This spreadsheet supports STUDENT analysis of the case OutReach Networks: First Venture Round, (UVA-F-1683).

This spreadsheet was prepared by Professor Susan Chaplinsky. Copyright 2012 by the University of Virginia Darden School Foundation, Charlottesville, VA. All rights reserved. For customer service inquiries, send an email tosales@dardenbusinesspublishing.com. No part of this publication may be reproduced, stored in a retrieval system, posted to the Internet, or transmitted in any form or by any meanselectronic, mechanical,
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Rev. Nov. 26, 2012

Financial Performance and Projections

(dollars in millions)

Revenue
Year-on-year growth
COGS
Gross Profit
Operating
Expenses
EBITDA
Depreciation and Amortization
EBIT
EBIT margin
Interest Expense
Profit before Taxes
Taxes
Net Income

30%

2009

2010

2011

2012P

$9.00

$22.00
144%
$10.90
$11.10
$4.32
$6.78
$0.11
$6.67
30.32%
$0.00
$6.67
$2.00
$4.67

$63.00
186%
$37.20
$25.80
$8.50
$17.30
$0.32
$16.99
26.96%
$0.00
$16.99
$5.10
$11.89

$137.00
117%
$82.40
$54.60
$15.76
$38.84
$0.69
$38.16
27.85%
$0.00
$38.16
$11.45
$26.71

$4.20
$4.80
$2.79
$2.01
$0.05
$1.97
21.83%
$0.00
$1.97
$0.59
$1.38

Capital Expenditures
Increase in Net Working Capital
Free Cash Flow
Source: Case writer estimates.

$1.00
$6.00
$1.42

$4.78

$12.20

$20.39

ance and Projections

2013P

2014P

2015P

2016P

2017P

$198.00
45%
$117.10
$80.90
$20.78
$60.12
$0.99
$59.13
29.86%
$0.00
$59.13
$17.74
$41.39

$260.00
31%
$153.40
$106.60
$29.90
$76.70
$1.30
$75.40
29.00%
$0.00
$75.40
$22.62
$52.78

$335.00
29%
$194.30
$140.70
$41.85
$98.85
$1.68
$97.18
29.01%
$0.00
$97.18
$29.15
$68.02

$425.00
27%
$242.30
$182.70
$57.35
$125.35
$2.13
$123.23
28.99%
$0.00
$123.23
$36.97
$86.26

$525.00
24%
$290.00
$235.00
$77.15
$157.85
$2.63
$155.23
29.57%
$0.00
$155.23
$46.57
$108.66

$1.45
$8.67

$1.90
$11.39

$2.45
$14.67

$3.10
$18.61

$3.83
$22.99

$32.26

$40.80

$52.58

$66.67

$84.46

Comparable Company Valuation Data

(dollars in millions)

Company Name (Ticker)

Acme Packet, Inc. (APKT)
Aruba Networks, Inc. (ARUN)
Aviat Networks, Inc. (AVNW)
Cisco Systems (CSCO)

Market
Capitalization
$2,244
$2,258
$108
$100,206

Revenue
$295
$433
$463
$43,724

Revenues, 1Yr
Growth %
45.6%
48.2%
3.9%
4.7%

EBITDA
Total Debt/ Capital TEV/ Forward
Margin %
%
EBITDA
30.1%
13.7
3.0%
13.3
0.2%
7.6%
4.2
25.3%
26.3%
6.4

Summary Statistics
Mean
$26,204
$11,229
25.6%
14.6%
Median
$2,251
$448
25.2%
14.1%
Notes: Valuation multiples are as of November 2011. The 10-year U.S Treasury rate was assumed to be 5% and the market risk premium 6.0%.

17.0%
17.0%

9.4
9.9

Company descriptions:

Acme Packet provided session delivery network solutions that enabled the delivery of voice, video, data, and unified communications services and applications across Internet p

Aruba Networks, incorporated in 2002, was a provider of next-generation network access solutions for the mobile enterprise. Its products unified wired and wireless network in
seamless access solution for corporate headquarters, mobile business professionals, and remote workers.

Aviat Networks designed, manufactured, and sold wireless networking products, solutions, and services in North America and internationally. It offered point-to-point digital mi
systems for first- and last-mile access, middle mile/backhaul, and long-distance trunking applications. It also provided broadband wireless access base stations and customer pre

Cisco Systems designed, manufactured, and sold IP-based networking and other products related to the communications and IT industry worldwide. It offered routers that interc
private IP networks for mobile, data, voice, and video applications, and switching products, which provided connectivity to end users, workstations, IP phones, access points, an
Data source: Capital IQ.

Forward P/E
24.3
31.5
21.3
10.3

Beta
1.50
1.95
1.35
1.20

21.8
22.8

1.50
1.43

ternet protocol (IP) networks.

work infrastructures into one

gital microwave transmission

mer premises equipment.

at interconnected public and

oints, and servers.

Qn No 1.
DCF Method
FCF(at year 6)
Growth rate
WACC
Terminal Value
PV of terminal value
Probability of failure
Postmoney value
Initial Investment
Premoney Value
Ownership stake

$84,460,000
4% (Assuming inflation rate as 2.5% and real growth rate as 1
14.00% (Assuming beta to be same as that of industry mean after
$878,384,000.00
$400,179,934.10
50% (we assume it to be 50%)
$200,089,967.05
$30,000,000.00
$170,089,967.05
14.99%

d real growth rate as 1.5% for the company)

of industry mean after 6 years)

Venture Capital Method

Annual Earnings(Projected NI)

In Year
PE(multiple)
Required Rate of Return
Terminal Value of firm
Post Money Value
Initial Investment
Pre money Value
Ownership Stake

Qn No 2

$108,660,000.00

(Exit
6 year)
24.3 (Acme Packet,Inc. has si
50% (The venture capital inve
$2,640,438,000.00
$231,808,000.00
$30,000,000.00
$201,808,000.00
12.94%

From VC method we find that the VC offer is worth 13%

quity stakes
Partners is demanding Outreach networks should npot go for the offer as from our calculatio
QnEverest
No 3.

Acme Packet,Inc. has similar levels of EBITDA margin,so its P/E ratio has been taken for reference)
The venture capital investor uses the target rate of return to calculate the present value of the projected termin

h 13%

er as from our calculations we see that the offer is worth 13%

the projected terminal value. The target rate of return is is 40-60% for investing in frist stage with a holding per

ge with a holding period of 5-10 years)