Executive Summary:
This report aims to identify the most probable outcome of Accuflow Inc.’s management buyout deal with respect to three parties, Accuflow management, Venture capitalist (Greylock and NorWest), and HPC.
The report will seek to identify Accuflow enterprise value from the viewpoints of the different parties and with different valuation techniques in order to come to the conclusion.
Initial Scenario:
The report assumes that the initial scenario of the deal is made with the $25 Million mezzanine deal that Accuflow is most likely to be able to obtain, in addition to a senior debt of $108 Million. Further assumptions to the starting scenario are shown in Appendix 1 of the report.
The management projection is used for
Moreover, Accuflow management has gotten in touch with various mezzanine lenders before finally getting in contact with HPC. With this many competitors providing Accuflow’s mezzanine, it is not likely that HPC will be able to get an undervalued deal for financing Accuflow’s management buyout. Present Value – Although it is unsure what will happen to Accuflow ultimately, it is convincingly enough to say that Accuflow will be able to return the borrowed mezzanine successfully within the short term. It may well be beneficial for HPC to give a loan to Accuflow as the risks of default are low and present value will be positive, given management’s views in retiring mezzanine debt early. Improvements – Not many improvements can be made to Accuflow’s current capital structure and organizational workflow if the deal is done and hence this might not be very attractive. To make matters worse, a management buyout will result in loss of expertise and network that could have been provided by venture capitalists, which may impede Accuflow’s current aim of diversifying its products.
Distress – Accuflow currently has a healthy debt to equity ratio of 0.58 and an interest coverage ratio of approximately 8.5 times. If Accuflow were to obtain the mezzanine debt of $25 million from another party, debt to equity and interest coverage ratio decreases to