00 $6.67 $2.00 $4.67
$63.00 186% $37.20 $25.80 $8.50 $17.30 $0.32 $16.99 26.96% $0.00 $16.99 $5.10 $11.89
$137.00 117% $82.40 $54.60 $15.76 $38.84 $0.69 $38.16 27.85% $0.00 $38.16 $11.45 $26.71
$4.20 $4.80 $2.79 $2.01 $0.05 $1.97 21.83% $0.00 $1.97 $0.59 $1.38
Capital Expenditures Increase in Net Working Capital Free Cash Flow Source: Case writer estimates.
$1.00 $6.00 $1.42
$4.78
$12.20
$20.39
ance and Projections
2013P
2014P
2015P
2016P
2017P
$198.00 45% $117.10 $80.90 $20.78 $60.12 $0.99 $59.13 29.86% $0.00 $59.13 $17.74 $41.39
$260.00 31% $153.40 $106.60 $29.90 $76.70 $1.30 $75.40 29.00% $0.00 $75.40 $22.62 $52.78
$335.00 29% $194.30 $140.70 $41.85 $98.85 $1.68 $97.18 29.01% $0.00 $97.18 $29.15 $68.02
$425.00 27% $242.30 $182.70 $57.35 $125.35 $2.13 $123.23 28.99% $0.00 $123.23 $36.97 $86.26
$525.00 24% $290.00 $235.00 $77.15 $157.85 $2.63 $155.23 29.57% $0.00 $155.23 $46.57 $108.66
$1.45 $8.67
$1.90 $11.39
$2.45 $14.67
$3.10 $18.61
$3.83 $22.99
$32.26
$40.80
$52.58
$66.67
$84.46
Comparable Company Valuation Data (dollars in millions)
Company Name (Ticker) Acme Packet, Inc. (APKT) Aruba Networks, Inc. (ARUN) Aviat Networks, Inc. (AVNW) Cisco Systems (CSCO)
Market Capitalization $2,244 $2,258 $108 $100,206
Revenue $295 $433 $463 $43,724
Revenues, 1Yr Growth % 45.6% 48.2% 3.9% 4.7%
EBITDA Total Debt/ Capital TEV/ Forward Margin % % EBITDA 30.1% 13.7× 3.0% 13.3× 0.2% 7.6% 4.2× 25.3% 26.3% 6.4×
Summary Statistics Mean $26,204 $11,229 25.6% 14.6% Median $2,251 $448 25.2% 14.1% 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%.
17.0% 17.0%
9.4× 9.9×
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 p
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 in 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 mi 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 pre
Cisco Systems designed, manufactured, and sold IP-based networking and other products related to the communications and IT industry worldwide. It offered routers that interc private IP networks for mobile, data, voice, and video applications, and switching products, which provided connectivity to end users, workstations, IP phones, access points, an Data source: Capital IQ.
Forward P/E 24.3× 31.5× 21.3× 10.3×
Beta 1.50 1.95 1.35 1.20
21.8× 22.8×
1.50 1.43
ternet protocol (IP) networks.
work infrastructures into one
gital microwave transmission mer premises equipment.
at interconnected public and oints, and servers.
Qn No 1. DCF Method FCF(at year 6) Growth rate WACC Terminal Value PV of terminal value Probability of failure Postmoney value Initial Investment Premoney Value Ownership stake
$84,460,000 4% (Assuming inflation rate as 2.5% and real growth rate as 1 14.00% (Assuming beta to be same as that of industry mean after $878,384,000.00 $400,179,934.10 50% (we assume it to be 50%) $200,089,967.05 $30,000,000.00 $170,089,967.05 14.99%
d real growth rate as 1.5% for the company) of industry mean after 6 years)
Venture Capital Method
Annual Earnings(Projected NI) In Year PE(multiple) Required Rate of Return Terminal Value of firm Post Money Value Initial Investment Pre money Value Ownership Stake
Qn No 2
$108,660,000.00
(Exit 6 year) 24.3 (Acme Packet,Inc. has si 50% (The venture capital inve $2,640,438,000.00 $231,808,000.00 $30,000,000.00 $201,808,000.00 12.94%
From VC method we find that the VC offer is worth 13%
quity stakes Partners is demanding Outreach networks should npot go for the offer as from our calculatio QnEverest No 3.
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 termin
h 13%
er as from our calculations we see that the offer is worth 13%
the projected terminal value. The target rate of return is is 40-60% for investing in frist stage with a holding per
ge with a holding period of 5-10 years)
