KTM: Venture Capitalist Exit Case Solution And Analysis, HBR Case Study Solution & Analysis of Harvard Case Studies

KTM: Venture Capitalist Exit

Other strategic investors

Another option available to the company is to find other institutional investors who would be willing in buying the company’s stakes. One of the attractive options to company is Harley Davidson,as he had globally recognized brand. Also, he would enhance the company’s dealership network to a greater extent through core advertising and marketing techniques. Harley could benefit the company by increasing the sales of its products. Additionally, the company would be concerned aboutthe strategic investor exercising high-level control over the major business operations, which could cause high pressure on the company’s management to accomplish the common organizational gaols. Not only this, there is a likelihood that the investor would demand high level of profit returns for his shareholding in the organization, due to which the company might face difficulty, because it is already going through downturn period and has lost a massive amount of market shares.

Debt offering

The company could finance the strategy by raising the debt from financial institutions, depending on the terms of the principle and interest payment. If the company decides to finance the strategy with the use of debt; there would be a significant increase in the debt to equity ratio, which in turn would make it challenging for the company to raise additional debt in the forthcoming years.

Additionally,the debt financing is a less expensive financing mode as compared to the equity financing, where the shareholders tend to have a residual interest in the company’s profit returns. On the other hand, the increased amount of debt at the balance sheet of the company would create liquidity problems for the company, in future, because it would create pressure on the company’s management to pay off the debt obligations.

Alternative That Would Maximize the Proceeds to KTM

The alternate that would maximize the proceeds to KTM is equity financing through the Initial Public Offering (IPO). The reason behind this alternative is the maximization in the profits,in the form of saving the interest expense, which will increase the company’s cash flows. If the company opts for the equity financing through IPO;the interest saving will ultimately-increase the enterprise value of the company, hence profits which generates more value for the company.

Alternative That Would Maximize the Controlof KTM

The alternate that would maximize the value of the control of KTM’s current owners, is debt financing. Through this, the authority and power of the shareholders will not be distributed among other or new shareholders.Let’s suppose 49 percent share of the BC European Capital in the company will remain 49 percent under this option. If the company will issue the shares then the BC Corporation can purchase it, and can reach the 50 percent above level, and it can hold the KTM, which ultimately dilutes the shareholders’ power over the company, but the debt financing will not dilute it.

Financial Implications of Debt Offering & Equity Offering

When a company raises money by selling debt securities to investors, it is called debt financing. In return for a loan, an individual or institution becomes a creditor and receives the principal and interest promised to repay the debt on a regular basis.

Equity financing is the process of raising funds through the sale of corporate shares. Equity financing brings property interests to the shareholders. Equity financing can range from the thousands of dollars, raised by the entrepreneurs as well as private investors to initial public offerings on billion-dollar stock exchanges...........

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KTM: Venture Capitalist Exit Harvard Case Solution & Analysis