1. Stanzial Inc Mark Fielding-Pritchard mefielding.com1

2. Asset Valuation Assets11806 Goodwill(170) Patent10000 Reduction in long term receivables 100- 100/1.14 (12) Inventory 3400 – 30%(1020) Liabilities(5520) Total15084 mefielding.com2

3. Profits mefielding.com3 Profit after tax(983) Exceptional Item2005 1022 Tax (30%)(307) Profit715 EPS 715 /(4 x 2000)8.9c

4. Profits mefielding.com4 P/e of quoted co30 Risk adjustment (50%)(15) 15 Control (30%)4.5 19.5 Value 8.9c x 19.5= $1.74 or $13920 for whole company

5. Dividends mefielding.com5

6. Cash flows mefielding.com6 2007200820092010 Sales28100351254390648297 Operating profit (8%)2248281035133864 Interest(350)(438)(547)(602) Cash received1898237229663262 Tax(569)(712)(890)(979) WC Increase(172)(214)(268)(134) Cap Ex(1250)(1563)(1953)(2148) Non cash Expenses1025128116021762 Total cash flow932116414571763 Working capital 2005 517 2006 686 2007 858 2008 1072 2009 1340 2010 1474

7. Cash flows a) mefielding.com7 2007200820092010 Total cash flow932116414571763 Discount Factor (14%)0.8770.7690.675 817896983 Total2696 {1763/0.14}x 0.6758500 11196

8. Comparison of Values a) mefielding.com8 Assets15084 Profits13920 Dividends7360 Cashflows11196 Assets is very simplistic. It doesn’t include sale expenses which could be considerable. It s not relevant here as the assets will not be sold piecemeal, the business will be sold. Profits is the most relevant estimate here. We should be concerned about the exceptional item which is very large. However in the long term cash = profits so we would expect to pay something about $14m for the company. Profits get heavily

9. Comparison of Values  Dividends This is very subjective as it assumes the level of dividend is fixed for ever. In addition it uses the cost of capital which is almost impossible to calculate in real life. This could be a good value for the 100 private investors who will value their shares based on dividends  Cash flow Technically the best method, cash flows ae usually taken from the cash flow statement. Biggest issue here is the discount rate, where does this come from and why is it fixed forever? 9 The value of the company is likely to be about $14m. It should be noted that bootstrapping is The process of purchasing unquoted companies and adding the to quoted groups. The P/e applied to the earnings will rise to (?) 30 so the value will increase by 50% immediately on acquisition

10. Shareholder Mix b)  On offer the purchaser, Stanzial, can employ a divide and conquer strategy. They are under no obligation to offer the same price to all sellers  The senior managers will probably take a global view on their situation as their return from the company comes from employment and holding shares. If Stanzial can guarantee the employment for some future period they may see the acquisition as attractive. Success bonuses of new cars (for example) are common in these circumstances to sweeten the deal. You need these people to run the business so their buy in is essential, you don’t want them to sell their shares then set up in competition  VCs presumably have a target return and will sell if you meet their target price mefielding.com10

11. Shareholder Mix b)  The individual may have many motives, he should be canvassed for his opinion. If he is difficult by the rest of the shares and remove him from the Board  Individual shareholders presumably hold these shares as investments so offer the less mefielding.com11

12. Success Factors c)  The wi fi link has to be kept ahead of the market, so new product development/current product upgrades  Setting and meeting strategic targets  Developing good group relationships  Offering the wi fi link a par of product bundles  Integrating HR, R&D & marketing mefielding.com12