VENTURE CAPITAL

Venture Capital and Private Equity: Assignment 2

Venture Capital and Private Equity: Assignment 2

Introduction

The paper aims at examining the financial and business performance of KTM. In the lead of brief business overview and recent financial performance, the paper sheds light on the valuation of KTM. The paper draws certain assumptions and parameters to evaluate KTM's performance by incorporating discounted cash flow technique. The paper provides an in depth study of the historical and future business performance.

In an effort to determine the best optimum capital structure for KTM, the paper evaluates and individually examines each option available to finance future projects and strategic business decisions. Based on the impact of possible financing options on financial stability, capital structure and ownership; the paper provides recommendation on the available feasible financing option. Finally, the paper draws conclusion on the overall understanding of KTM's venture exit strategy.

Discussion

KTM is a Cross Holding company that is mutually owned by business management and a venture capitalist. In the light of present case, 51% of the stock ownership is held by KTM's management; whereas, the remaining 49% is owned by BC European Capital (BC) (Wong, 2007, p. 1). However, BC has been aimed at earning exponential growth on the invested capital and since 1999; it has been pressurizing KTM to produce maximized results. Keeping venture ambitions and investment prospects aligned, BC is planning to seek out an exit strategy sooner. Given so, the case provides a business scenario, where CFO of KTM is looking for an appropriate financing strategy that can allow the company to purchase 49% stake of BC in the company. Knunz, CFO of KTM has to devise a financing strategy that not only generates sufficient funds to make the relevant purchase decision, but also has positive impact on the financial health and future outlook of the company (Wong, 2007, p. 1).

KTM's Overview

KTM is a well established name in the industry of motorcycle manufacturing. The company has branded its image as a market leader in high quality, technological innovations and championship title legacy (Wong, 2007, p. 1). Under the visionary leadership of Knunz, the company has wide spread its business operations across various countries of the world. As of 2002, the company is operating across different regions of the world with an estimate number of 1267 employees (figure 1) (Wong, 2007, p. 11).

Figure 1: Net Sales Division of KTM (Wong, 2007, p. 11)

The company has set its focus on targeting a consumer segment that is energetic, young, passionate about racing and edgy. As illustrated by figure 2, KTM has earned 68.70% of its business revenues from off-road sport motorcycles (Wong, 2007, p. 2). Over all these years of existence, the company has been setting its emphasis on improving the distribution and supply chain network to satisfy the consumer needs before the competitors.

Figure 2: KTM's Sales by Product Category (Wong, 2007, p. 11)

Analysis of the study shows that 80% of business sales units have been distributed through company's sales subsidiaries; whereas, the remaining 20% of motorcycle distribution has ...