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Trx Case Study

Decent Essays

Case Questions for TRX Inc., IPO

! What attributes make a company a good candidate for an IPO?
Good business history:
Investors will expect the long-term sustainability through historical financial data.
Therefore, the good business history can reach investors’ expectation.
Profitability:
A profitable company can indicate investors that the company can get a positive ROI.
The positive ROI can not only suggest potential growth but also lead to dividends for investors. Visibility and recognition:
Visibility enables investors’ better understanding of the business model and increases the recognition.
Growth potential:
In the growing industry, the company has the higher potential to grow in the future.
Solid and …show more content…

The IPO would offer liquidity and a good way for current minority shareholders to quit, which finally lead to a better alignment of its stakeholders
! Estimate a preliminary range for TRX's shares.
The following are the estimation of preliminary range for TRX’s
P/E Ratio Model Calculation
CSFB
Management Plan
Research
Net Income (2005 E)
Average shares outstanding
Earning per share
Industry P/E ratio (2005 E)
Price
Discount rate
Price for IPO

-3.100
12.462
-0.249
21.480
-5.343
15%
-4.646

-4.500
12.462
-0.361
21.480
-7.756
15%
-6.745

EV/EBITDA Model Calculation
Management
CSFB
Plan
Research
EBITDA (2005 E)
Industry EV/EBITDA
(2005E)
EV
Cash and cash equivalents
Long-term Debt (2004)
EV+ Cash - Debt
Average shares outstanding
Price
Discount rate
Price for IPO

10.974

10.574

11.833
129.855
10.595
3.607
136.843
12.462
10.981
15%
9.549

11.833
125.122
10.595
3.607
132.110
12.462
10.601
15%
9.218

! Given the situation Davis faced in 2005, what would you recommend that he do with respect to the offering?
Although the offer price was lower than expected, Davis should stick to implement the IPO for the following reasons. First, IPO would bring capitals to the company and

better support the future growth. With strong ability of generating cash flow and aggressive working capital management, the company would achieve great growth and get positive EBITDA in 2006, which would stimulate the stock price to go up and increase the company’s valuation. Moreover, IPO would

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