Spyder Active Sports-2004 Case Analysis

a) Prepare estimates of enterprise and equity value and share price based on DCF and the trading and transaction multiples presented in the case. DCF: Enterprise Value: $ 223.68 million Equity Value: $ 213.20 million Share Price: $ 2132.01 Transaction Multiples: Enterprise Value: $ 74.25 million(using sales multiple) $ 88.35 million(using EBITDA multiple) Equity Value: $ 68.75 million(using sales multiple) $ 82.85 million(using EBITDA multiple) Share Price: $ 687.5(using sales multiple) $ 828.5(using EBITDA multiple) Trading Multiples: Enterprise Value: $ 78.55 million(using sales multiple) $ 102.91 million(using EBIDTA multiple) Equity Value: $ 73.05 million(using sales multiple) $ 97.41 million(using EBIDTA multiple) Share Price: $ 730.5(using sales multiple) $ 974.1(using EBIDTA multiple) (Refer to the excel sheet for the calculations) b) How well do these estimates reflect the considerations you believe to be most pertinent? The most pertinent consideration for valuing Spyder’s enterprise value is its high net sales growth rate that has been projected. The comparative companies that have been sold lately might not have had such high sales growth rates projections. Hence Spyder’s enterprise value should be higher than the comparative firms but at the same time the DCF estimates seem to b on the higher side to attract any buyer. c) If you are hired as an investment banker, what enterprise value would your recommend for Spyder? Spyder’s enterprise value that seems fair is around $ 140-160 million. d) What is the current ownership structure of Spyder?

CHB – 37.9% Employees – 11.3% Jacob – 25.4% Shimokubo – 25.4% e) Does the value of the enterprise depend upon its ownership structure? Yes, the value of the enterprise depends upon its ownership structure since the new investors will influence the company’s operations. It could be a negative or positive effect depending on the changes in the ownership structure. f) What are the other determinants of value? The brand value, competition, promoters, scope of expansion of product line to non-seasonal products, intangibles like goodwill, distribution channel and supply chain. g) Compare the alternative transactions in which the sale of equity can be structured? Option 1 : Sale of Jacob’s own equity stake along with CHB’s to a strategic buyer. Option 2 : Jacob decides to maintain a controlling stake and CHB sells their minority stake to a private equity company. h) How does the price of equity shares depend upon the alternative chosen? The price of equity is expected to be higher if Jacob also decides to sell his stake to a strategic buyer whereas it is expected to be lower in case he decides to maintain his controlling stake and only CHB decides to exit the business. i) Which one would you choose if you were David Jacobs? Why (briefly)? If I was David Jacobs I would hold on to my stake since I could get higher returns from the expected growth of the company. j) Which one would you choose if you were a general partner in CHB Capital Partners? Why (briefly)? If I was general partner in CHB Capital Partners I would start looking for other companies to invest which are expected to give a higher return since Spyder has already grown a lot and it’s a company policy to stay invested in a company for 3 to 5 years. And by selling CHB’s stake it can get a substantial return on the investment. Since the company is expected to grow at high rate it will be able to attract a reasonable valuation currently which might not be the case few years down the line. k) Who else is affected by this choice and how? Apart from Jacobs himself CHB Partners, his sons Bill and Jake, John Walbrecht and other senior managers of the company will be affected by the choice. The exit options of CHB Partners will reduce if Jacob decides to maintain controlling ownership stake in the company. Hence it is likely that the price for their stake sale will reduce. Also if the controlling stake is transferred the future roles of Bill, Jake and other senior managers would not be clear.

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