Group Assignment 1

Aayush Sureka
Simon Plauchu
Yoann Bernerd
Thomas Mieg de Boofzheim
Question 1)

The following table illustrates pre and post-money valuation for Hannah for all pre-IPO events.

Pre Money Post Money

$k Valuation % Nosh Valuation % Nosh
Expansion Hannah 100% 600,0 112,5 60% 600,0
1985 Natasha 75,0 40% 400,0
Total 112,5 100% 600,0 187,5 100% 1 000,0
Venture Capital Hannah 112,5 60% 600,0 1 800,0 30% 600,0
2000 Natasha 75,0 40% 400,0 1 200,0 20% 400,0
Dixie 3 000,0 50% 1 000,0
Total 187,5 100% 1 000,0 6 000,0 100% 2 000,0
Further Expansion 1 Hannah 1 800,0 30% 600,0 2 000,0 19% 600,0
2003 Natasha 1 200,0 20% 400,0 1 333,3 13% 400,0
Dixie 3 000,0 50% 1 000,0 3 333,3 31% 1 000,0
Dixie 2 4 000,0 38% 1 200,0
Total 6 000,0 100% 2 000,0 10 666,7 100% 3 200,0
Further Expansion 2 Hannah 2 000,0 19% 600,0 3 200,0 13% 600,0
2006 Natasha 1 333,3 13% 400,0 2 133,3 9% 400,0
Dixie 3 333,3 31% 1 000,0 5 333,3 21% 1 000,0
Dixie 2 4 000,0 38% 1 200,0 6 400,0 26% 1 200,0
Dixie 3 8 000,0 32% 1 500,0
Total 10 666,7 100% 3 200,0 25 066,7 100% 4 700,0
Further Expension 3 Hannah 3 200,0 13% 600,0 2 949,0 12% 600,0
2006 Natasha 2 133,3 9% 400,0 1 966,0 8% 400,0
Dixie (total) 19 733,3 79% 3 700,0 18 185,6 73% 3 700,0
Employee
Compensation 1 966,0 8% 400,0
Total 25 066,7 100% 4 700,0 25 066,7 100% 5 100,0

Question 2)
At the time of the IPO, 2 million shares were sold on the market. These shares were constituted of
10% of Dixie’s holding, and the remainder were new shares. Prior to the IPO, Dixie’s holding was 3.7
million shares thus, Dixie sold 370 000 shares in the IPO and 1 630 000 new shares were issued. This
represents 18.5% secondary offering, and 81.5% primary offering.
Question 3)
a) Immediately after the IPO, there were 6 730 000 shares outstanding1 with a value of $14.50,
which makes the market capitalisation of HannaH $97 585 000. To this, we just add the debt
value $500 000, which brings the whole company value to $98 085 000.
b) At the IPO, the shares were priced at $12, which means HannaH was valued at $80 760 000.
In turn, the shares were under-priced by 80 760 000/97 585 000 or 17.24%.
c) Using the figures from question b), the value in dollars of the under-pricing was 97 585 000 –
80 760 000 = $16 825 000.
d) Right after the IPO, Hannah would own the shares she was initially given during the
“expansion” growth phase of her business, which is 600 000 shares. The price of the shares
immediately after the IPO had risen to $14.5 per share, which would set Hannah’s holding’s
value to $8 700 000.
e) In a), we defined HannaH’s market capitalisation to be $97 585 000. This is the equity value
of Hannah. The debt value of Hannah immediately post-IPO was $500 000. The D/E ratio is
thus 500 000/97 585 000 = 0.005123. Note: we do not know enough about the debt to know
how much was repaid post-IPO, thus, we will assume all the principal is to be paid at
maturity.

Question 4)
a) The shares on offer in the SEO were composed of 2 800 000 existing shares from Dixie (2
million), Hannah (400 000) and Natasha (400 000). The remainder of the shares were new.
This means that 70% of the SEO was secondary offering and 30% primary offering.
b) Hannah sold 400 000 shares at a price of $20 per share. If the underwriter charged 5%, then
Hannah’s proceeds were 400 000 * $20 * (1- 5%) = $7 600 000.
c) Hannah issued 1 200 000 new shares during the SEO. Only primary offering shares generate
cash to the issuing company. The secondary offering shares are more akin to the existing
shareholders cashing out. Since 1 200 000 shares were issued at a price of $20, and that
underwriter fees were equal to 5% of the proceeds, the new cash raised by HannaH to repay
the loan and fund investments was 1 200 000 * $20 * (1-5%) = $22 800 000.

Question 5)
a) The term loan had a value of $500 000, thus the value of the company is the value of the
equity. Post-SEO, there are 7 930 000 shares outstanding, an the current price is $20. The
market capitalisation of HannaH and its company value is $158 600 000.
b) Hannah was left with 200 000 shares out of 7 930 000 shares outstanding, which corresponds
to a holding of 2.52% of the total equity.

Question 6) (DELETED)
a) To purchase remaining 7 400 000 shares at $7.5, total amount of money required was $55.5
million. $7 million was raised through equity investments and $30 million through private
placement. Hence, the bank debt required was $18.5 million.
b) The value of the firm at the time of the LBO is the value of the debt and equity. The debt is
composed of $18.5 million of bank debt, and $30 of private placement so a total of 48.5
million. The equity value of the firm is equal to 8 000 000 shares repurchased at $7.5 or $60
million in equity. Thus, the debt to Equity ratio is 48.5/60 = 0.808.

Question 6)
The yield to maturity is the rate Y that satisfies the following equation for semi-annual coupon bonds.

1
See appendix 1 “timeline”.
 𝐹−𝑃
𝐶+
𝑌𝑇𝑀 = 𝑛
𝐹+𝑃
2
After one year, the bonds still have a face value of $1000, with semi-annual coupon payments, a
coupon rate of 5% (or $50 in value per annum, $25 per half-year) and a maturity in 9 years.
a) The yield to maturity is 5.69% obtained with the following formula
1000 − 950
50 +
𝑌𝑇𝑀 = 9 = 5.69%
1000 + 950
2
b) The bonds are callable in 5 years from inception. Since a year has already passed, the bonds
are callable in 4 years. Using the same formula, we can find the Yield to Call:
1000 − 950
50 + 4
𝑌𝑇𝐶 = = 6.41%
1000 + 950
2
Question 7)
a) The bond conversion rate is 50, meaning 50 shares can be obtained upon conversion. Since
the face value is $1000, the individual share price is $20. Comparing this with the current
market value of $60 per share, the bondholder would be stupid not to convert the bon into
shares as they are sold at a discount of 66%.
b) Since the total amount of debt issued was $30 000 000 with a face value of $1000, there were
30 000 bonds issued. Each bond gives rights to buy 50 shares, and every share is worth $60.
This means the total value of the investment is 30 000 * 50 * 60 = $90 million.
 Appendix 1

ALL
Timeline VALUES
of events IN $K
Shareholding in shares
Equity Shares
Date added outstanding Hannah Natasha Dixie (PE) Employees Public Debt
1984 Creation of Hannah 50 0 0 0 0 0 0 0
Natasha Joins,
1985 incorporation of Hannah 125 1 000 600 400 0 0 0 0
1999 Term loan of five years 0 1 000 600 400 0 0 0 500
2000 Dixie Joins in 3 000 2 000 600 400 1 000 0 0 500
2003 Dixie invests more 4 000 3 200 600 400 2 200 0 0 500
2006 Dixie invests more again 8 000 4 700 600 400 3 700 0 0 500
2007 Employee share scheme 400 5 100 600 400 3 700 400 0 500
2008 IPO 1 630 6 730 600 400 3 330 400 2 000 500
2008- DIxie sells off some
2009 shares 0 6 730 600 400 2 000 400 3 330 500
2009 SEO 1 200 7 930 200 0 0 400 7 330 0
2009 Employee share scheme 50 7 980 200 0 0 450 7 330 0
2010 Employee share scheme 20 8 000 200 0 0 470 7 330 0