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Phillip Lamport Brian O’Dwyer Felipe Ospina Scott Starr. February 24 th , 2005. Agenda. Case Objectives Background Financing Options Valuation of optimal financing scenario Q&A. Case Objectives. Perspective of an investor/entrepreneur in an emerging market. - PowerPoint PPT Presentation
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Phillip Lamport
Brian O’Dwyer
Felipe Ospina
Scott Starr
February 24th, 2005
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108319 _MacrosAgenda
Case Objectives
Background
Financing Options
Valuation of optimal financing scenario
Q&A
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108319 _MacrosCase Objectives
Perspective of an investor/entrepreneur in an emerging market.
Risks of operating a technology start-up in Latin America
Evaluate financial implications of different capital structures
DCF valuation & discount rate calculation
Examine sensitivities to key CF drivers
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108319 _MacrosBackground - Broadband Market
1999 Latin America internet growth highest in the world Telecommunications deregulation & privatization Improved infrastructure Falling personal computer prices
Colombia prime for growth, high demand 4.2% computer; 6.5% internet penetration 3 million current users (total pop. ~46 million) Large, rugged, mountainous country 75% of population widely dispersed
Satellite internet ideal for Colombia
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108319 _MacrosBackground - Satellite Internet Technology
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108319 _MacrosBackground - AxesatFounded April 2003 after successful “pilot test” with major satellite operator
Privately held by Colombian entrepreneurs
Satellite internet provider serving Colombia and other Latin American & Caribbean countries
Early success in Colombia, driven by: Limited internet connectivity and low penetrationTechnological ability to offer service in any region
Bill customers in US$
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108319 _MacrosBackground - Axesat Service coverage area
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108319 _MacrosBackground - AxesatServices Offered
High speed internet connectivity» Small & medium businesses
» Large corporations
» Government & Education
» Residential
Data transmission» Financial institutions
» POS Terminals / ATMs
Voice over IP Web hosting and web management
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108319 _MacrosFinancial Situation As of December 2004:
1,100+ customers Revenue: ~ US$4.6 mm per year Expected cash flow before financing (2005): $560K
Antennas (US$1,500 each) are a major capital cost Customer can choose to buy or rent antenna
Financing antennas and working capital with bank debt 15.8% p.a., 18 month maturity, monthly principal payments
Equity owners want to value company under different capital structures
Key Question: How should Axesat finance its growth?
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108319 _MacrosPotential Financing Alternatives
ScenariosAntenna
Financing(1) Revenue/Growth Financing
1) Current Axesat
• Monthly revenue: $288• Commercial customer
growth: 45 per month
• Fund antenna purchase and working capital requirements with internal funds
2) Customer Buys Antenna
Customer(2)
• Monthly revenue: $188• Commercial customer
growth: 19 per month
• Fund working capital requirements with bank debt
3) Customer Rents Antenna
Axesat
• Monthly revenue: $288• Commercial customer
growth: 45 per month
• Fund antenna and working capital requirements with bank debt
Notes: (1) Customer antenna financing only applies to commercial customers; residential customer antennas continue to be financed by Axesat under all alternatives.(2) Customer antenna financing begins in November 2005 when own inventory of antennas is depleted.
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108319 _MacrosFinancing Recommendation
Notes: (1) NPV to equity includes the Net Present Value of cash flow to equity less December 31, 2004 net debt of $2.1 million and initial equity investment of $2.3 million.
(2) Cash flow after financing costs (interest and principal payments).
Discounted Cash Flows NPV to
Equity(1)
December 2007
Scenario 2005-7 Terminal Total Debt Cash Flow(2) Debt / Cash Flow
1) Current $1,681 $4,300 $1,582 $542 $1,559 0.3x
2) Customer Buys Antenna
2,003 4,927 2,531 1,792 1,787 1.0x
3) Customer Rents Antenna
2,402 6,485 4,488 3,708 2,352 1.6x
Option 2 provides a higher NPV than the status quo with reasonable debt levels for a small startup
Option 3 has the highest NPV but debt levels seem unrealistic
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108319 _MacrosValuation
DCF Valuation – (Comps Challenge)
Key Risks
Pricing & competition
Currency exposure in cost structure
Technology obsolescence
Results of valuation in optimal financing scenario
Payback period for investors
TV assumptions
Identified product flexibility real option
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108319 _Macros
Q&A