Rosetta Stone Case Study Essay

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Case #3: Rosetta Stone
1. By going public Rosetta Stone would be able to obtain the capital required to expand the business and enter new markets. Another advantage of going public is the ability for Rosetta Stone to increase its brand’s image, awareness, and reputation. An IPO could be a good move because of the increased globalization occurring that has led to more and more people learning needing or wanting to learn different languages. Going public as the economy is just coming out of its recession could prove to be advantageous for Rosetta Stone. The case gave the example of going public at six and a half times its EBITDA. It also mentioned that the CEO of Rosetta Stone had concerns about being taken over if they stayed
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Finally they could form strategic alliances with other companies in the industry.
3. If I were part of the underwriting syndicate I would recommend a price of $21 for the offering. While the underwriters have given a range of $15-17 per share, I believe that Rosetta Stone will follow suit with the two other companies that went public during the year and experience a large price jump on the first day of trading. A higher initial offering will make it look better for the underwriters, so they are not accused of severely underpricing the shares.
4. The article said that K12 was the closest comparable company to Rosetta Stone. Rosetta Stone is marketable to a larger consumer base than K12, so I think that it should be able to charge a higher IPO. The case said that book was more than 25 times oversubscribed during its road show which means Rosetta Stone could charge a much higher price. But these subscriptions are volatile and the economy is recovering, so a price too high could deter many investors. For my analysis I took the EBITDA margin for years 2006-2008 and found the average increase during that time to be 9.93%. I then took the estimated share value from 2008 and multiplied it by 1.0993 to factor in the average increase in share value. This resulted in a price of $19.22. Given this number I would increase the current range from $15-17 to $19-24. The reason for the increased range is because of the

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