BzzAgent, Inc. 2005 Case Solution And Analysis, HBR Case Study Solution & Analysis of Harvard Case Studies

BzzAgent, Inc. 2005 Case Solution

How will pursue the Opportunity

There are different terms and conditions which company stated in exhibit 6 and 7 through which any VC can respond to the company and help them to take a lucrative exit fee from the industry. Some problems are also in exhibit which can cause trouble to VC firms.

The first lucrative idea in the deal is that the company is initially asking for 40 million in the initial stage of funding. However, the aggregate purchase price is set to almost 10 million which is also very attractive. These factors will attract many investors but there is a big issue of time since, the company is giving the period of almost 25 days to seize this opportunity. On the other hand, the company is offering convertible shares which can be converted into preferred stock.

This is a big threat for the purchasing company since, if the company later on, converts the ordinary shares into preferred stocks either cumulative or non-cumulative, the firm will have to pay dividends in terms of cash even if the company can pay bonus stock. This will put additional cost to the company in near future.

Finally, in this condition only those VCs or PE consortium will take the business which is able to generate significant revenues and profits from the company and can easily exit from the business after taking suitable returns and recovering principle amount.

Financing Strategy is Feasible or Not

The financing strategy is achievable since, the companies used almost the same strategies in the past and do well to raise funds. However, this time the approach of the company is dense and amazing. Moreover, the approach is far more risky as compared to the past strategies. Since, this time the company is trying to raise 40 million through venture capital firm by offering them to provide funds by the end of the week.

Furthermore, the company is also considering raising funds through equity financing, allowing the investors to convert shares into preferred stocks by taking a certain percentage. In addition, this mode of fund raising may be more costly because the company has to pay dividends on preferred stocks even when the company cannot afford that but still the company has capability to pay a certain amount on the preferred stock. Therefore, it can be said that the deal is practical.

Final offer to Ghosh (appendix 2) has been calculated through the DCF valuation method by taking the NPV of the company however, the Asset valuation or equity method cannot be incorporated in the analysis and if so the answer will not be appropriate therefore, the analyst followed the DCF method. In addition, the analyst excluded the value of liabilities from the NPV value in order to know about the actual value of the company in future.

Afterwards, the results show that the company is still worth around 97.5 million even after excluding the debt from the capital structure. Furthermore, the analyst also calculated the amount of final offer through equity approach and its showing that the company is worth 1.7 million which is practically not possible.

Final offer to Shikhar Ghosh

Final offer to Ghosh has been calculated through the DCF valuation method by taking the NPV of the company however, the Asset valuation or equity method cannot be incorporated in the analysis and if so the answer will not be the appropriate, therefore the analyst follow the DCF method. In addition the analyst excluded the value of liabilities from the NPV in order to know about the actual value of the company in future. Afterwards the results show that the company is still worth around 97.5 million even after excluding the debt from the capital structure. Furthermore the analyst also calculated the amount of final offer through equity approach and its showing that the company is worth 1.7 million which is practically not possible.

Finally, from the analysis it can be said that the maximum offer price for the company should not exceed 50 million since; the company is able to generate almost 100 million over its expected life and even the buyer should have try to bargain for some additional amount and if he doesn’t succeed then the price of 50 million is also acceptable.

Conclusion

Now I like to conclude this case study. BzzAgent Company starts from small investment but because of Balter innovative idea, he earn a lot of profit from his marketing practice of Word Of Mouth. He earn from investors funds. BzzAgent never show the face of loss or failure they work effectively which make them profitable day by day. Balter confidence in the potential of word of mouth strategy.........................

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BzzAgent, Inc. 2005 Harvard Case Solution & Analysis