On May $8,1994$ Laura Bright graduated from StFX University. She set to work opening a coffee shop in Halifax called LauraB and found a perfect location in a new development. Using a $$50,000$ inheritance to finance the venture, together with her own sweat equity, she started the business on August $1,1994,$ as a sole proprietorship. The shop was profitable in the first year. Laura found, however, that the quality of her products was not as high as she had initially envisioned. She discussed this issue with one of her regular customers, Guillain Smith. On the spot, Guillain offered to help finance the purchase of a roasting machine. With the new machine, Laura could produce higher$-$quality coffee and, in addition, expand the business by offering beans for sale.After looking carefully at the financials, Laura determined that she would need an investment of $$95,000$ from Guillain to undertake this expansion. In exchange for this investment, Laura offered her a $40\%$ share in the business. Guillain accepted the offer and the business was incorporated with two owners. The equity consisted of $1,000,000$ shares in total, with Guillain owning $400,000$ shares and Laura owning $600,000$ shares. By the end of the second year, the business was doing extremely well. Revenue from the sale of beans soon began to rival beverage sales. In response to this success, Laura and Guillain decided to expand to five stores over the next two years. Rather than using equity financing, they decided to seek bank financing. Each new store required an investment of $$100,000.$ Opening the stores took longer than planned, but by the end of $2009,$ there were five LauraB in Halifax employing $30$ people. As planned, this expansion was financed solely with debt that was ultimately consolidated into a $$500,000$ term loan due in $2014.$In early $2010,$ the two owners decided to take a weekend retreat and reevaluate their initial business plan. Perhaps the biggest surprise was the popularity of beans; almost $80\%$ of revenue was attributable to bean sales alone. Furthermore, a buyer from a local supermarket chain had approached LauraB with a proposal to sell the beans in the chains stores. However, LauraB was currently at its capacity limitsit could barely roast enough coffee for its five stores. More importantly, to enhance the coffee quality further, Laura proposed that they buy beans directly from coffee farmers in Santo Dominigo, where she would be able to monitor quality closely. However, the supermarket proposal would require a significant increase in the production of roasted beans. By the end of the retreat, Laura and Guillain had decided to change the focus of the business from retail beverage and bean sales to wholesale roasted coffee beans. Rather than build new stores, they decided to invest in a state$-$of$-$the$-$art roasting facility.In the next few weeks, Laura approached Alex Partners, a local venture capital firm. On the strength of the commitment from the supermarket chain to carry the coffee, Alex agreed to invest $$3$ million to finance the construction of a high$-$capacity roasting facility in exchange for a $50\%$ share of the company. To accomplish this, $1,000,000$ new shares in LauraB were issued to Alex.Lauras intuition was correctthe quality of the coffee increased significantly. Within eight years, the company had grown to almost $200$ employees and its strong reputation allowed it to sell its coffee for a $50\%$ premium over other brands. To finance the expansion, Alex made two more equity investments: It paid $$4$ million for $1,200,000$ shares in $2013$ and $$8$ million for $1,500,000$ shares in $2016.$ Furthermore, the term loan was renewed for another five years when it came due in $2014,$ and in $2017$ an additional $400,000$ shares were issued to employees as part of their compensation.At the beginning of $2018,$ the board of directors decided to expand the distribution of the coffee throughout the Canada and finance this expansion from the proceeds of an IPO. The plan was to initially raise $$20$ million in new capital at the IPO and then, within a year or two, raise an additional $$20$ million in an SEO. Alex planned on selling $10\%$ of its stake in LauraB at the IPO and subsequently liquidating the rest of its investment by the end of $2019.$ The IPO was successfully undertaken in August $2018.$ All told, the company sold $2,000,000$ shares for $$12$ per share at the IPO, including $10\%$ of Alexs stake $($no other existing shareholder sold any shares at the IPO$).$A year later, in August $2019,$ the company did a cash offer SEO, selling an additional $4,000,000$ shares for $$20$ per share, which included $400,000$ shares from each original owner, Laura and Guillain, and $2,000,000$ of Alexs shares. Thus, of the shares sold, $2,800,000$ shares were existing shares and the rest were new shares. Some of the proceeds were used to repay the term loan that matured at the same time as the SEO and the remaining proceeds were used to finance the continued national expansion. Alex had been selling additional shares in the secondary market over the prior year, so that issue represented the liquidation of Alexs final stakeafter the sale, Alex no longer owned shares in LauraB. During this time, an additional $50,000$ shares were issued to employees as part of their compensation.By $2020,$ the fortunes of the company had changed. Although LauraB coffee still had a strong brand name and sales continued to grow the company, it was experiencing significant growing pains. Laura herself was no longer directly involved in operations. Soon after the SEO a new CEO, Debra Bridge, was hired to take over the day$-$to$-$day running of the company, but she proved to be a poor fit. By late $2020,$ the companys share price had dropped to $$7$ per share. Laura was distressed to see the value of her remaining stake drop to this level, so she decided to take advantage of what she saw as a buying opportunity.Together with six other key employees, she undertook an LBO of LauraB. At the time of the LBO, the firm had $8,000,000$ shares outstanding because an additional $20,000$ shares had been given to key employees. Laura and the other key employees had already started purchasing shares, so by the time of the LBO announcement Laura owned $500,000$ shares and the other key employees together owned an additional $100,000$ shares. The group issued a tender offer to repurchase the remaining $7,400,000$ shares for $$9\mathrm{.}50$ per share. To finance the repurchase, the group combined an additional equity investment of $$8,000,000,$ bank debt, and a $($Rule $144$A$)$ private placement of a $$30$ million, semi$-$annual, $10-$year coupon bond. The plan was to register this privately placed debt publicly within a year. The debt was convertible and callable $($at par$)$ in five years. It had a conversion ratio of $50,$ a face value of $$1000,$ and coupon rate of $5\%.$ Guillain is an example of what kind of investor? At each funding stage prior to the IPO $($i$.$e$.,1995,2010,2013,$ and $2016),$ calculate the pre$-$money and post $-$money valuation of the equity of the company. What fraction of the IPO was a primary offering and what fraction was a secondary offering? Immediately following the IPO, the shares traded at$$15\mathrm{.}50.$ a$.$ At this price, what was the value of the whole company? Expressed in percent, by how much was the deal underpriced? b$.$ In dollars, how much did this underpricing cost existing shareholders? c$.$ Assuming that none of the owners purchased additional shares at the IPO, what fraction of the equity did Laura own and what was it worth immediately following the IPO? d$.$ What was the company's debt$-$equity ratio$-$ the ratio of the book value of debt outstanding to the market value of equity$-$immediately following the IPO? Address the following questions related to the SEO: a$.$ What fraction of the SEO was a primary offering and what fraction was a secondary offering? b$.$ Assuming that the underwriters charged a$2\mathrm{.}5\%$fee, what were the proceeds that resulted from Laura's sale of her stock? How much money did the company raise that would be available to fund future investments and repay the term loan? Immediately following the SEO, the stock price stood at$$21\mathrm{.}5$per share. a$.$ Once the term loan was repaid, what was the value of the whole company? b$.$ What fraction of the equity did Laura own? Assume the LBO was successfur.