BUS 170
Financial Planning Case Study
Metastasis Magnetics Corp. Part 2
Metastasis Magnetics Corp. (“MMC”) is now completing its first year of operations. The Company has raised the Series A round of financing as determined in Part 1. The three founders are at a crossroads. At the end of their first year, they will be close to running out of cash. Their current financial projections are quite aggressive. The projections suggest they need to raise additional capital of $14 million in a Series B to get to profitability and cash break even.
But their current investor group is “tired” and are actively seeking a buyer with the hope of a return of their original capital. There is a “bottom fishing” investor willing to price the company as a “fire sale”. The CEO recently pitched a private equity firm that may be willing invest the needed $14m (at a yet to be negotiated pre-money valuation) based on the projections, assuming that the company can be later sold for a 3x year 5 revenue. The founders, as a group, believe there is an equal probably of each outcome.
You have been approached by the company to become their investment banker. Your contingency fee using the basic Lehman formula is dependent on the sale price or investment. Before you take on this engagement to either sell the company or convince the private equity firm to invest, you must decide what is the company’s value today.
The company’s historical and projected financials are attached.
- What are the probable values that the current investor group and the “bottom fisher” have placed on the company? (2 pts)
- Based on the information provided why would the private equity investor invest? Justify it with numerical support. (7 pts) (Hint: you need to go back to chapter 12)
- Using the Lehman formula what will be your fee in each case (return of capital, fire sale or private equity investment)? (1 pt)
This assignment is meant to only take a maximum of 2 hours.
