SoulCycle - Startup Valuation: IPO Assignment Questions

Instructions:

Your group should upload one electronic copy of your Excel solution on Canvas. Assignments submitted late will not be accepted. You should submit a solution to all “Assignment Questions”. Your solution should be formatted and set out so that it is easy to read, clearly show your working, the logic behind your answers, and any assumptions you made in the analysis.

Assignment Questions

4. Estimate SoulCycle’s residual value. You should estimate four different residual values for SoulCycle:
• Perpetuity with growth (PVGO>0) Assume that the free cash flows grow at a constant rate consistent with your forecasts. To do this you will need to find the year when, according to your forecasts the free cash flows begin to behave like a growing perpetuity (i.e. grow from that year forward at a constant rate).
• PVGO = 0 Suppose that industry competition drives the IRR on new investments down the WACC in the long term. Use the same year that you used in the PVGO>0 scenario to estimate this residual value.
• Enterprise Value Multiples Estimate the residual value using both a EV/(Total Revenue) multiple and an EV/EBIT multiple based on comparable firm(s) (in Exhibit 7). In both cases, form an estimate of the residual value at the same point in time as the other two residual value estimates. Hint: when applying this method the data in Exhibit 7 will produce a trailing multiple. You should apply the multiple you get from the comparable firm(s) to SoulCycle’s forecasted Total Revenue (Studio Fees + Merchandise Sales) and EBIT in a
consistent way.