Valuation of Hello Fresh Food delivery Firm
` Hello Fresh is ready meal delivery that got initially started in Berlin in the year 2011. A group of professional chefs collaborated and built a million-dollar food-delivery Empire within 7 years, where it had a presence in 10 countries (HelloFresh SE, 2019). After four years of operations, the company had sales revenues averaging $45 million, which was a 60% growth. As a result, the company got publicly listed in the stock exchanges, and the customers and other investors got invited to purchase stocks of the Hello fresh. In the foodservice delivery industry, Hello Fresh became the most successful firm compared to 100 competitor firms. The secret to their success is the delivery of high-quality food that is affordable and comes with it a recipe. Currently, the food company delivers over 54million meals annually to 2 million customers in all its global branches.
Research Questions
The essay will look into ways in which Hello Fresh can estimate it’s valuation using McKinsey high- growth company valuation. Hello Fresh qualified for this study as it represents a significant growth company since after 4 years into operations, the company had achieved a 60% growth with over $45million sales revenues (HelloFresh SE, 2019). A. Therefore, the paper will use try to identify which is the best high- growth valuation technique that is relevant and applicable to Hello Fresh.
Methodology and Data analysis
According to McKinsey’s models of valuating high- growth companies, there are several ways of doing so that the research will look into concerning Hello Fresh. Firstly, the most significant method that will get used is DCF, a discounted cash flows technique. It gets done by observing the future viability of a high growth company. It gets well evaluated by analyzing past financial results of the firm. The technique highly depends on the strong initial performances of the company, where it developed a strong foundation for competitiveness (Goedhart, Koller, & Wessels, 2015).
Another model for evaluation of high growth companies will be the start of the future framework. In this case, when the company is rapidly growing, it is essential to estimate where the firm will get after the high growth declines after reaching an optimum level of production. It is more interested in how the company has captured the market (customers) well such that they can overcome future competition or decline in sales revenues. Thus a company must forecast its future survival plans which are estimated when valuing a high growth company
Additionally, sizing the company is another significant framework for assessing high-growth firms. It involves predicting the future revenues that the company might realize and estimate the investments required for that to get achieved (Goedhart, Koller, & Wessels, 2015). It involves planning for the future by forecasting market outlook concerning market size, profit viability, and unforeseen forces like inflation or fall in the value of a currency. Another McKinsey model relevant to Hello Fresh is the use of probability-weighted cases. It involves estimating the risks involved when engaging in business by observing how other competitors performed.
Hence, by analyzing another food distribution company, the firm would get able to forecast the challenges it might come across in the future. Notably, not all firms exhibit the same market results. McKinsey argues that some low capital investment firms earn higher growth returns compared to some high capital investment firms that might offer returns with low-profit margins. Therefore, these are some of the methodologies and analysis techniques that the research will use to come up with the best valuation framework of Hello Fresh food company.
Limitations
The data used will get limited to secondary data that is available in the company journals and websites; and written journals or articles by reputable scholars. Also, all the McKinsey’s frameworks of valuing high growth companies will get evaluated apart from the price to earnings ratios. Price to earnings ratios will not get used since it’s a method not applicable to loss-making companies and not suitable for forecasting extremely volatile companies like high growth companies (Goedhart, Koller, & Wessels, 2015).
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References
Goedhart, M., Koller, T., & Wessels, D. (2015). Valuation: Measuring and managing the value of companies. JohnWiley & Sons.
HelloFresh SE. (2019). Hello Fresh. Retrieved from https://www.hellofreshgroup.com/websites/hellofresh/English/100/investor-relations.html