COURSE
CORPORATE FINANCE
LECTUR
PROFESSOR KWANGWOO K WANGWOO PARK PARK
ER
CASE ANALYSIS AQUA BOUNTY (Product Number: !"#$%&P'F&ENG
TEA* *E*BERS
ABRA,A* A- *ENSA, #!"$%. STEP,EN *AGARA #!"$%%% STE)EN BA*EKA #!"$%%/ WINNIE KABATESI #!"$%//
NO)E*BER !+ #!$
A0u1 Bou2t3 C14e Que4t5o24 Q-!- (! br5e63 d54cu44 t7e re14o24 873 A0u1 Bou2t3 c7oo4e4 to come to IPO 2o8+ Raising the substantial amount of capital required to fund additional investment and also continue the development and commercialization of the rm’s key product lines. Success of the laboratory and eld trials left Aqua Bounty’s management condent that they ould be able to attract equity capital hence going !ublic. (! W73 954t o2 Lo2do2 AI* "he #uropean market as much more familiar ith the aquaculture industry$ and the British %nvestment bank &omura as condent that Aqua Bounty ould be able to attract the investment it required. Aqua Bounty as a relatively small'cap company hence being eligible to list on (ondon’s Alternative %nvestment )arket *A%)+$ hich did not require a minimum market capitalization or number shares placed. Regulatory requirements for listing on (ondon’s A%) ere less onerous than those of other markets. (isting on the A%) required only compliance ith the lighter'touch ,inancial Services Authority regulations compared to -S'listed public companies hich faced strict requirements on nancial reporting and corporate governance folloing the passing of Sarbanes'/ley Act in 0uly 1221."hese ere particularly problematic for smaller companies such as Aqua Bounty$ for hich the costs of compliance could be signicant. ne nal attraction to A%) as a perception that market appetite for agriculturally'oriented biotech %!s as high as evidenced by recent successful o3erings such as that of 4evgen. Q-- (! 871t 1re t7e m152 r54;4 <1c52= t7e bu452e44
Aqua Bounty had not yet received regulatory approval from ,4A #nvironmental 5ampaigners opposed the concept of 6) products (ong and uncertain route to the market for its modied n'sh products 5onsumers ere particularly not receptive to genetically modied sh$ even if they ere shon to be safe for human consumption '54cu44 t7e >19u1t5o2 o< 1 4t1rt&u? bu452e44 95;e A0u1 Bou2t3 54 co2>e2t5o21993 d5@cu9t
#normous uncertainty around the company’s future revenues$ driven by the degree of regulatory uncertainty surrounding its AquaAdvantage products$ along ith the unpredictability of the product’s route to market. -nique nature of Aqua Bounty’s operations$ the rm su3ered from dearth of comparable companies. ,or e/ample only one rm operating in somehat similar elds '4evgen$ a Belgian agricultural biotech rm hich had the developed pioneering genetically modied agricultural products$ and recently listed on the #urone/t.
! !age
7.8. *9+ :hat ould a standard 45, approach look like;
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Revenue
'
56S S6CA !roduct 5ommercializat ion
##/
##
#! #
#! !
#!
#! "
#! $
#! .
#!
#! %
#!/
'
9.82
=.>2
98.2 2
1?.= 2
8@.@ 2
=9.8 2
8.= 2
=.? 2
@.? 2
.? 2
@9.= 2
'
'
2.82
9.12
1.2
?.2
@.=2
92.8 2
91.@ 2
98.9 2
98.= 2
98. 2
9?.8 2
'
'
?.92
?.82
?.@2
=.12
=.2
.2
@.12
@.?2
@.2
@.>2
>.92
'
'
91.22
9>.22
9=.2 2
'
'
'
'
'
'
'
'
'
'
*9=.9 2+
*9@.@ 2+
*.8 2+
9?.? 2
1?.8 2
8?.? 2
?8. 2
??. 2
?.8 2
?@.@ 2
?.9 2
'
'
'
'
'
'
>.=9
91.2 ?
9=.1
9=.@ 1
9.1 9
9.@ 2
[email protected]
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'
*9=.9 2+
*9@.@ 2+
*.8 2+
9?.? 2
9=.> 2
11.8
1>.8 ?
1.9
82.9 2
89.2 9
89. 1
4iscount factor
9.9?
9.8 2
9.?>
9.
9.8
1.9
1.=2
1.>=
8.1=
8.@9
?.18
?.>1
=.?
!F
'
'
*92.9 +
*92.? >+
*?.> 8+
.=
.89
@.>?
>.@9
@.>@
@.91
.??
=.>9
Sum
89.9
#B%" %ncome "a/D8=E Annual 5ash ,lo
# #%
1>. >?
"erminal Falue !F "erminal Falue
=?.? 9
&et !resent Falue
/..%
W71t 1re t7e ?rob9em4 85t7 t754 E4t5m1t52= t7e 4er5e4 o< o?er1t52= c147 6o84 ?roect5o24A44um?t5o24 o< t7e =ro8t7 r1te A44um?t5o24 o< t7e d54cou2t <1ctor
!age
" !age
Q-$ ( W71t doe4 t7e ?rob1b595t3 dec545o2 tree 9oo; 95;e W71t >19u1t5o2 do 8e re1c7
Approved
Baseline
AquaAdvanta ge L Request for ,4A
Migh &ot
N2
$ !age
Q-. (Bo2u4 Po52t4 871t 8599 be t7e >19ue o< t7e commerc5195Hed ?roect
Stock !rice no *!+ #/ercise !rice of ption *#O+ &umber of periods to #/ercise in years *t+ 5ompounded Risk',ree %nterest Rate *rf+ Standard 4eviation *annualized σ)
92.> >.8= 8 ?.11E 2.?1E
Output Data
!resent Falue of #/ercise !rice *!F*#O++ σPtQ.= d9 d1 4elta N(d1) Normal Cumulative Density Function
@.8=@9 2.22@8 =8.9? =8.2@ 9.2222 @.8=@9
Bank Loan N(d2)*PV(E) Value of Call
. !age
3.5329
