Rightnow Technologies

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According to RightNow’s internal forecast, the revenue growth rate with the new strategy is 67%. In the pro forma balance sheet, I assume that line of credit, long-term debt, and shareholders’ equity stay the same. Other accounts grow at the same speed as revenue grows. From Exhibit 1, RightNow doesn’t need additional fund to support the strategy in 2004; instead, it could repay its debt. As a software company, RightNow has huge amount of deferred revenue, and this liability actually plays an important role as a financing tool. If the growth rate is not as high as expected or gross margin deteriorates, the size of discharged amount in 2004 will shrink. The acquirer was willing to pay a multiple on RightNow’s revenue run rate, $50 million. According to exhibit 4 given in the case, the price range was from $11.5 million (0.23X) to $217 million (4.34X), and the average price was $155 million (3.1X). Yet for Gianforte, the lowest price he would sell at is his expected enterprise value of RightNow. The following is to explain how to derive the firm value.

Assumptions:
1. Time horizon: 10 year.
2. Cost of revenue and Total operating expenses: grow at the same rate as revenue grows. 3. Growth rate:
2004| 2005| 2006| 2007| 2008| 2009| 2010| 2011| 2012| 2013| 2014| 67%| 44%| 44%| 44%| 40%| 35%| 30%| 25%| 20%| 15%| 10%|

First, in SalesForce.com S-1, the compounded annual growth rate of the market for on-demand application services was projected to be 44% from 2002 to 2007. Second, the long-term growth rate is assumed to be 5% in my analysis. 4. Tax rate: 40%.

5. Net working capital: grow at the same rate as revenue grows. 6. Capital expenditure and Depreciation: offset each other. 7. Cost of asset (Ra). Unlever equity beta of comparables, and use the average unlevered beta as RightNow’s βa. The interest rate of 10-year Treasury bond was 4.01% in 2003. Assume the risk premium is 6%. The cost of asset is 14.49% as a...
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