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KSM Consulting
Exponential Interactive, Inc.
TABLE OF CONTENTS
BACKGROUND.................................................................................................................4
2.1
Business & Product Description ........................................................................................... 4
2.2
Current Owners & Management Team ................................................................................ 4
2.2.1
Remuneration ....................................................................................................................... 6
2.3
Production & Operational Strategy ...................................................................................... 6
2.3.1
Key Drivers of Value .............................................................................................................. 8
2.4
Market & Industry Analysis ................................................................................................. 8
2.5
SWOT Analysis .................................................................................................................... 9
2.6
Use of Funds ..................................................................................................................... 10
2.7
Growth Strategy ............................................................................................................... 11
The Deal........................................................................................................................ 17
4.1
4.2
4.3
CONCLUSION................................................................................................................. 22
APPENDIX I ................................................................................................................... 23
7.1
7.2
7.3
Bibliography.................................................................................................................. 25
KSM Consulting
Exponential Interactive, Inc.
EXECUTIVE SUMMARY
This report will evaluate Exponential Interactive Inc., an advertising technology firm seeking first
round financing, as an investment proposal. Methods of analysis include examination of market,
industry and competition as well as key value drivers, growth and operational strategies. When
coupled with financial metrics including Ratio Analysis, Discounted Cash Flow Analysis and
Valuation Multiples, a detailed view of the prospects of Exponential Interactive, Inc. can be formed.
Findings showed that Exponential Interactive is operating at a high level from a profitability and
efficiency standpoint; whilst carefully managing resources to date to resist the overtures of outside
ownership. In particular, Exponentials performance is particularly strong compared to its direct
competitors, who have for the most part, listed through IPO in the previous year yet maintain
horrid margins and negative earnings.
The report finds the prospects of Exponential in its current state very positive. The major areas for
concern are external and revolve around the growth in demand for Advertising Technology and the
development of competition within the market. In spite of these concerns, the overriding opinion
of this report sees Exponential well positioned to grow alongside the market in which it operates.
As such the details of a potential deal among the parties are as follows:
A pre-money valuation of $1.34 with
42,160,288 outstanding shares- fully dilutedas per fair value estimates in Exponentials S-1
filing. 18,068,695 shares will be issued to
account for a 30% stake representing a postmoney valuation (from the DCF) of
$100,936,448.94. Exponentials price per share
will rise to $1.67 as a result.
Participating Convertible Preferred Stock
Finally, the analysis conducted in this report is acknowledged to contain limitations. Such
limitations include:
A heavily reliance on several assumptions related to the limited publicly available data on a
relatively immature market.
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KSM Consulting
Exponential Interactive, Inc.
A limited operating history of Exponential Interactive only allows for firm-specific analysis
to focus on a few years of performance which is undesirable and may cause inaccuracies.
An inability to predict, with a high level of proficiency, the Beta amongst other financial
metrics that will be employed by Exponential, this too arises from the relative infancy of the
market and of its participants to date.
Unaudited financial reports are provided on behalf of Exponential which may give rise to
errors in judgements used in the accounting process.
To mitigate the risks that these limitations pose to an error in the analysis and findings a
conservative approach towards assumptions and thus valuation has been taken.
BACKGROUND
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Exponential Interactive, Inc.
the company as well as his educational background; including Bachelors in Bioengineering and a
Masters in Computer Science from Brown University. He is also majority shareholder.
Chief Operating Officer Marvin Tseu brings operational and managerial experience from his
previous post as CEO and Director of Axesstel Incorporated, an information technology company
specialising in the development of fixed wireless voice and broadband data products.
Chief Financial Officer John R. Rettig brings financial management experience from previous
positions as CFO of E-Global Network Incorporated a software infrastructure company and Vice
President of Finance and Controller at Kaplan, Incorporated (an e-learning company owned by the
Washington Post).
Rounding out the executive team are Alexander Saldanha and Kesa Tsuda who hold the positions of
Chief Technology Officer and Chief People Officer respectively. Both are highly experienced
individuals who previously held posts in related fields in highly regarded listed companies such as
Sony and Cadence Design Systems.
Ownership is split amongst founder and CEO Dilip DaSilva who owns approximately 74.90% of the
company, a DaSilva trust, which own 5.11% and Houstantic Partners who own 9.47%, the balance
is split amongst minority equity stakes belonging to other directors and officers of Exponential
Interactive.
1.40%
1.19%
Dilip Da Silva
5.11%
Housatonic Partners
6.38%
Minority Stakeholders
9.47%
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KSM Consulting
Exponential Interactive, Inc.
2.2.1 Remuneration
In exchange for the work performed, each of the executive officers is compensated by wages,
bonuses and other compensation. This is contingent on firm based performance- which may either
motivate executives to maximize the companys value or encourage manipulation of earnings which
may result in poor earnings quality.
Name
Year
Salary
($)
Bonus
($)
Principal Position
Dilip DaSilva
Chief Executive
Officer
John R. Rettig
Chief Financial
Officer
Marvin Tseu
Chief Operating
Officer
Alexander
Saldanha
Chief Technology
Office
Kesa Tsuda
Chief People Officer
Option
Awards
($) (1)
All Other
Compensation
($) (2)
Total
13,519
413,519
($)
2011
300,000
100,000
2011
300,000
50,000
338,000
13,998
701,998
2011
300,000
50,000
169,000
1,419
520,419
2011
275,000
50,000
13,998
338,998
2011
119,391
27,500
5,460
992,351
840,000
KSM Consulting
Exponential Interactive, Inc.
Emotive advertising can fill the void between this information abundance, and our lack of
ability to narrow parameters and filter content.
Analyse and refine their marketing campaigns. The need for delivery of an accurate message
- in the right way, at the right time, with the right methods and techniques, is a key element
of providing clarity to desired outcomes on the specific audience.
These functions are implemented through utilisation of the Proprietary eX Advertising Intelligence
Platform. An embedded solution such as this platform is able to provide the parameter filter for the
huge amounts of consumer data, to consequently provide the intelligence necessary to implement
actionable insights that brand advertisers need to take advantage of reaching their existing and
potential customer base. Such logic involves the assumption that when a customer visits a
particular web page analysed by the Proprietary eX Advertising Intelligence Platform, it is then
registered that the consumer is interested in the attributes associated with that web page. Thus, the
embedded logic is collated through database technology that acknowledges consumers as key
actors, in which certain relevant attributes are carefully matched with their appropriate brands.
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KSM Consulting
Exponential Interactive, Inc.
2.3.1 Key Drivers of Value
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Exponential Interactive, Inc.
infrastructure and data processing power in the place, future competitors will be able to replicate
such feats. For example, Tremor Video Inc. specialise in online video advertising solutions and can
potentially produce at a cheaper cost to Exponential once revenues expand allowing reinvestment
into the profit making structure. Also, competitive forces are also dominated by the larger
competitors, such as Google and Microsoft, which have the power to change the nature of such
dependency on technology through digital media penetration.
Finally, there is a significant level of restriction in the industry due to legislative pressures,
regarding internet privacy matters. Consumers and protective industry regulatory authorities have
expressed genuine concerns about collecting consumer attributes (input data for the embedded
logic platforms used by digital brand advertisers) and the relevant codes of conduct to avoid misuse
or mishandling of such private information. Particularly, the emergence of cookies are deployed in
such a way that these deliberate technologies may require the users affirmative consent to access
information. Thus, it becomes a responsibility of the digital brand advertisers to comply with user
preferences, in order to remain compliant. Additionally, the digital brand advertiser market mainly
utilises open source software (in order to re-engineer solutions). Therefore, it is crucial to protect
the business intellectual property, which holds the bulk value of intangible assets. As a result, these
rules, regulations and protective measures can be a costly affair and contribute as a large expense
to the business.
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Weaknesses
Volatile and unproven market will cast doubt
over credit rating
Limited brand exposure to date
Dependency on brand advertisers for revenues
lowers the ceiling Exponential can achieve
Primary market is undeveloped and subject to
sweeping assumptions regarding viability and
growth potential
Reliance on lots of small customers mean
significant growth will require significant gains
in terms of client base to achieve
Potentially seasonal revenues as brand
advertising increases during holiday period
Reliant on intangible assets, intrinsic values may
not be realised in the event of liquidation
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Exponential Interactive, Inc.
Opportunities
Potential for market to grow beyond the
expectations of analysts
Expansion opportunities in regions as yet
unexplored
Likelihood of IPO gives rise to an opportunity to
exit the business if required
Opportunity to diversify within IT as
demonstrated by purchase of Techbargains.com
in 2007.
Ability to continue to develop end-to-end
solution to improve customer satisfaction
Brand exposure from large customer base can
open opportunities to further revenues.
Threats
Market structures are still taking shape, potential
for growth expectations to not be met
Larger corporations like Google can restrict
certain advertising solutions given their market
dominance
Legislative privacy issues; may result in reducing
data available to analyse causing a weaker
product to be delivered.
Intellectual property rights regarding patents can
bring about risks regarding operations and
development of solutions.
Competition will intensify once profits and long
term viability of the market become known
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Exponential Interactive, Inc.
Continue recent expansion to include other platforms including mobile and handheld
devices by using the vast resources at Exponentials disposal including the e Advertising
Intelligence Platform.
Continue expansion into foreign countries. The belief that there will be significant demand
for advertising technology world-wide Exponential will continue to its recent expansions to
further its analysis of consumer behaviour across the world. This includes increasing
penetration in existing markets and expanding to foreign markets.
Increasing brand awareness and adoption of Exponentials patented solutions. As
competition intensifies it will be important to establish a loyal customer base from which
market share can grow.
Capital reinvestment and investment in Research and Development will continue to evolve
Exponentials products. Developing new advertising capabilities is a goal that would allow
Exponential to maximise the value it delivers clients.
Expanding upon existing audience and data. By growing the presence of their own digital
footprint across media platforms Exponential can look forward to improving brand
recognition in the digital media landscape.
Continue to pursue strategic acquisitions. Growth by acquisition has seen Exponential
purchase Techbargains.com, continuing this philosophy will provide Exponential with a
diverse business unit with the capabilities to complement existing operations.
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KSM Consulting
Exponential Interactive, Inc.
Exponential Interactive Inc
Financial Statement Analysis and Peer Comparison 2011
Peer Analysis
Marin Software
Inc
ValueClick Inc
Rocket Fuel Inc
Tremor Video Inc
Exponential
Interactive
Operating
Margin
Debt to Equity
ROE
EBITDA/Sales
-42.4%
23.7%
-7.3%
-15.3%
32.7%
24.1%
12.5%
1.1%
-80.3%
17.2%
-25.2%
-16.8%
-37.1%
34.8%
-3.9%
-9.6%
8.3%
28.6%
141.1%
8.4%
In terms of efficiency as measured by the operating margins and EBITDA/sales metric, Exponential
compares very well to its competitors. Firms in a similar stage of the business life cycle to
Exponential posted losses and this is reflected through a negative operating margin. Exponentials
operating margin of 8.3% is quite positive, whilst there is improvement to be had in terms of
minimising expenses this is a glowing endorsement of Exponentials fiscal responsibility. Similarly,
Exponential Exponentials EBITDA to sales of 8.4% suggests that expenses are being managed to
maintain the profitable nature of the company.
Capitalisation is an interesting issue when examining advertising technology firms. At face value
Exponential appears to be poorly capitalised compared to some of its competitors. However
Exponentials debt to equity ratio is skewed by one long-term liability on Exponentials balance
sheet worth $13.4 million. This issue is further put to rest due to the continued profitability of the
firm; this will more than cover any interest repayments and negate any thought of default.
Interestingly it seems as though all firms are conscious of the debt they are taking on. This would
make sense as firms operating at a loss would not be able to make the repayments on long-term
debt and would default as a result, hence the fiscal conservatism shown by the other competitors in
the market.
Return on Equity would not provide as good a proxy for investors as most of these firms would be
judged on their long-term success by venture capitalists and other long-term horizon investors.
Therefore year on year returns to equity are not as important as other goals such as listing publicly
or long-term profit margins. It is worthwhile to note that despite the profitability levels of
Exponential and especially the astronomical return on equity it generated this year, there will be no
payment of dividends following on from previous years. This would be considered favourable by
potential investors as it shows Exponentials management to have the firms long-term interest as
the forefront of their thinking as opposed to creating a return for themselves as majority
shareholders.
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KSM Consulting
Exponential Interactive, Inc.
WACC:
Sales growth:
Expenses as a
function of
revenue:
Depreciation as a
function of
expense:
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A highly volatile industry is compounded by the fact that the specific advertising
technology market is still in its early stages of development. However Exponential are
well positioned to take advantage of underdeveloped competitors with patented
technology and an operations base that has been in existence for over 5 years.
Therefore, a market return of 8% is reasonable.
A risk free rate of 2.6% reflective of US treasury yields for 10 years, 10 years is used to
match the long term horizon of the investment proposal.
Reflects the average levered beta of comparable firms, these beta's are then unlevered
and then re-levered to account for Exponential's capital structure, this was then evenly
weighted against IT Services and Internet industry betas. A beta of 1.29 is used.
Once the levered beta was found, this was used along with the return on the market and
the risk free rate to find the return on equity. A cost of equity of 9.55% is used.
Reflective of the returns that Exponential must satisfy as part of their debt obligations.
Currently a revolving line of credit requires a 2.2% interest payment yearly, this is the
firms estimated cost of debt.
Exponential has shown a tendency to reduce their effective tax rate from 45.6% to 43%
from 2009 and 2011, as the expertise of the firm expands the effective tax rate is
expected to plateau to a figure of 40% per year.
In discounting a firms Free Cash Flows, a rate needs to be inferred based on the
riskiness of these cash flows. However, for non-publicly listed companies such as
Exponential this can be difficult to infer, often discount rates can exceed 40% and 50%.
However, the riskiness of the cash flows is quite low for Exponential given their
operational structure and history of profitability. Further, in assessing the staying
power of the firm in a growing market along with its loyal customer base, and although
it is highly unorthodox, discounting the cash flows by the WACC would be an
appropriate discount rate.
The firms Weight Average Cost of Capital reflects the return on equity and return on
debt coupled with the capital structure expected throughout the investment horizon.
An estimated WACC of 8.71% is quite low however this reflects the various
characteristics which pose a risk to the Free Cash Flows stemming from Exponentials
operations.
Exponential will continue to take advantage of an undeveloped market and competitors
that do not have the same resources in the short term. Therefore a continued estimated
35% growth year on year for the next two years is reasonable. As more advertising
technology firms are continuing to list on a regular basis we expect competition to
intensify. However, as the peer comparison demonstrated, these firms take time to
achieve a solid operations base even after listing. As such, the growth of the market will
see Exponential able to maintain a solid growth in revenues until 2016 where an
expected levelling off will occur until the firm maintains a terminal growth of 2% per
annum indefinitely as the market matures.
As revenues increase, assets will need to be employed under further strain or new
assets will need to acquired. Hence why the expenses figure in the DCF acts as a
function of revenue. This is expressed through a stable EBITDA/Revenues ratio of 80%,
which will be believed to stabilise as the firm enters steady state expenses will stabilise.
As most of Exponentials yearly expenses involve updating software, hardware and
other technology to improve the functionality of their product, it is reasonable to
assume that this will continue at a steady pace. Therefore, depreciation will function at
a fixed percentage of 13% expenses.
KSM Consulting
Exponential Interactive, Inc.
NWC and CAPX
as a function of
revenue:
Expected future
debt to equity
ratio:
Terminal growth
rate:
CAPX and NWC are considered functions of revenue, as it will depend on how intensely
Exponential use their assets to produce revenue that will guide how much the firm
spends on capital expenditures. Recently expenses have been incurred in moving
customers between Exponential products, we expect this to be a one-off expenditure
and thus NWC as 3% of revenue and CAPX as 1% of revenue are reasonable
assumptions.
Using the current debt to equity ratio and inferring the horizon of Exponential's debt
obligation as well as the potential for future third party capital investment in
Exponential has given a future expected debt to equity ratio of 15%. We believe this is a
fair estimate given the capital structures of competitors.
As the firm reaches a steady state growth should be expected to level of at a reasonably
low number. This is in light of the difficulty Exponential may face in differentiating
ones self from the market. It is further assumed that other firms entering the market
will invest in the same technology and infrastructure currently employed by
Exponential. This will alleviate any competitive advantage that Exponential currently
hold, hence why the terminal growth rate is estimated at 2%.
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KSM Consulting
Exponential Interactive, Inc.
Share Price
19
9.7
P/E ratio
14.91
N/A
Enterprise Value
596.6
67.6
Sales
660.9
105.2
EV/Sales
0.902708428
0.642585551
Levered Beta
1.16
2.49
Unlevered Beta
1.041292639
2.475887442
16.57
853.67
11.46
61
161.9
18.37
24.7
N/A
N/A
19.32666667
2294.7
70540
32.2
34
12260.85
6956.2
50175
59.6
106.6
9677.25
0.329878382
1.405879422
0.540268456
0.318949343
0.591467083
0.97
0.9
N/A
N/A
1.38
0.666208791
0.860749809
N/A
N/A
1.26103467
1.05
Relevered
Comparable Beta
1.465889752
1.17
1.11
Assumptions:
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Multiples
Valuation Range
Enterprise Value
to Sales
1.287944876
2011 revenue
Cash
Debt
Tax rate
US000's
169082
14623
16531
0.43
ValueClick Inc.
Tremor Video
Inc.
Interpublic
Group of
Companies Inc.
Google Inc.
Marin Software
Rocket Fuel
Average
Equity Valuation
0.902708428
150,724
0.642585551
106,742
0.329878382
1.405879422
0.540268456
0.318949343
0.591467083
Multiples
Valuation
53,868
235,801
89,442
52,021
98,098
99,775
KSM Consulting
Exponential Interactive, Inc.
3.4 DCF Valuation
Exponential Interactive Inc DCF Valuation
Historical
Effective Tax
Rates
Year
Revenue
Revenue Growth
Less expenses
EBITDA/Revenue
margin
EBITDA
Less: D&A
Depreciation as a
percentage % of
expense
EBIT
Less: Tax
NOPLAT
Add: D&A
Less: Change in
NWC
Less: CAPEX
FCF
Discount Factor
Discounted FCF
PV of Discounted
FCF
Terminal Value
PV of Terminal
Value
Enterprise Value
Equity Value
Forecast
0.466
2009
($US000)
92560
N/A
85485
0.455
0.433
0.43
0.42
0.41
0.4
0.4
2010
125268
0.35
114016
2011
169082
35.00%
154,880
2012
228,261
0.35
210,000
2013
308,152
0.35
283,500
2014
400,598
0.3
368,550
2015
500,747
0.25
460,687
2016
600,896
0.2
552,825
0.076
7,075
1,443
0.090
11,252
1,363
0.084
14,202
2,150
0.080
18,261
2,730
0.080
24,652
3,685
0.080
32,048
4,791
0.080
40,060
5,989
0.080
48,072
7,187
0.017
5,632
2,625
3,007
1,443
0.012
9,889
4,499
5,390
1,363
0.014
12,052
5,219
6,833
2,150
0.013
15,531
6,678
8,853
2,730
0.013
20,967
8,806
12,161
3,685
0.013
27,257
10,903
16,354
4,791
0.013
34,071
13,628
20,442
5,989
0.013
40,885
16,354
24,531
7,187
1,075
300
3,075
4,730
1,400
623
11,331
2,100
-4,448
6,848
2,283
2,452
0.920
2,255
9,245
3,082
3,520
0.846
2,978
12,018
4,006
5,121
0.778
3,985
15,022
5,007
6,402
0.716
4,582
18,027
6,009
7,682
0.658
5,057
18858
116589
83447
102304
100396
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Exponential Interactive, Inc.
Several companies involved in our comparables approach produced negative earnings for
the 2011 year, this includes Marin, Tremor and Rocket Fuel. These companies operate in the
advertising technology market and would provide best market proxy for Exponential.
There are very few listed companies who operate in the advertising technology industry
and those that do are not profitable or established as of yet. As such comparables have had
to include two firms whose operations are more significant in areas other than Advertising
Technology. Google and Interpublic, whilst engaging in digital media sector, are both know
for their operations outside of this area.
The multiples approach relies only the evaluation of EBITDA and sales revenue for one year,
this is due to the aforementioned problem of comparable negative earnings. As such, the
reliability of this approach could be compromised by one-off changes to earnings that may
have resulted in the past fiscal year. Whilst the results have been averaged and outliers
have been discarded there is still potential for the multiples approach to not provide a
reliable estimate.
As such, the valuation derived for Exponential comes from the DCF which is supported by multiples
valuation approach and the sensitivity analysis conducted. A valuation of $100,936,448.94 for
Exponential has been derived from the DCF model and we believe this is a fair value weighing up
the risks associated with the market and opportunities for Exponential to exploit a growing market
to derive strong revenue growth into the future.
The Deal
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Exponential Interactive, Inc.
$100,936,448.94. As a 30% stake in the company is sought after, Exponential will have to issue
12,648,068 new shares in exchange for $30,174,720 in capital, this will see the price per share rise
to $1.67 to reflect this new valuation.
4.2 Provisions
Given the strength of Exponential as an operation, it is expected they will be taken public. Investors
entering the firm at a later stage will also have this expectation and thus the security that will be
issued will be Participating Convertible Preferred Stock. This will provide protection to investors if
the firm decides to sell to an acquirer or liquidates. In the event of this occurring, Participating
Convertible Preferred Stock holders will receive the face value of their investment as well as a share
in the remaining pool of funds to be distributed. This protection is combined with the convertible
nature of the stock which allows investors to share in the profits if the firm decides to list and does
so successfully.
Anti-dilution provisions will be required in the event that Exponential decides to seek further
funding. These provisions are aimed at maintaining equality towards early round investors who
have assumed more risk than later round investors who enter with less asymmetric information.
Therefore, a full-ratchet provision will apply in this scenario. If Exponential decides to raise further
funding and issues securities at a lower price, early round investors are given the opportunity to
convert their securities into the same price thereby protecting early round investors.
The capital received by Exponential will be staged and subject to performance hurdles. This is
necessary as venture capitalists will spend time monitoring the firm and must decide in the near
term future whether to continue with their investment or exit. If an exit is decided upon, disbursing
funds all at once and at time zero will see venture capitalists lose a larger amount of funds than if
they were to disburse funds and exit before another round of capital is due.
It is noted throughout that the key driver of Exponentials success will be related to revenue growth
(management has already shown responsibility with regard to managing sustainable levels of
expenses). It is believed that if Exponential fail to realise the high expectations set for it regarding
revenue growth, the firms value will not be realised. As such funds will be staged as follows:
If Exponential is taken public and the VC or other stockholders wish to exit the firm, a provision
allowing a 1:1 exchange preferred stock for common stock will apply.
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Exponential Interactive, Inc.
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Exponential Interactive, Inc.
Issuer
Offer Amount
$30,174,720 or 30%
Security
Liquidation Preference
Voting Rights
Optional Conversion
Anti-Dilution provisions
Protective Provisions
Staging
20
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Exponential Interactive, Inc.
over the following 2 years.
Liquidation
Upon liquidation:
Holders of participating convertible
preferred stock holders will be payed
out the face value of their stock.
The remaining funds will be split
amongst stockholders including
participating convertible preferred
equity holders.
Information rights
Exits
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Exponential Interactive, Inc.
6
CONCLUSION
Upon examination of the prospects of Exponential Interactive Inc. it is highly likely that the
company will continue its financial success in the near term future. Similarly, the macro factors that
underpin the market activity of Exponential Interactive Inc., also provide reason for optimism.
There is a possibility of Exponential developing as a mainstay in a market that may grow strongly
for the foreseeable future.
Much of the potential that exists in Exponential will depend on whether or not the advertising
technology market grows as forecasted. Failure to do so will have a significant impact on revenues.
Further, the ability of Exponential to execute their growth strategy will also go a long way to
determine whether or not the business is a success or failure. Exponentials management has
shown that they are astute judge of character, demonstrated by the purchase of Techbargains.com.
This purchase helped both diversify operations whilst giving their own technology division an
avenue for which to meet their capital needs. They will continue to require superior management
skills to differentiate Exponential from competition.
There is always inherent risk in investing in a company with a limited operating history, especially
if they are operating in an undeveloped market such that Exponential are. In spite of this the
growth strategy in place for the future sets out a vision in which Exponential see the market
heading based on consumer trends and tastes. Further reason to be optimistic comes from the fiscal
responsibility demonstrated by Exponential-by investing in the firm it is almost assured that the
Executives will spend wisely to to shoulder the growth that may be faced in the near future.
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Exponential Interactive, Inc.
APPENDIX I
5.40%
0.43
2.60%
0.08
1.29
r(e)=r(f)+B(r(m)-r(f))
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0.0955
0.0202
57813
16531
74344
Current D/E
Current D/V
Current E/V
Expected Future D/E
Expected Future D/V
Expected Future E/V
WACC = (E/V)*r(e)+(D/V)*(r(d)*(1-T*)
Weighted average cost of capital (WACC)
28.59%
22.24%
77.76%
0.15
0.1
0.9
8.72%
KSM Consulting
Exponential Interactive, Inc.
7.2 Sensitivity Analysis
Exponential Interactive Inc
Sensitivity Analysis
Assumptions:
2011 revenue
000's $
169082
Cash
Debt
14623
16531
DCF Valuation
Range
Standard Model
8% WACC
150,724
10% WACC
45% Effective Tax
Rate
35% Effective Tax
Rate
0.6426
106,742
Sustained 35% in
revenue growth
0.3299
53,868
1.4059
235,801
0.5403
0.3189
0.5915
89,442
52,021
98,098
Sustained 20% in
Revenue Growth
3% Terminal Growth
Rate
1% Terminal Growth
Rate
Average
excluding high
Average excluding
and low score
99,775
high and low score
** bolded figures represent outliers which are excluded to preserve accuracy.
Equity
Valuation
100,396
111,254
81,042
97,479
100,681
122,171
68,666
113,845
86,776
98,782
= 30%
= 42,160,288
= 42,160,288*0.3/0.7
1. = 18,068,695
= $100,936,448.94
= 18068695+42,160,288
2. = 60,228,983
= $100,936,448.94/60,228,983
3. = $1.67
24
KSM Consulting
Exponential Interactive, Inc.
Bibliography
Exponential Interactive S-1 Filing 2012, Exponential Interactive, Inc. S-1 Filing, United States
Securities and Exchange Commission, Washington D.C.
**Used the S-1 filing to gather information about the firm and its market.
Exponential Interactive Inc. 2013, Exponential, Emeryville California, viewed 10th October 2013.
Available from: <http://www.exponential.com>
**Used the company website to gather further information regarding the range of services
provided.
OneSource Information Services. (2000). Global business browser. Concord, Mass: OneSource
Information Services.
**Using the OneSource Global Business Browser allowed us to sort and gather the financial
statements of publicly listed firms operating in the same market as Exponential.
Beta by Industry. January (2013). New York University. Washington Square, New York. Viewed
10th October 2013. Available from:
<http://pages.stern.nyu.edu/~adamodar/New_Home_Page/datafile/Betas.html>
**This table provided industry betas to use as a point of comparison in estimating the Beta for
Exponential Interactive.
US Generic Govt 10 Year Yield. October (2013). Bloomberg. New York City, New York. Viewed
10th October 2013. Available from: <http://www.bloomberg.com/quote/USGG10YR:IND>
** Provided bond yields to use as the risk free rate in calculating WACC.
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