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Mandic BBS An Entrepreneurial Harvesting Decision Case Solution

Solution Id Length Case Author Case Publisher
1049 610 Words (3 Pages) Walter Kuemmerle, Chad Ellis Harvard Business School : 899082
This solution includes: A Word File A Word File and An Excel File An Excel File

There are several ways in which a business can be valued. The choice and appropriateness of the method can vary from case to case. There are two main or widely used approaches for valuation. The first method is income-based and is termed as a ‘discounted cash flow’ model. The other approach is a market-based approach and is known as the ‘multiple valuations’ approach. In this case, I would prefer to use the valuation approach over the DCF approach because of the following reasons:

  1. The income approach does not take into account the market factors of competition and price determination. This approach focuses solely on income generation capabilities. In the case of Mandic BBS, the growth rate is fairly above average and the income generation is a mild issue for them.

  2. The market valuation approach takes into account the competitors, the overall firm risk and the market perception of the industry which is more important in this case. The market-based valuation is fairly straightforward with fewer chances of errors (in projections, growth rates, etc).

Following questions are answered in this case study solution

  1. There are different approaches to valuing Mandic BBS. Which approach do you prefer? Why?

  2. If you had decided to sell, under what terms and at what valuation would you do so?

  3. How would you approach the negotiation? With whom would you talk first? With whom would you talk next? How would you involve GP Investimentos in the negotiation?

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Case Analysis for Mandic BBS An Entrepreneurial Harvesting Decision

If you had decided to sell, under what terms and at what valuation would you do so?

The sale of the business should be clear in all the terms. First of all, the valuation should take into account the risk of the market. The comparables have given for the case focus on the multiples that are quite high, therefore, let’s decrease the multiple. Let’s assume that 25% of the original multiple is accurate and applicable in this case. Digex and Global center have really high multiples, so it is practical to remove them from calculations. The average value of five remaining multiples yields a firm value of $15.06 million. Additionally, if $1 sales multiple is used, the firm value stands at $8 million. Therefore, the range of $8-$15 million is suitable. However, the market share and relative power suggest that the average of both, i.e., $11.5 million will be a suitable offer. The terms should retain Mandic as the CEO and also the company that is selected or approves should have the required power/market to take Mandic BBS to the desired level of advancement in technology.

How would you approach the negotiation? With whom would you talk first? With whom would you talk next? How would you involve GP Investimentos in the negotiation?

As per the calculation results, it is best to approach NewTech at first as it had made a tangible offer of $14million which amounts to 1.75 revenue multiple. In the case of sellout to this firm, Mandic could retain the control with certainty and the company; therefore, would have feasible opportunities to grow. In spite of the fact that RRK and IMPSAT are willing to pay a high amount; this won’t be feasible to accept their offer.

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