SMU Ventures is an entrepreneurial firm that manufactures Nano chips for supermarkets. You have been hired by the CEO of SMU Ventures to determine if he should take an offer of investment of $1.0 million from a VC investor in return for a 40% equity stake. Your first task is to value the company. You have already drawn the pro forma financial statements for the company (Exhibit 1). Since this is a new company you decide to look at the Nano manufacturing industry and find comparable companies. After extensive research you shortlist 3 companies: 1) Advanced Micro 2) Lightspeed Inc 3) Particle Inc You compile salient data about financials as shown in the Exhibit 1. SMU Ventures Pro Forma Income statement is projected for next year and is considered as representative for current exercise. Competitor's financials are the latest available. You can assume an illiquidity discount of 25% applies the SMU Ventures. Exhibit 1: (In $) Pro Forma Income Statement SMU Ventures 1,582,500 1,155,225 Income Statements of Comparable Companies (Latest FY) Advanced Lightspeed Particle Micro Inc Inc 9,660,800 87,880,000 3,531,250 7,192,000 58,152,400 3,007,813 Net sales Cost of goods sold Gross profit Operating expenses Interest expense 2,468,800 29,727,600 523,438 427,275 170,000 0 790,000 478,320 12,500,000 4,920,000 810,000 1,568,000 Profit (loss) before taxes Tax (21%) 257,275 54,028 1,200,480 252, 101 12,307,600 2,584,596 1,854,563 -389,458 Net Profit -Net Income 203,247 948,379 9,723,004 1,465,104 20.5 65.4 3.05 1.1 2.5 0.8 Latest Share Price(s) Shares Outstanding(in millions) Debt($m from balance sheet) Cash ($m from balance sheet) 3.40 75.00 3.50 1.40 6.70 0.02 Based on the above information answer the following: 1) Calculate the [Enterprise Value(EV)Earnings(E)] and [Enterprise Value(EV)/Sales) multiple for each comparable company. 2) Calculate the value of SMU| Ventures using EV/E and EV/Sales multiples method. 3) Calculate the average value of SMU Ventures. Hint: use illiquidity discount. 4) Based only on valuation will you recommend that the VC offer be accepted or rejected? Why? SMU Ventures is an entrepreneurial firm that manufactures Nano chips for supermarkets. You have been hired by the CEO of SMU Ventures to determine if he should take an offer of investment of $1.0 million from a VC investor in return for a 40% equity stake. Your first task is to value the company. You have already drawn the pro forma financial statements for the company (Exhibit 1). Since this is a new company you decide to look at the Nano manufacturing industry and find comparable companies. After extensive research you shortlist 3 companies: 1) Advanced Micro 2) Lightspeed Inc 3) Particle Inc You compile salient data about financials as shown in the Exhibit 1. SMU Ventures Pro Forma Income statement is projected for next year and is considered as representative for current exercise. Competitor's financials are the latest available. You can assume an illiquidity discount of 25% applies the SMU Ventures. Exhibit 1: (In $) Pro Forma Income Statement SMU Ventures 1,582,500 1,155,225 Income Statements of Comparable Companies (Latest FY) Advanced Lightspeed Particle Micro Inc Inc 9,660,800 87,880,000 3,531,250 7,192,000 58,152,400 3,007,813 Net sales Cost of goods sold Gross profit Operating expenses Interest expense 2,468,800 29,727,600 523,438 427,275 170,000 0 790,000 478,320 12,500,000 4,920,000 810,000 1,568,000 Profit (loss) before taxes Tax (21%) 257,275 54,028 1,200,480 252, 101 12,307,600 2,584,596 1,854,563 -389,458 Net Profit -Net Income 203,247 948,379 9,723,004 1,465,104 20.5 65.4 3.05 1.1 2.5 0.8 Latest Share Price(s) Shares Outstanding(in millions) Debt($m from balance sheet) Cash ($m from balance sheet) 3.40 75.00 3.50 1.40 6.70 0.02 Based on the above information answer the following: 1) Calculate the [Enterprise Value(EV)Earnings(E)] and [Enterprise Value(EV)/Sales) multiple for each comparable company. 2) Calculate the value of SMU| Ventures using EV/E and EV/Sales multiples method. 3) Calculate the average value of SMU Ventures. Hint: use illiquidity discount. 4) Based only on valuation will you recommend that the VC offer be accepted or rejected? Why
