Rosetta Stone Ipo

4809 words 20 pages
Creating Public Shares
According to Brau and Fawcet (2004), the most common reason CFOs choose to provide an IPO on their firm is to create public shares for use in future acquisitions. While Rosetta Stone may not have immediate acquisition plans, the public offering of their shares will provide new capital for them to continue to expand. Only 5% of their revenue comes from outside of the United States, and with increased capital from an IPO, Rosetta Stone can look to pursue new markets (Schill, 2009). Whether they plan to increase their market share through internal investment or acquisitions of competitors, the increase in available capital is a huge advantage for a firm with such an aggressive growth strategy in mind. Conversely, many
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Valuation – Market Multiples
Brealey, et al (2006) state the DCF valuation can be mechanically perfect but practically wrong. Market multiples valuation is a common way to check and compare with the DCF valuation. Brealey, et al (2006) also state the valuations’ objective is to estimate the market value, i.e. how much the investors are willing to pay for a share. Observations on how much the investors are actually paying for those similar public companies give useful information about the current market price of R.S. shares. Compared with the complicated DCF valuation, though the market multiples valuation is simpler, one should not underestimate its usefulness. It is always recommended to use both valuation methods and cross check the results with one another.

There are four steps in the market multiples valuation. Firstly, the comparable companies should be identified. Secondly, we should find out the market multiples. Then, the average multiples will be computed. Lastly, the average multiples will be applied to R.S..

Technology or Educational Company? First we need to decide which industry R.S. belongs to. According to Schill (2009), Adams, president and CEO of R.S., and Clough, representative of private equity fund ABS Capital, are arguing whether R.S. should be regarded as a technology or a for-profit educational firm. If R.S. is regarded


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