BPP Coursework Cover Sheet
Please use the table below as your cover sheet for the 1st page of the submission. The sheet should
be before the cover/title page of your submission.
Programme MSc Management
Module name Financing Business Initiatives
Schedule Term
Student Reference Number (SRN)
Report/Assignment Title
Date of Submission
(Please attach the confirmation of any
extension received)
Declaration of Original Work:
I hereby declare that I have read and understood BPP’s regulations on plagiarism and that this is my
original work, researched, undertaken, completed and submitted in accordance with the requirements
of BPP School of Business and Technology.
The word count, excluding contents table, bibliography and appendices, is ___ words.
Student Reference Number: Date:
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and awards for programmes. Please note, submission is your declaration you are fit to sit.
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BPP School of Business and Technology
Msc Management with Finance
Financing Business Initiatives
Coursework Assessment Brief
Autumn Term 2019
Submission mode: Turnitin online access
1. General Assessment Guidance
Your summative assessment for this module is made up of this Coursework submission which
accounts for 100% of the marks
You are required to submit all elements of your assessment via Turnitin online access. Only
submissions made via the specified mode will be accepted and hard copies or any other digital
form of submissions (like via email or pen drive etc.) will not be accepted.
For coursework, the submission word limit is 3500 words. You must comply with the word count
guidelines. You may submit LESS than 3500 (plus 500 words for the reflective statement) words
but not more. Word Count guidelines can be found on your programme home page and the
coursework submission page.
Do not put your name or contact details anywhere on your submission. You should only put
your student registration number (SRN) which will ensure your submission is recognised in the
marking process.
A total of 100 marks are available for this module assessment, and you are required to achieve
minimum 50% to pass this module.
You are required to use only Harvard Referencing System in your submission. Any content which
is already published by other author(s) and is not referenced will be considered as a case of
plagiarism. You can find further information on Harvard Referencing in the online library on the
VLE. You can use the following link to access this information:
http://bpp.libguides.com/Home/StudySupport
BPP University has a strict policy regarding authenticity of assessments. In proven instances of
plagiarism or collusion, severe punishment will be imposed on offenders. You are advised to
read the rules and regulations regarding plagiarism and collusion in the GARs and MOPP which
are available on VLE in the Academic registry section.
You should include a completed copy of the Assignment Cover sheet. Any submission without
this completed Assignment Cover sheet may be considered invalid and not marked.
2. Assessment Brief
Your summative assessment for MSc Management with Finance, Financing Business Initiatives
has TWO elements and they MUST be submitted on the same document:
1. a Consultancy Report submission for 80% of your marks (excluding the title,
references and quotations).
2. a Reflective Statement on the top challenges facing the financing of new business
initiatives in a market of your choice for 20% of your marks (excluding the title, references
and quotations).
Any calculations in excel should be pasted into the document showing the Formulae AND the
values.
For coursework, please use font size 12 for body text and the typeface (font) should be Arial or
Times New Roman with minimum 1.5 spacing.
For headers and titles, please use font size 14. Your submission must have standard margins and
page numbers.
Please use English (UK) as your language in the submission.
You should include a completed copy of the Assignment Cover sheet. Any submission without
this completed Assignment Cover sheet will be considered invalid and not marked.
Student Guidance
In your answers, in addition to the information provided, please apply the concepts from the
appropriate areas of financial and economic theory discussed during this and all previous modules
during your course. Your answers should include appropriate numerical data and, if appropriate,
charts/graphs. You may use any appropriate data from the case study.
Consultancy Report (80% of module marks)
You are a recently hired Financial Analyst working on the Leveraged Buyout (LBO) deal desk
for 3M, a small Private Equity (PE) firm with a strategic investment remit for high growth
technology companies. Your first task is to review the case company Bottomline
Technologies as a potential investment and prepare a report addressing the following
requirements:
1. Using Exhibit 1 and other industry data, carry out a Porter’s Five Forces analysis on
the Cloud Computing Industry. (15 marks)
2. Identify and critically evaluate the characteristics of a company which would be
suitable for an LBO. (6 marks)
3. Explain how a Private Equity (PE) firm such as 3M could align their interests to the
managers of Bottomline Technologies. (6 marks)
4. Discuss the typical LBO sources of finance and a typical debt financing term structure.
(10 marks)
5. Based on the financial information and assumptions in Exhibit 2, undertake a DCF
valuation for Bottomline Technologies identifying the intrinsic equity value of a share.
Outline the assumptions used and explain your calculations and workings. (15
marks)
6. Based on the financial information and assumptions in Exhibit 3, undertake a LBO
valuation for Bottomline Technologies, identifying the IRR that will be generated on
equity assuming an exit in year 5. Outline the assumptions used in your calculations
and explain your workings. (10 marks)
7. Evaluate possible exit strategies for 3M if it was decided that the investment in
Bottomline technologies should go ahead. (8 marks)
8. For potential investors into the 3M fund explain private equity fund structures, fund
terms, economic terms and corporate governance terms used by typical PE firms. (10
marks)
Reflective Statement (20% of module marks)
Include a 500-word reflective statement on the top challenges facing the financing of
new business initiatives in a market of your choice for 20% of your marks. (20 marks)
3. Marking Guide
The assignment is marked out of 100.
Marks have been allocated against each question, and indications given in the model answers.
Assignment Part Mark Approach
Question 1
Using Exhibit 1 and other industry data, carry out a
Porter’s five forces analysis on the Cloud Computing
Industry.
15 marks
Using information provided on the
case company and other research
data undertake a Porter’s 5 forces
analysis on the Cloud Computing
Industry with specific reference to
Bottomline Technologies. Marks will
be equally allocated to each force.
Question 2
Identify and critically evaluate the characteristics of a
good LBO candidate company.
6 marks
Identify the characteristics of a good
LBO candidate. Your identification
should include both qualitative and
quantitative aspects.
Question 3
Explain how a Private Equity (PE) firm such as 3M will
align their interest to the managers of Bottomline
Technologies.
6 marks
You will be expected to identify how
directors of private equity firms
provide incentives to target company
managers.
Question 4
Discuss the typical LBO sources of finance and a
typical debt financing term structure.
10 marks
You will be expected to identify and
discuss the sources of finance used
on LBO deals with details expected
on the various types of Debt
structures typically used.
Question 5
Based on the financial information and assumptions in
Exhibit 2. Undertake a DCF valuation for Bottomline
Technologies identifying the intrinsic equity value of a
share. Outline the assumptions used and explain your
calculations and workings.
15 marks
You will be expected to use excel to
undertake the DCF analysis utilising
the assumptions provided in Exhibit
2. You must state all relevant
assumptions and show all your
workings.
Question 6
Based on the financial information and assumptions in
Exhibit 3. Undertake a LBO valuation for Bottomline
Technologies identifying the IRR that will be generated
on equity assuming an exit in year 5. Outline the
assumptions used in your calculations and explain
your workings
10 marks
You will be expected to undertake a
LBO analysis calculating the IRR
based on the assumptions in Exhibit
3 and conclude whether the
acquisition will meet the expectations
of 3M’s directors.
Question 7
Evaluate possible exit strategies for 3M if it was decided
that the investment in Bottomline technologies should
go ahead.
8 marks You will be expected to identify and
discuss exit strategies that can be
applied in a LBO scenario and
suggest which would be the most
suitable exit strategy for 3M.
Question 8
For potential investors into the 3M fund explain private
equity fund structures, fund terms, economic terms and
corporate governance terms used by typical PE firms.
10 marks
With reference to investors in PE
funds you will be expected to
provided information on:
– Fund structures
– Fund Terms used in practice
– Economic Terms
– Corporate Governance Terms
An identification and explanation of
each used is expected.
Include a 500-word reflective statement on the funding
options available for technology start-ups in today’s
business environment.
20 marks
Your reflective statement should
include any relevant practical
examples and conclude what’s the
likely impact on funding and the
industry in the coming years.
Total 100 marks
Generic Level 7 Grading Criteria
Criteria Pass Grades Fail Grades
High
Distinction
85-100%
Distinction
70-84%
Merit
60-69%
Pass
50-59%
Fail
30-49%
Low Fail
0-29%
The work
displays:
The work
displays:
The work
displays:
The work
displays:
The work
displays:
The work
displays:
Knowledge &
Understanding
(a) Systematic
Understanding
(b) Emerging
Thought
(a) Strong
evidence of a
comprehensiv
e and
systematic
understanding
of an
extensive
range of
appropriate
issues,
concepts,
theories and
research
(a) Clear
evidence of a
comprehensiv
e and
systematic
understanding
of a
considerable
variety of
issues,
concepts,
theories and
research
(a) Clear
evidence of a
comprehensiv
e and
systematic
understanding
of all major –
and some
minor – issues,
concepts,
theories and
research
(a) Evidence
of a systematic
understanding,
which may
contain some
gaps, of all
major – and
some minor –
issues,
concepts,
theories and
research
(a) Evidence
of an
understanding
of an
appropriate
range of
issues,
concepts,
theories and
research but
has significant
gaps or
misunderstand
ings.
(a) Evidence
of a limited
understanding
of issues,
concepts,
theories and
research either
major and/or
minor.
(b) Sustained
excellence in
the application
of thoughts
and practices
at the forefront
of the
discipline
(b) Precise
and welljudged
application of
thoughts and
practices at
the forefront of
the discipline
(b) Some clear
evidence of
the application
of thoughts
and practices
at the forefront
of the
discipline
(b) Clear
evidence of an
understanding
of thoughts
and practices
at the forefront
of the
discipline.
(b) Unclear or
imprecise
understanding
of thoughts
and practices
at the forefront
of the
discipline.
(b) Significant
gaps in the
understanding
of the debates
at the forefront
of the
discipline.
Argument
(a) Analysis,
Synthesis &
Evaluation
(b) Numerical
Analysis
(c)
Argumentation
(d)
Independent
Research
(a)
Consistently
precise,
accurate and
reasoned
analysis,
synthesis
and/or
evaluation;
addressing
issues with
insight or
originality
(a)
Consistently
precise,
accurate and
reasoned
analysis,
synthesis
and/or
evaluation
addressing all
issues, some
with creativity
(a) Precision,
accuracy and
clear
reasoning
throughout the
analysis,
synthesis
and/or
evaluation
addressing all
issues
appropriately
(a) Broad
levels of
precision,
accuracy and
reasoning in
analysis,
synthesis
and/or
evaluation,
and addresses
all key issues
(a) Errors
which affect
the
consistency of
the analysis,
synthesis or
evaluation
and/or key
gaps in the
issues
addressed
(a) A lack of
precision,
accuracy or
reasoning in
analysis,
synthesis or
evaluation with
significant
gaps in the
issues
addressed
(b) Numeric
analysis that is
complete and
free from
errors with
application of
methods that
may be
insightful or
original
(b) Numeric
analysis that is
complete and
mostly free
from errors
with fluent and
appropriate
application of
methods.
(b) Numeric
analysis that is
complete and
mostly free
from errors
with relevant
and effective
application of
methods.
(b) Numeric
analysis that is
mostly
complete and
free from
significant or
critical errors
with
appropriate
application of
methods.
(b) Numeric
analysis that is
mostly
complete but
contains errors
with significant
effect, or
methods that
are applied
inappropriately
(b) Numeric
analysis that is
incomplete or
contains errors
which have
critical effect,
or methods
that are
applied
inappropriately
(c) Extremely
strong and
consistent
argument
making a
convincing
whole with
evidence of
originality.
Impressive
dexterity in the
use of
information
gathered to
support the
argument.
(c) Extremely
strong and
consistent
argument that
convincingly
addresses
issues including
uncertainties and
conflicts.
Excellent use of
information
gathered which
to support and
further the
argument
(c) Evidence of
an argument
that is
generally
convincing
with a good
internal
consistency
and addresses
most issues.
Very good use
of information
gathered to
support the
argument.
(c) Evidence of
an overall
convincing
argument but
may have
weaknesses,
gaps or
inconsistencies.
Clear use of
information
gathered but
may have some
weaknesses in
the integration
into the
argument.
(c) Evidence of
a consistent
argument but
may have
weaknesses,
significant
gaps or be
unconvincing.
Clear use of
information
gathered but
may not be
sufficient to
sustain the
argument.
(c) Lack of
consistency or
structure in the
argument.
Serious
weaknesses in
the integration
of evidence
and/or no
awareness of
the limitations
or weaknesses
of the
research.
Argument
(continued)
(d)
Independent
Research
(d) Evidence
of an
innovative or
original use of
extensive
personal
research
which has
been
thoroughly
critically
evaluated both
conceptually
and
methodologica
lly
(d) Substantial
research and
evidence of an
innovative use
of a wide
range of
personal
research with
clear and
consistent
critical
evaluation
both
conceptually
and
methodologica
lly
(d) Clear
evidence of
considerable
personal
research and
the use of a
diverse range
of appropriate
sources but
may contain
problems with
consistency in
the conceptual
and
methodologica
l critical
evaluation
(d) Appropriate
use of a wide
range of
personal
research
which is
critically
evaluated for
key conceptual
and
methodologica
l issues
although this
may not be
consistent
throughout
(d) Evidence
of a range of
personal
research but
evidence of
methodologica
l or conceptual
evaluation
may be
limited,
inconsistent or
inappropriate
(d) Over
reliance on
very restricted
range of
personal or
secondary
research much
of which may
not be
evaluated and
may not be
directly related
to the question
or area
Presentation
(a) Structure
(b)
Referencing
(c) Use of
Language
(a) Excellent
structure and
presentation
(a) Excellent
structure and
presentation
(a) Good
structure and
presentation
(a) Adequate
structure and
presentation
(a) Adequate
structure and
presentation
(a) Poor
structure and
presentation
(b) Precise, full
and
appropriate
references and
notes.
(b) Precise, full
and
appropriate
references and
notes.
(b) Full and
appropriate
references and
notes with
minor or
insignificant
errors
(b) Good
references and
notes with
minor or
insignificant
errors or
omissions
(b) Competent
references and
notes but may
contain
inconsistencie
s, errors or
omissions
(b) Poor
references and
notes with
multiple
inconsistencie
s, errors or
omissions
(c) Subtle use
of language
expressing
highly
nuanced
thought with
clarity and
precision to a
level
appropriate for
submission for
publication.
(c) Precise use
of language
expressing
complex
thought with
clarity,
accuracy and
precision
which furthers
and enhances
the argument
(c) Clear and
precise use of
language
allowing a
complex
argument to
be easily
understood
and followed
(c) Generally
clear use of
language
sufficient for
arguments to
be readily
understood
and followed
(c) Generally
understandabl
e use of
language but
significant
errors in
expression
affecting
overall clarity
(c) Serious
errors in the
use of
language
which makes
meaning
unclear or
imprecise
–
Exhibit 1
Bottomline’s Technologies Case Study – Company Information
Our Company
We power mission-critical business transactions. We help our customers optimize financially oriented
operations and build deeper customer and partner relationships by providing a trusted and easy-touse
set of cloud-based digital banking, fraud prevention, payment, financial document, insurance and
healthcare solutions. We offer hosted or Software as a Service (SaaS) solutions, as well as software
designed to run on-site at the customer’s location. The majority of our revenues are derived from
offerings sold as SaaS-based solutions and paid for on a subscription and transaction basis.
We operate a cloud-based network that facilitates the exchange of electronic payments and invoices
between buyers and their suppliers. We offer hosted and on-premises solutions that banks use to
provide cash management and treasury capabilities to their business customers, as well as solutions
that banks and credit unions use to facilitate customer acquisition and growth. We offer financial
messaging solutions for banks and corporations around the world, via solutions that leverage the
SWIFT global messaging network. We offer legal spend management solutions that help manage legal
and claims vendor expenditures and that automate receipt and review of legal invoices for insurance
companies and other large corporate consumers of outside legal services. Our corporate customers
rely on our solutions to automate their payment and accounts payable processes and streamline and
manage the production and retention of electronic documents and our healthcare customers use our
solutions to streamline financial processes, particularly the patient enrolment process. Our document
automation solutions are used by organizations to automate paper-intensive processes for the
generation of transactional and supply chain documents. We also offer comprehensive cyber fraud
and risk management solutions that are designed to non-invasively monitor and analyse user
behaviour to flag behavioural and data anomalies and other suspicious activity.
Our solutions are designed to complement, leverage and extend our customers’ existing information
systems, accounting applications and banking relationships so that they can be deployed quickly and
efficiently. To help our customers receive the maximum value from our products and meet their
specific business requirements, we also provide professional services for installation, training,
consulting and product enhancement.
Our Products and Services
Payment Network
Paymode-X is a leading business-to-business electronic payment network. This hosted solution helps
organizations transition from paper to electronic transactions in order to streamline processes, reduce
costs and optimize working capital. With more than 300,000 enrolled vendors, new Paymode-X
customers gain immediate benefits because many of their vendors are already part of the Paymode-
X network. Our solution offers a lower cost settlement option than do traditional credit or debit card
payment methods. We continually invest in furthering the value and ease of use of Paymode-X, which
includes electronic payments and remittance delivery, online access to payment detail and reports,
online payment approvals and turnkey vendor enrolment and support.
Digital Banking
We offer payments, cash management and online banking solutions to financial institutions, including
banks and credit unions. Our solutions enable banks of all sizes to offer their customers a host of
capabilities including ACH and BACS payments, wires, international payments, check production,
customer acquisition, balance and information reporting and other features that facilitate enterprisewide
cash management and interaction with their customers. Our solutions allow our bank customers
to attract and service a full range of client segments from small businesses to multi-nationals. These
solutions feature an intuitive user interface designed to simplify all aspects of cash management for
customers of all sizes and sophistication, through both browser-based and mobile channels.
Legal Spend Management
Our hosted legal spend management solutions and services integrate with claims management and
time and billing systems to automate legal invoice management processes and to provide insight into
all areas of a company’s outside legal spend. The combination of automated invoice routing and a
sophisticated rules engine allows corporate legal and insurance claims departments to create more
efficient processes for managing invoices generated by outside law firms and other service providers,
while offering insight into important legal spend factors including expense monitoring and outside
counsel performance. We are continuing to expand the capabilities of these offerings to facilitate the
selection and retention of counsel, and the management and budgeting of litigation matters.
Cyber Fraud and Risk Management
Our cyber fraud and risk management solutions non-invasively monitor, replay and analyse user
behaviour to flag and can stop suspicious activity in real time. The solutions are highly configurable
and create accountability by recording and analyzing each application interaction and screen view,
reducing the risk of theft, information leakage, internal fraud and payments fraud, as well as
decreasing the cost of regulatory compliance. Case management capabilities centralize risk
management, speed investigations, and facilitate compliance with regulations pertaining to Anti
Money Laundering (AML), the Health Insurance Portability and Accountability Act (HIPAA), and Know
Your Customer (KYC).
Financial Messaging Solutions
Our cloud-based financial messaging solutions leverage the SWIFT global messaging network to allow
corporations to exchange financial information including payment instructions, cash reporting and
other messages related to financial transactions with their banks and counterparties around the
world. Our solutions allow banks and corporations to achieve lower costs, rapid implementation,
greater security and improved risk management while avoiding costly internal infrastructure.
Payment and Document Automation
Our payment automation solutions can generate a wide variety of domestic and international
payment instructions along with consolidated bank reporting of cash activity. Our solutions can reduce
administrative expenses and strengthen compliance and anti-fraud controls. Users are able to gather
and access data via the web on payment and bank account information, including account totals and
detailed transaction data, providing improved workflow, financial reporting and bank
communications.
To help augment financial document workflow and delivery, we also offer a number of solutions
designed to automate a wide variety of business documents and supply chain processes as well as
related web-based delivery and document archive. Our products offer advanced design, output
formatting and delivery capabilities to replace paper-based forms, as well as automating the labourintensive
accounts payable processing of invoices.
Healthcare Solutions
Our solutions for patient registration, electronic signature, mobile document and payments allow
healthcare organizations to improve business efficiencies, reduce costs and improve care quality.
Leveraging our extensive experience optimizing document-driven processes, our solutions are utilized
across the acute care hospital enterprise and broader healthcare systems, accelerating the paper-toelectronic
transition while helping our customers streamline data flows.
Professional Services
Our teams of service professionals draw on extensive experience to provide consulting, project
implementation and training services to our customers. By easing the implementation of our products,
these services help our customers accelerate the time to value. By improving the overall customer
experience, these services help us retain customers and drive future revenue-generating
arrangements from existing customers.
Our Customers
Our customers are in diverse industries including financial services, insurance, healthcare, technology,
retail, communications, education, media, manufacturing and government. We provide our products
and services to approximately 60 of the Fortune 100 companies and approximately 80 of the FTSE
(Financial Times) 100 companies. Our customers include leading organizations such as Bank of
America Merrill Lynch, BBVA Compass, British Airways, Catholic Health Initiatives, Cedars-Sinai
Medical Centre, Cigna Corporation, Franklin Templeton, Fidelity, Lloyds Bank, Capital One, Deere and
Company, Target Corporation, Johnson Controls, Inc., State Farm Insurance, Sutter Health, Vodafone
and Zurich American Insurance Company.
Our Competition
The markets in which we participate are highly competitive. We believe our ability to compete
depends on factors within and beyond our control, including:
Our ability to develop new, innovative technology solutions that meet the evolving needs of our
customers and the shifting dynamics of the markets we participate in;
Our ability to attract and retain employees with the requisite domain knowledge and technical
skill set necessary to develop and support our products;
The performance, reliability, features, ease-of-use and price of our offerings as compared to
competitor alternatives;
Our industry knowledge and expertise;
The execution of our sales and services organizations; and
The timing and market acceptance of new products as well as enhancements to existing products,
by us and by our current and future competitors.
For our Paymode-X solution, our competitors include SunGard and AvidXchange in addition to ACH
capabilities offered by banks.
For our digital banking payments and cash management solutions, we primarily compete with
companies such as ACI Worldwide, Fiserv and FIS that offer a wide range of financial services, including
electronic banking applications. We also encounter competition in our digital banking customer
acquisition offerings from MeridianLink and D&H Corporation.
For our legal spend management solutions, we compete with a number of companies, including
Wolters Kluwer ELM Solutions, LexisNexis and Computer Sciences Corporation (CSC). Our cyber fraud
and risk management products compete with NICE Actimize, Norkom-Deitca, SAS, Fiserv, Guardian
Analytics and FairWarning.
For our financial messaging solutions, we compete with D+H Corporation, Eastnets, SunGard and
SWIFT.
For our healthcare solutions, our primary competitors are FormFast and iMedConsent.
Our payment and document automation products compete primarily with products from companies
that provide solutions to create, publish, manage and archive electronic documents and companies
that offer payments software and services. Our products also compete with companies that provide
a diverse array of accounts payable automation and workflow capabilities. We also compete with
providers of enterprise resource planning (ERP) solutions and providers of traditional payment
products, including check stock and check printing software and services. In addition, some financial
institutions compete with us as outsourced check printing and electronic payment service providers.
Exhibit 2
Bottomline Technologies Case Study – Financials
Bottomline Technologies
Income Statement
(in millions) 2018 2017 2016
$’m $’m $’m
Net sales 15,516 15,797 16,435
Cost of goods sold 9,876 10,077 10,146
Gross profit 5,640 5,720 6,289
Operating expenses 4,449 4,196 4,206
Operating income 1,191 1,524 2,083
Interest expense 75 59 75
Interest income -8 -6 -5
Income before income taxes 1,124 1,471 2,013
Income taxes 448 551 751
Net income 676 920 1,262
Weighted-average number of shares—basic 399 411 435
Weighted-average number of shares—diluted 400 413 440
Earnings per share—basic 1.69 2.24 2.9
Earnings per share—diluted 1.69 2.23 2.87
Balance Sheet
(in millions)
2018 2017
ASSETS $’m $’m
Current assets:
Cash and cash equivalents 1,783 1,370
Inventory 1,830 1,873
Other current assets 702 742
Total current assets 4,315 3,985
Property and equipment, net 2,616 2,850
Other long-term assets 679 638
Total Assets 7,610 7,473
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Current maturities of debt 65 421
Accounts payable 1,243 1,112
Accrued expenses and other current liabilities 1,113 979
Income taxes payable 32 23
Total Current Liabilities 2,453 2,535
Long-term liabilities:
Long-term debt 1,248 1,310
Lease incentives and other long-term liabilities 1,005 1,083
Total Long-term liabilities 2,253 2,393
Stockholders’ equity:
Common stock $0.05 par value 20 20
Additional paid-in capital 81 —
Retained earnings 2,749 2,440
Accumulated other comprehensive income 54 85
Total stockholders’ equity 2,904 2,545
Total Liabilities and Equity 7,610 7,473
Exhibit 2 (continued)
Bottomline Technologies Case Study – Forecast Assumptions for DCF
The current historical financial information is a good starting point for building your DCF forecast and
subsequent equity valuation. Knowing that you are new to the role your VP (Vice President) on the
LBO desk has sent you an e-mail with the following key points with reference to the forecast
assumptions for Bottomline Technologies.
The key points include:
Although sales growth has been negative in the past couple of years it has been anticipated
that with the experience of the LBO team, new operational management for Bottomline
Technologies and access to wider markets, sales can now be expected to grow by 20% per
annum.
The EBIT margin will maintain at the current 2018 level for the foreseeable future.
The effective tax rate for 2018 can be applied in the calculation of all forecasted NOPAT
numbers (Net Operating Profit After Tax).
Historically Capital Expenditure (CAPEX) has been $524 (2018), $726 (2017) and $ 714 (2016)
and will be expected to remain at the 2018 level as a % of Sales for the foreseeable future.
Depreciation in 2018 was $593 and this is also expected to remain as the same relative % of
sales in 2019 and beyond.
An anticipated 5% of sales for investment in working capital is expected annually from 2019
and beyond.
Post the 5 year forecast period there is expected to be wider competition in the cloud
computing market and it is anticipated that Free Cashflows from year 5 onwards will at a rate
of 7% in perpetuity.
For DCF valuation purposes 3M uses an initial WACC of 10% to evaluate potential target
companies.
Exhibit 3
Bottomline Technologies Case Study – Leveraged Buyout (LBO) Assumptions
The directors of 3M are keen to finance the acquisition of Bottomline Technologies with a large
proportion of debt and would like to model the expected IRR on initial equity assuming an exit after
year 5.
The following assumptions should be used in your LBO valuation:
Transaction comparable information suggests that an entry multiple of 7 times 2018 EBIT
would be a good proxy valuation for the Bottomline Technologies on a LBO basis.
The debt on the 2018 balance sheet of Bottomline Technologies will be refinanced on the
acquisition.
Directors of 3M anticipate using 70% Debt and 30% Equity to finance the acquisition.
The debt financing has been structured in a manner to achieve a repayment schedule of
$500m per annum from year 1.
With the exit multiple not expected to expand and the earliest exit expected in year 5, the
directors of 3M would like to know whether the acquisition of Bottomline Technologies would
meet their expected 45% return on equity capital.
