Spyder Active Sport Case Study Solution
Evaluation of Selling to Strategic Buyer and Financial Buyer
Before deciding that whether the company should sell the company to financial buyer or strategic buyer, it is important to assess the importance of each case along with its advantages.
There is high chances of synergies from selling majority stake to strategic buyers and low chances of synergies from selling majority stake to financial buyers. Additionally, the value of the company increases by selling to the strategic buyer higher than the financial buyer. Furthermore, the sales multiple and the EBITDA multiple of the company is also increased.
By selling the company to the strategic buyer the company would earned higher value and it is considered to be long term relationship. Furthermore, both the companies are considered to be strategic fit so there would be no need for changing the strategies of the companies. Due to similarity in strategies that the companies use in order to garb the market share and the consumer base, the decision making would be improved. There would be more chances that the company would increase the market share, consumer base and profitability. By selling to the strategic seller, the company would enable to generate new ideas or improved the existing strategies of the company. (Po, 2015)
Furthermore, if the company would sell majority of its stock to the financial buyer there would be more chances that the company would have higher capital which it would use in different purpose and expansion but less control over other activities. In addition to this, the sales multiple and the EBITDA multiple of the company would also reduce in comparison to selling to the strategic buyer.
On the basis of above analysis and evaluation, selling of the company to the strategic buyer would seems more profitable in such a way that it would improve the worth of the company as well as higher synergies are expected.
| Majority of the strategic buyers | Majority of the financial buyers
|
|
| Impact on Value | Increase | Decrease |
| Marketability | Decrease | Decrease |
| control | Low impact | Decrease |
| Synergies | Increase | Decrease |
Note: see appendix-3
Jacob’s Share price
The share prices of the company is used by using the different valuation method such as EBITDA multiple valuation, sales multiple valuation and DCF valuation. By using the EBITDA multiple valuation, per share price is 49.64. However, by using the sales multiple valuation, per share price is 46.97. Furthermore, by using DCF valuation, per share price is 46 respectively.
Conclusion
On the basis of above analysis it is concluded that the company is enjoying a tremendous growth in its industry. However, the company is analyzing some of the alternatives in order to perform its function effectively and maintain its competitive position of the company. It is recommended to the company to sell its share to the strategic buyer. In order to this the company would improves its decision making and have chances of creating higher synergies in term of raising its value.
Appendices
Appendix-1: DCF Valuation
| DCF valuation (in $ thousands) | |||||
| FY 2004 Current | FY2005E | FY2006E | FY2007E | FY2008E | |
| Net Sales | 61,366 | 85,281 | 105,630 | 133,223 | 165,732 |
| Cost of Sales | 43,279 | 55,075 | 70,419 | 88,253 | |
| Gross Profit | 42,002 | 50,554 | 62,804 | 77,479 | |
| Total Operating Expenses | 28,014 | 33,571 | 41,028 | 49,584 | |
| Op. Income Before Depreciation | 13,988 | 16,983 | 21,777 | 27,895 | |
| EBIT | 12,910 | 14,887 | 18,517 | 24,798 | |
| Taxes | 3,486 | 4,019 | 5,000 | 6,695 | |
| Tax Rate | 27.00% | 27.00% | 27.00% | 27.00% | |
| Net Income | 9,424 | 10,867 | 13,518 | 18,102 | |
| Add:Depreciation | 1,078 | 2,097 | 3,260 | 3,098 | |
| Less Capital Expenditures | 2,619 | 3,000 | 3,500 | 4,250 | |
| Less Net Working Capital Investment | 1,590 | 929 | 1,292 | 1,459 | |
| Free Cash flows | 6,293 | 9,035 | 11,986 | 15,491 | |
| Terminal Value | 270,553 | ||||
| Discount Rate | 9.95% | ||||
| Expected Terminal Growth Rate | 4% | ||||
| PV Cash Flows | $32,811 | ||||
| PV Terminal Value | $185,095 | ||||
| Enterprise Value with future growth | $217,906 | ||||
| Enterprise Value without future growth | $32,811 | ||||
| per share price | $46.06 | ||||
Appendix-2:Sales Multiple & EBITDA Multiple
| Valuation | ||
| Sales Multiple | 2.6 | 217,906 |
| EBITDA Multiple | 16.9 | 232,439 |
| Number of outstanding shares | 4,731 | |
| Share price using EBITDA multiple | 49.13103282 | |
| Share price using sales multiple | 46.05922836 | |
Appendic-3: Valuation through Multiples For Strategic and Financial Buyer
| Valuation through Multiples For Strategic and Financial Buyer | ||||
| Strategic Value | Financial Value | |||
| 2004 | 2005 | 2004 | 2005 | |
| Sales Multiple | 65355 | 90824 | 59320 | 82438 |
| EBDITA Multiple | 106130 | 152528 | 95006 | 136539 |
| Strategy Premium | ||||
| Sales Multiple | 8386 | |||
| EBDITA Multiple | 15988 | |||
Appendix-4: WACC
| Calculation of WACC | ||
| Assumed Risk Free Rate | 5.50% | |
| Market Risk Premium(Assumed) | 6.50% | |
| Beta | 0.707 | |
| CAPM Cost of Capital (Unlevered) | 10.10% | |
| Assumed Kd | 9% | |
| Assumed Tax Rate | 27% | |
| WACC | 9.95% | |
Appendix-5: Share prices
| Share Prices | |
| DCF Valuation | 46.05923 |
| Sales Multiple | 46.05923 |
| EBITDA Multiple | 49.13103 |
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