Case

Suggestions for Spyder Case
You need to estimate the value of Spyder if a control interest is sold to either a financial buyer or a strategic buyer, and the current value of a nonmarketable minority interest in Spyder (to value the VC’s investment if it sells its minority to another private equity investor).   The Marketable Minority Interest valuation (discounted FCF without synergy) is the basis of one set of estimates.   The Market Multiples are the bases of another set of estimates.

  1)   The DCF spreadsheet allows you to estimate the Marketable Minority Interest value of Spyder (the market value in a public offering) based on the forecast financial statements.   You can adjust the Cost of Capital and the terminal growth rate.   (You can also change the cost structure to reflect changes that a strategic buyer might make in order to obtain a direct estimate of value in a control transaction…but we don’t have any specific information about the opportunities for this alternative.)

The Current Market Multiples provide an alternative valuation estimate of a Marketable Minority Interest.   An issue with the market multiples is whether it is appropriate to use Spyder’s 2004 economic variables or those of a future year given that Spyder is probably growing faster than the benchmark companies.

  2) With the addition of a control premium less reduction for illiquidity, the Marketable Minority Interest value (# 1) can be used as the basis for estimating the value of Spyder ( private company) if a control interest is sold.   The size of the premium would depend on the type of buyer.   The Overheads provide some ranges of premiums & discounts from the current edition of Pratt.
  3) With an appropriate discount, the Marketable Minority Interest (# 1) can be used as the basis for estimating the value of the VC’s minority interest if it is forced to sell its minority interest to another private equity from.   Again, the Overheads provide some guidance.
  4) The...