This report aims to identify the most probable outcome of Accuflow Inc.’s management buyout deal with respect to three parties, Accuflow management, Venture capitalist (Greylock and NorWest), and HPC. The report will seek to identify Accuflow enterprise value from the viewpoints of the different parties and with different valuation techniques in order to come to the conclusion. Initial Scenario:
The report assumes that the initial scenario of the deal is made with the $25 Million mezzanine deal that Accuflow is most likely to be able to obtain, in addition to a senior debt of $108 Million. Further assumptions to the starting scenario are shown in Appendix 1 of the report. The management projection is used for the pro-forma financial statements for the year 1998 to 2001 to portray the management’s viewpoint on Accuflow’s business in the future. An extended projection is made to year 2003 with values shown under “Company Specific Assumptions” in order to look into the effects of the Mezzanine debt, which cannot be prepaid until the year 5. Following a base case scenario where the company required return is 13% and long term growth rate of 3%, the derived EV of Accuflow is $325 Million (Appendix 2). This scenario however, assumes that no new debt is issued while retiring the mezzanine in 2003. A sensitivity analysis performed around the required return and long term growth rate of the company values the EV from $218 to $488 Million, although the higher range numbers are unlikely given the market. Hence, the Accuflow’s EV of $325 Million should seem realistic to Cunningham of the management team. To Cunningham, Greylock and Norwest’s equity stake in Accuflow will then be $117 Million. It is thus safe to assume that Cunningham will propose a price lower than $117 Million for the 62% equity stake. Greylock on the under hand, values Accuflow between $250 Million and $380 Million and argued that the middle of the range was a realistic valuation...
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