The purpose of this report is to determine the optimal course of action for KTM in order to pay BC European Capital, and to position our company for future growth and profitability.
Background. In 2003, BC European Capital, a venture capitalist firm owning 49% of KTM, expressed its intention to exit its investment in KTM by September of 2006. KTM’s net profit nearly quadrupled in 2002. It appears this growth will continue in 2003, though likely at a much slower rate. KTM has a 13.0% share in the stagnant European off-road market, and an 8.5% market share in the burgeoning United States off-road market.
Scope. We have investigated several possible solutions for KTM: (1) an initial public stock offering; (2) a re-purchase of shares with company funds; and (3) a buyout by another venture capital firm.
KTM should satisfy its financial obligations to BC European Capital by filing for an initial public offering. An initial public offering will generate financial capital for BCE, while allowing the company to continue its growth. In order to help finance the IPO, KTM should focus on growing its market share in the United States.
IPO Financial Analysis
Taking KTM public will allow the company to raise the money to execute BC European Capital’s buy-out, as well as raising the funds to incorporate a growth strategy. One important note is that KTM previously filed an IPO in 1996 in order to buy out a venture fund. While the company went private again in 1999, some managers disagreed with this direction.
In order for the initial public offering to help KTM achieve its goals, KTM must demonstrate financial strength; without it, investors simply will not purchase the stock. Fortunately, several key metrics indicate that KTM’s position may be attractive to investors. Appendix A shows the cost of goods sold for the primary competitors in the motorcycle industry. KTM sets the industry standard at this regard, with
Cited: Jones, T., & Swaleheen, M. u. (2010). Endogenous Examination of Underwriter Reputation and IPO Returns. Managerial Finance, 36(4), 284-293. Kelley, J., Burke, R., & Markham, J. (2011). Is Your Company IPO-Ready?. Corporate Finance Review, 15(5), 23-27.