• Join over 1.2 million students every month
  • Accelerate your learning by 29%
  • Unlimited access from just £6.99 per month
  1. 1
  2. 2
  3. 3
  4. 4
  5. 5
  6. 6
  7. 7
  8. 8
  9. 9
  10. 10
  11. 11
  12. 12
  13. 13
  14. 14
  15. 15
  16. 16
  17. 17
  18. 18
  19. 19
  20. 20
  21. 21
  22. 22
  23. 23
  24. 24
  25. 25
  26. 26
  27. 27
  28. 28
  29. 29
  30. 30

Venture Capital_Carsales Investment Proposal

Extracts from this document...


Contents......................................... ( Executive Summary 2 ( Background 1. Business and product description 3 2. Current owners 3 3. Management team, personnel and compensation 5 4. Marketing analysis 7 5. Production and operational strategy 9 ( Financial Analysis and Projections 1. Historical and ratio analysis 11 2. Comparison analysis 12 3. Discounted Cash Flow (DCF) analysis 13 4. Forecasting of future profitability 14 5. Forecasting of future cash flows 15 6. Capital Budgeting Requirements 16 ( The Deal 1. Pricing and justification 18 2. Types of securities and justification 19 3. Proposed future exit strategies 20 ( Term Sheet 21 ( Appendix 23 ( Bibliography 26 ( Executive Summary......................... With the increasing demand of automobiles and increasing use in technology, carsales is the revolutionary way in buying and selling automobiles. Since the registration of carsales.com.au domain in 1997, carsales have grown into a market leading position and have achieved a widespread coverage of the automotive, motorcycle and marine classifieds. By moving away from less flexible paper-print newspapers and magazines, carsales facilitate the sale of cars on-line and provide beneficial information to users and dealers. Furthermore the board of directors and the key management staff encompass superior expertise that is well suited to the automotive telecommunication sector. Although carsales is a growing company and excellent management, however there are a number of factors that may cause changes in carsales objectives and financial performance. The risks and threats that may arise can be seen in the SWOT analysis1. In order to further grow carsales and provide more services, carsales is seeking to raise $250,000,000 from potential Venture Capital Firms. Having meticulously conducted due diligence, it is our recommendation that carsales is a profitable seed company. The attractive propositions carsales has put forward are: * 16% over a 10 year period * 20.50% equity in carsales.com * Convertible preferred shares at a price of $2.88, exercisable any time within the next five years. ...read more.


0.5 0.5 0.5 0.5 0.5 0.5 0.5 0.5 0.5 Net Profit Margin 0.32 0.32 0.32 0.32 0.31 0.31 0.31 0.31 0.32 0.32 3.5 Forecasting Cash Flows Due to the success of the online services industry, carsales has displayed strong cash flows in the past few years. High revenue growth in recent years combined with relatively low operating costs contributes to high cash flows. Further, as an online service, carsales have relatively low capital expenditure and fairly stable assets and liabilities. For this reason, the steady growth in carsales' revenue is almost fully reflected in the growth of the firm's cash flows. Excluding the outlier in 2011, high correlation can be seen between carsales' revenue growth and free cash flow growth. Again, this is a positive sign for investors, as forecasted growth in revenue, will correspondingly produce high cash flows. 3.6 Capital Budgeting for the Investment Proposal Start-up firms usually require external funding to support future growth opportunities of the firm. Accordingly, through technical analysis and consultation with the management at carsales, the optimal investment amount to fund future growth prospects was deemed to be $250 million. Although, this figure may appear arbitrary and large in some respects, with carsales' average enterprise value of $669.58 as at 2009 (refer to table below), it would appear necessary that a large investment amount would be needed. This way, private equity investors and in particular venture capitalists will be able to obtain a reasonable ownership stake in the start-up firm. To determine the funding requirements for carsales' investment proposal, first the value of equity and the share price was calculated using various valuation methodologies. In summary: Valuation Method Assumptions (refer to Appendix A for full list of assumptions) Cost of Capital Enterprise Value ($) Equity Value ($) Price per Share NPV * Declining Sales Growth Rate * Most Balance Sheet and Income Statement move proportional to Revenue WACC = 9.975% 782.8 million 779.8 million $3.37 p/s APV * Declining Sales Growth Rate * Most Balance Sheet and Income ...read more.


Adjusted Present Value Method (APV) > Value of debt (both short term and long term) used in APV analysis found using Additional Funds needed analysis (refer to Appendix B) > Debt interests for the period found by multiplying the cost of debt (6.48%) to the value of debt in the previous period. > The value of unlevered cost of equity found using formula: wdrd + were(L) - Where cost of levered equity is found using CAPM: rf + B.(MRP) - Capital structures used are based on industry target capital structure. > We assumed that the terminal growth rates for FCFF and Tax Shields are both 3% > Calculating the enterprise value of the firm by adding the PV of FCFF and Tax shields, assuming to be growing at a terminal growth rate of 3% after 10 years 4. Ratios Analysis > For justification on the use of P/E ratio and EV/EBIT ratio for valuation analysis please refer to Appendix B - Comparable firms used for P/E and EV/EBIT analysis was based on market capitalisation values, beta values and the firm's time since inception, i.e. all comparable firms have started at around the same period. - Assume share price remains constant at 231.6 million shares despite funding that occurs post 2009. But we find the enterprise value and hence price per share, pre-funding. 5. Venture Capital Method > Calculated post-financing number of shares by first calculating the required final % ownership. > Discounted Terminal Value found by discounting the Terminal Value as per NPV and APV analyses forecasted from 2010 onwards with the WACC and Unlevered Cost of Equity respectively. > Investment amount of $250 million found arbitrarily. Carsales.com's prospectus as at September 2009, seeks to raise 71.1 million x $3.50 = $248 million through equity financing. Although most of those funds will be used to repay existing shareholders, we assume that of the $250 million funds raised, most of the funds will go to support carsales.com's growth opportunities to expand the business and further profitability. ...read more.

The above preview is unformatted text

This student written piece of work is one of many that can be found in our University Degree Finance section.

Found what you're looking for?

  • Start learning 29% faster today
  • 150,000+ documents available
  • Just £6.99 a month

Not the one? Search for your essay title...
  • Join over 1.2 million students every month
  • Accelerate your learning by 29%
  • Unlimited access from just £6.99 per month

See related essaysSee related essays

Related University Degree Finance essays

  1. Financial analysis of Wipro ltd. The ratio analysis of the company has been derived ...

    Wipro has 40+ 'Centers of Excellence' that create solutions around specific needs of industries. Wipro delivers unmatched business value to customers through a combination of process excellence, quality frameworks and service delivery innovation. Wipro is the World's first CMMi Level 5 certified software services company and the first outside USA to receive the IEEE Software Process Award.

  2. This group assignment of Financial Management will assess the positions financial performances for six ...

    22.23% 22.48& 23.70% 19.55% 17.78% Net Profit Margin PBIT & MI ------------X100 Turnover 11.46% 10.47% 11.06% 12.29% 17.38% 9.13% 10.23% 12.45% 5.91% 8.55% 4.3.3 Efficiency Ratios The calculation of Efficiency Ratios and results of Kwantas Corp. in financial year from 2000 to 2009 Ratio Definition in words YEARS 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Asset Turnover(Times)

  1. Compare and contrast the Capital Asset Pricing Model and the Arbitrage Pricing Model.

    Suppose a two factors model , the equation (b) can be written as: then the APT equilibrium model for this multifactor model return generating with a riskless asset is : ( c ) The equation ( C ) shows that security expected return is related to beta and sensitivities.

  2. The NPV rule is the best investment appraisal method." Discuss

    Richard Pike undertook separate studies in 1975, 1980, 1986, and 1992, that measured the uptake of the four appraisal techniques by 100 managers of large firms (see appendix). Arnold and Hatzopoulos in 1997 also conducted a similar survey on investment appraisal using a mixture of large, medium, and small-sized firms.

  1. Finance case study -For the capital budgeting procedure, General Foods Accounting and Financial Manual ...

    In terms of the opportunities, the product may flop, taking away possible gains General Foods could gain from developing a new different product. A threat to this case and General Foods is that of competitors. Competitors may try and copy the product or create a better alternative to General Foods' Super Product.

  2. Project on portfolio management in Mutual Funds. The analysis and advice presented in ...

    Third Phase - 1993-2003 (Entry of Private Sector Funds) 1993 was the year in which the first Mutual Fund Regulations came into being, under which all mutual funds, except UTI were to be registered and governed. The erstwhile Kothari Pioneer (now merged with Franklin Templeton) was the first private sector mutual fund registered in July 1993.

  1. Arundel Partners Case Study. I am going to make several calculations to determine ...

    An asymmetric information between producer and Arundel Partner would result of a purchasing the rights of a sequel after the production of the first film ? Principal-Agent Theory. The producers have all the information about the first movie and Arundel Partners do not.

  2. The purpose of this report is to undertake a firm valuation for Woolworths, using ...

    Being such a high competitive firm, WOW is able to sustain its core competences, and thus sustain its high growth rate in the next 3 years. Inputs Analysis The following inputs are used during the valuation process for FCFE: Inputs Value Net Income in 2010/11, NI $2,124 million Net Debt

  • Over 160,000 pieces
    of student written work
  • Annotated by
    experienced teachers
  • Ideas and feedback to
    improve your own work