Marine Tech is a young firm with a niche market in heavy equipment, specifically for the...

Marine Tech is a young firm with a niche market in heavy equipment, specifically for the marine industry. Its owners are considering an IPO and have come to you for advice. Their projections show initial years of negative FCF, after which the numbers improve considerably. What are the methods you will use to value their firm and why? How would you advise them to price their IPO and why?

Expert Solution

Since the free cash flows to the firm is negative , I'll ask them to use following methods to value their company-

1. Discounting Cash flows method which takes into the perspective a long period of time which is inclusive of growth rate as well as terminal value so it is a wider concept.

2. Enterprise value to EBITDA- It can be used by multiplying the Industry Ebitda to a particular multiple to arrive at enterprise value. Industry Ebitda is being taken as company is having a foreseeable loss in the future . Forward Ebitda can also be taken to arrive at Forward EV to EBITDA Ratio.

Various industry specific ratios can also be used to arrive at a particular valuation which can be termed under relative valuation.

I would advise them to price their IPO low in relation to Industry average as it is making loss in initial years and it won't find much buyers at upper range of valuation so I would advise for keeping the prices cheap to attract stakeholders.

jeff jeffy answered 1 month ago

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