TheMagnet® Bizventures

Challenge

The Client, a Systems Integration subsidiary of a leading ICT Group in Cyprus with a global span and impact, wanted to expand its services portfolio by adding custom Software Development and Software-As-A-Service (SaaS) in its core services to offer complete IT solutions to its clients both in Cyprus and globally, and of course to increase the Group’s net-value through potential acquisition (non-organic growth).

The Client is examining the potential acquisition of a specific software development company. It hopes to provide complete portfolio of services so as to be optimized for new customers, while adding value to existing customers both in Cyprus and abroad.

TheMagnet® was requested to assist the management of the Client in carrying out business valuation analysis for internal strategic decision-making purposes.

TheMagnet® Approach

The business valuation analysis included the following:

a. Examination of the business plan of the software development company
b. To carry out feasibility analysis on the business plan
c. To examine and validate the existing methodology used for the valuation of the software development company
d. To carry out sensitivity analysis on the valuation
e. To consider other valuation methodologies
f. To provide suggestions going forward

Outcome

Having examined the business plan by considering the reasonableness and the feasibility-to-execute, TheMagnet® provided its suggestions going forward. A revised estimate of the business plan was suggested. Following the examination and revision of the business plan, TheMagnet® reviewed the valuation methodology and considered two approaches:

Approach 1: Discount Cash Flow (DCF), and,
Approach 2: Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA) multiple.

Any risks can be mitigated by the way the deal is structured. The potential deal structure must address the risks of the Client, and the wants of the software development company.