Case Solution

Aqua Bounty

Executive Case Summary

The CEO of Aqua Bounty Technologies is currently in the middle of deciding the next
move for the company which needs to be taken in order to ensure that the company
continues on its projected path to success. The firm is a biotechnology firm which works
on genetically modified salmons and trout working in the aquaculture industry.
Their current project involves building genetically modified fish for human consumption.
However, the company still does not have the required FDA approval for the same.
Owing to this, the current project is still stuck as the company has already started the
commercial production on a large scale and was simultaneously also running at
considerable losses for a firm of its size. The project was not at the verge of eating into
firms own cash reserves now and in fact had already started eating some part of the
reserve. Hence it was becoming increasingly necessary to try and fund the upcoming
projects as well as the current projects by raising capital (through equity markets).
The team was also confident about their product in offering and hence were also
hopeful of getting the attention in the market to attract capital in the market after the
I.P.O. . They had the option of listing it in the U.S., but during his trip he could not find
any major positive responses to the product offered by them. Hence they decided to go
public on London A.I.M., owing to the following reasons:

The European market was much more familiar with the aquaculture industry.
The firm did not require a minimum market capitalization based in the number of
shares placed.
The regulatory requirements were less stringent in the A.I.M. when compared to
other listings.

Hence they decided to go ahead with the IPO on the London A.I.M., thinking of it as a
way to fund the current and new projects in pipeline.
However, now the decision lies with the CEO on how to evaluate the listing process. The
valuation issue was a very major issue which needed to be dealt with. As per the facts
of the case, Aqua Bounty needed around 30 mn $ in order to be able to fund the firms
capital requirements. Another question on his mind was the valuation of the
AquaAdvanatge opportunity, which could prove to be a big determinant of the overall
value of the company and the equity which the firm would have to lose control of in
order to raise the capital required. Hence it is this decision which we will try to ponder
over through our analysis of the case.

Case Facts
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Aqua Bounty lost over $5 million on revenues of around $1 million

Cumulative losses of forms history to $30 million
Shrimp farming global industry worth $10 billion
Aqua Bountys advisors had valued Aqua Bounty shrimp therapeutics business
between 35 million pounds and 50 million pounds
Aqua Bounty raised $ 12 million in small scale equity financings and debt
issuances
Average compliance cost in 2006 to be over $3 million
Money needed to fund firms regulatory approval pursuit - $30mn
Probability of getting approval 0.3
Sheet Attached with calculations

Problems Identified
There were various problems which the CEO was facing while deciding whether to go
ahead with listing and if so, what should be the valuation of the same, which we will try
to list now below:

With respect to their product there was no regulatory approval received yet which
created an environment of uncertainty.
As the approval was not coming out, they were struggling with the capital
requirements and now the projects were starting to eat into the firms capital
reserves only. The firm had a decision to take which would eventually help them
to address the issue of capital requirements for the projects in pipeline. A solution
to the issue would have been the raising of capital through Public Listing, an
option the CEO is exploring and even we would as we go through the case
analysis going forward.
There was an enormous uncertainty regarding the revenues of the companys
future revenues, which was a result of the companys pending regulatory
approvals. Hence the market potential of the companys product was highly
unpredictable
The firm was very unique in its nature of operations, and hence lacked
competitors it could compare itself to for benchmarking. So they were facing a
tough time evaluating the listing and this was also proving a major problem while
doing so.

We will hence try to work on a solution which will take care of the above problems and
ensure the best possible valuation is reached in spite of the challenges faced by the
company today.

Alternate Solution
S.W.O.T analysis
Strength:

Shrimp IMS and VPX are indigenously developed breakthrough treatment

technology which can help them drive revenue in an Industry troubled with
Shrimp infection and badly depleting shrimp industry.

Weakness:

After passing of Sarbanes-Oxley act it is difficult to get listed on NASDAQ.

They me be hurrying into IPO before product launch which may undervalue the
firm.

Opportunity:

Company can get listed on AIM stock exchange since it is accustomed to

aquaculture Industry and less barriers to get listed.

Market Appetite for agriculturally oriented biotech IPOs was high in European
market.

Threat:

There is High Uncertainty in getting regulatory approval.

There is a treat from environmentalists who can campaign against GM products.

Since there are high threats involved, it might be possible that they are hurrying into
IPO without knowing the true worth of their firm. In case they undervalue and release
the IPO, the current shareholders will suffer because of dilution. Rather they can wait it
about, since the product looks promising. Temporarily, they can approach individual
investors and finance their needs. He can also consider borrowing money.

Best Solution
The NPV calculated with the help of WACC and DCF keeping a ten year scenario and
considering 0.3 probability in the base line worst and best case scenario we get NPV
$52.41mn. Also this includes a 0.3 probability of getting regulatory approval. (Sheet
Attached)
Since this is more than $30mn needed to fund firms pursuit of getting regulatory
approval, the company can go ahead with the IPO.

Conclusion
The company is in a condition to go ahead with the IPO by getting listed on Londons
Alternative Investment Markets (AIM). At the same time it faces lot of uncertainties like
getting regulatory approval, consumer behaviour as pertaining to the reception of their
product and environmentalists pursuing a negative campaign. If the CEO is in favour of
going ahead with the IPO, it should be done along with adequate quantitative market
research for their product and try to allay fears of GM product by giving facts.

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