Cash Technology Limited: Chinese IPO in Singapore Harvard Case Solution & Analysis


            The company Cash Technology Limited is one of the leading names in the industry of banking related machines that perform the tasks which previously were done by the customer representatives. The company had a net income of more than $ 20 million in the year 2003. The company also distributed automated teller machines or ATM for short. The company had also received various rewards for the outstanding quality of its products and had also received recognition from its customers for the technical advances that the company used. The company was now looking forward to go for an Initial Public Offering (IPO). This IPO was planned to be launched on the 14th of December 2004. The funds raised from this IPO would be used by the company to purchase a 5 year old private company. The company wanted to launch this IPO on the Singapore exchange. A range of prices were determined at the stocks would be sold to raise the required capital of around $ 20 million. However, the Chief financial officer and the Chief executive officer of the company now wanted to find out the perfect IPO price for this launch based on the future potential of the company.


The company had received numerous awards and had been recognized a number of times for its products. The quality level of the company’s products was also very high. The company not only providing the support and the maintenance servicesfor its own products but also for its competitor’s products. Cash Tech wanted to achieve growth and extensively huge market shares in the Singapore market. Its ultimate aim was to dominate its three strong rivals who were NCR, Wincor-Nixdorf and Diebold. The management of the company had the belief that it can dominate all these three competitors based on certain capabilities and the core competencies of the organization. The company had also developed a strong research and development department. The company had a range of durable, functional and innovative products. Apart from that, another strong competency or strategy of the company was that it followed a customer-focused strategy. The company used strict testing guidelines to test its products. It had a strong set of standards and strict procedures to achieve the desired level of quality.

The company was strong in its market and the entrance barriers were very high. Therefore, now in order to dominate the market the company is looking to expand its current business and grow its product lines. The company needed capital to achieve this growth. The company finally turned back from debt issue and private equity investment to an IPO to raise the required funds for the expansion plan.


The value of the company has been created by the Free Cash Flow method. The sales revenue, the operating profit and the depreciation has been forecasted for the future years to come. These calculations have been performed on the basis of the growth rate assumptions mentioned by Gan and Tan in the case. Firstly, the cash flows have been calculated for the next 5 years. After the fifth year, if we assume that the business will keep operating on a going concern basis, then keeping in mind this point, the terminal value for all the future years of life of the business has been calculated.

To perform the present value calculation, the weighted average cost of capital has been calculated. The risk free rate is taken as average. The return on market rate of Shenzhen composite has been used here and the beta of NCR has been used to calculate the cost of equity through the capital asset pricing model. Since, no information has been provided for the beta of the company, therefore, the beta of NCR has been used because both the companies are almost similar in nature an sell same type of products. The interest rate has also been taken as the average of the two rates provide by Gan and Tan. The debt to total capital ratio for the company had been taken from Exhibit 6. Based on this information, the weighted average cost of capital for the company is 22%. The present value of the cash flows has been calculated and also the terminal value has been calculated based on a growth rate of 8% estimated by Gan and Tan. Based on this the firm value is $ 189 million...............

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Cash Technology Limited is a Xiamen-producer self-service banking machines, touch screens and related software. The company was created to issue its initial public offering on the Singapore Exchange. The proceeds from the IPO will help medium-sized enterprise and a private company to secure its position in the rapidly growing Chinese market, cash machines and related equipment. With six weeks left before the IPO, Chief Executive Officer and Chief Financial Officer of the company tried to appreciate through various methods and assess the reasonableness of the proposed IPO offering price manager. The case challenges students to explore the attractiveness and value of the business from the perspective of the issuer and potential investors, and may also provide an opportunity for students to develop a strategy of interaction with institutional investors. "Hide
by Larry Wynant, Nigel Goodwin Source: Richard Ivey School of Business Foundation 19 pages. Publication Date: January 13, 2006. Prod. #: 906N06-PDF-ENG

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