ATH Technologies

Case-3 Strategic Implementation

Submitted by

Jaya Dixit PGPBL0238

Sumit Raj PGPBL0256
 How would you measure and evaluate Scepter's decision to purchase
ATH Technologies in 2011

Valuation of ATH in the year 2011

Assumption
 ATH’s 2011 financial statement is available current year’s statements.
 All targets related to sales and earnings are just met in 2014 and 2015.
 Cash flow in 2013 is stable and grow at 6% to perpetuity.
 Cost of capital is 8%.
 Constant debt paid till 2015.
 No change in Net working Capital after 2013.
 Zero Net Capex after 2013. (neglected before)

Earn Pay-outs from given data

  Sales Goals Bonus   Earnings Goals Bonus
2013 results $82 million $20 million $11 million $20 million
2014 results $148 million $25 million $34 million $25 million
2015 results $215 million $30 million  $47 million $30 million
Financial statement
(All figures are in ‘000’ $)
  2007 2008 2009 2010 2011 2012 2013
(in thousands, except headcount)              
Net sales 9 354 1,684 5,377 12,641 23,349 95,831
COGS 284 1,042 2,832 5,039 13,415 20,061 37,935
Gross margin -275 -688 -1,148 338 -774 3,288 57,896
COGS/Revenue 3156% 294% 168% 94% 106% 86% 40%
Marketing and sales 38 386 1,595 2,965 5,404 12,666 21,308)
Research and development 1,009 1,716 2,827 4,284 8,299 13,342 10,474
Net income (loss) -1,561 -4,000 -7,057 -8,829 -18,114 -30,525 13,813
Net Income % of Revenue -17344% -1130% -419% -164% -143% -131% 14%
Cash and short-term investments 1,300 7,643 10,560 2,341 -545 546 -1,778
Other current assets 167 839 1,570 2,280 9,123 11,291 26,107)
Net fixed assets 613 1,698 2,149 2,523 7,576 13,030 10,568
Total assets 2,425 10,557 14,839 7,755 16,509 25,236 35,048
Asset Turnover 0.37% 3.35% 11.35% 69.34% 76.57% 92.52% 273.43%
Long-term debt - - - - 24,046 61,758 52,744)
Common stock 4,745 16,081 26,493 26,493 26,493 26,493 26,493)
Retained earnings -2,570 -6,570 -13,627 -22,456 -40,570 -71,096 -57,283
Net Capex 613 1,085 451 374 5,053 5,454 -2,462
Headcount (year-end) 17 41 65 95 221 252 356
Initial Payments 120million Paid
If New product approved
by FDA 35million Paid
If ATH technology
superiority proven 45million Not made

assumed
Targeted sales and growth completely
based (2013-2015) 150million Paid

(All figures are in ‘000’ $)

2011 2012 2013 2014 2015

Cash Flows 120000 35000 50000 50000 50000

PV of payments $ 2,71,717.45
 (All figures are in ‘000’ $)
  2007 2008 2009 2010 2011 2012 2013 2014 2015
Sales 9 354 1,684 5,377 12,641 23,349 95,831 1,48,000 2,15,000
Earnings -1,561 -4,000 -7,057 -8,829 -18,114 -30,525 13,813 34,000 47,000
Debt         24,046 61,758 52,744    
Debt Repaid           34,637 34,637 34,637 34,637
FCFE         5,932 -3,404 31,920 -637 12,363
Terminal
Value             6,55,239.00  
                   
        Cash flow with TV -18,114 -30,525 13,813 34,000 7,02,239
        PV of Future cash flow 5,08,621.46       

growth 6%
Cost of capital 8%
 How would you measure and evaluate Scepter's decision to purchase
ATH Technologies in 2011

Based on our assumption, Present value of Total payment made by Scepter is around $271 million in 2011.
The Value of the firm ATH in 2011 based on projected Income of 2013 is around $508 million.
The value paid to ATH in 2011 was based on expected growth revenue with growing market segment . The
performance of ATH in 2013 seems to be promising. But challenge is sustainability of the business.

There may be various other benefits which is not considered here, such as
 Synergy of acquisition.
 Access to new technologies and customer base.
 Expansion of product portfolio.
 First mover advantages in new technology as there were only few players.
 How could Scepter have monitored ATH managers?

 Scepter should have looked closely at the work progress and the Quality test reports
 To draw mutual benefit of synergy scpeter should have worked with ATH.
 The annual budget of ATH should have been closely watched by Scpeter.
 Instead of incentivizing, Scpeter should have looked at long term profit
 Input and output process should have been controlled more formally to have better
control.
Thank You