Transcript Document

mosaiccapital
mergers & acquisitions | private equity
Building a case for
Private equity/
venture capital
Private equity
india
- a case for private equity
a discussion document
march, 2008
Who are we

International boutique investment
bank
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Based Mumbai, Bangalore & London
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Focus is Mergers & Acquisitions and
Private Equity

Deep insights into the needs of the
business and investment
communities
Select transactions
Commercial
Engineers & Body
Builders Co
(CEBBCO)
First round of
private equity
Kejriwal Stationery
Ziqitza HealthCare
Eicher Motors
Anantara Solutions
First round of
private equity
First round of
private equity
Acquisition of
gears business
Seed
capital
SLK ITES
Uma Precision
Medicine Shoppe
Liners India
Uma Precision
Strategic
investment
Second round of
private equity
Second & Third
round of
private equity
First round of
private equity
First round of
private equity
Private & Confidential
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The team
Vinay Shah | Director | Mumbai
with a decade of specialisation in private equity preceded by a background in
consulting, Vinay is among the senior-most investment bankers in India. He has held
leadership positions in organisations like Arthur Andersen, Coopers & Lybrand and
Ambit Corporate Finance. Vinay has an MBA from the University of Pittsburgh and is a
Chartered Accountant from The Institute of Chartered Accountants of India
Sanjay Krishnan | Director | London
an electrical engineer with more than a decade of experience spanning consulting,
mergers & acquisitions, private equity and start-ups. Prior to Mosaic, Sanjay worked
for the privately held investment arm of the Mittal family, building and managing a
portfolio in excess of USD 3 bn in mining, oil & gas, steel, agriculture - across Africa,
central Asia and south east Europe. Sanjay held leadership positions at Andersen
Consulting having executed engagements world-wide in the products & supply chain
lines of business. Sanjay is a National Talent Search scholar
Ashutosh Ghanekar | Director | Mumbai
brings to Mosaic Capital a decade of experience in investment banking with a focus on
Mergers & Acquisitions. He has held senior positions in leading professional services
firms like Ambit Corporate Finance, Arthur Andersen and Price Waterhouse. He is a
Chartered Accountant from The Institute of Chartered Accountants of India and a
Bachelor of Commerce from the University of Bombay
Vikram Bihani | Director | Bangalore
has significant expertise in Corporate Restructurings. He brings to Mosaic Capital his
extensive experience in sectors like pharmaceutical, consumer goods, healthcare and
IT through his assignments in Ambit Corporate Finance. He has an MBA from the
Indian Institute of Management, Bangalore
Private & Confidential
Page 3
A Case for Private Equity
Private & Confidential
Page 4
Private Equity – An overview
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Private Equity (PE) is medium to long-term finance provided in return for an
equity stake in potentially high growth companies
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Private Equity Fund
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Run by Professionals
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20% of the investments lose money
50% of the investments make an average return
30% of the investments make lots of money
Management fee on funds managed
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Pension funds, financial institutions and specialist ‘Fund of Fund” investors
Invest money over 3-5 years
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Knowledgeable investors with strong relationships
Raise funds every 4-6 years
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Organized as either a Limited Partnership (LP) or Limited Liability Company (LLC)
which is controlled by the private equity firm that acts as the General Partner (GP)
~1.5-2.0% p.a
Carry
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~ 20-25%x (Total Return - Total Amount Invested)
Private & Confidential
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Fund raising and M & A activity

Corporate finance activity in India saw 382
transaction worth USD 26 bn (Rs 1,047 billion) in the
first half of 2007 as against USD 19 bn in CY 2006
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Private Equity investments
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2005 - USD 3.8 bn
2006 – USD 7.9 bn
First half of 2007 it has already crossed USD 6 bn
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The total of Private Equity investments in India is set
to cross USD 10 bn in the calendar year 2007 and
may even touch USD 15 bn – PwC
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Domestic M & A
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Sector summary H1 CY2007
2005 - USD 6 bn
2006 – USD 17 bn
First half of 2007 it has already crossed USD 20 bn
First half of 2007 for the first time the total value of
overseas deals (USD 25.6 bn) exceeded the domestic
M&A deal value (USD 25.5 bn)
Source: Indata & www.hindubusinessline.com
Private & Confidential
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Corporate Finance deals in India
Types of PE Funds
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Types
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Buyouts
Venture (early & late stage)
Fund of funds
Mezzanine
Real estate
Distressed debt
Pre IPO
Shariah-compliant
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Most private equity firms will consider investing in a range of industry sectors
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Some firms specialise in specific industry sectors, such as biotechnology,
outsourcing and other technology areas
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Others may actively avoid sectors such as real estate or film production
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Transaction size of funds varies: Current appetite highest for deals > USD 10
mn
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There are more funds than doable deals on the ground and timing is a factor
Private & Confidential
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Growth stage
Series (B) C D
Pre IPO/Buyout
Upto USD 1 mn
USD 5-20 mn
USD 20+ mn
USD 100+ mn
Private
Equity
Potential
sources of
funds
Growth Stage
Series A (B)
Friends and
Family
Angel Investors
Private
Equity
Investment size
Seed
Private
Equity
Private Equity – Stages of Investment and Funds
Venture
Capitalist
Some prominent PE Funds active in India
Warburg Pincus, GW Capital, New Vernon, Actis,
Chrys Capital, Standard Chartered, Temasek, 3i,
Newbridge, Barings, Westbridge, Goldman
Sachs, ICICI Ventures, Blackstone Group,
Carlyle Group and General Atlantic Partners, Oak
Hill Capital and Kubera Partners…
Private & Confidential
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Good reasons to raise PE
Pre-requisites
Unique product
or concept
Large potential
market
opportunity
Forward looking
management
Excellent
development
capability
Implications….
Intense
competition
likely
Need to
move rapidly
PE funding supports
Private & Confidential
Hiring
Rapid product
development
Alliances
Infrastructure
Internationalisation
Commercialisation
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Thoughts before considering Private Equity
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Are you willing to sell some of your company’s shares to a private equity
investor?
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Does your company have high growth prospects and are you and your team
ambitious to grow your company rapidly?
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Does your company have a product or service with a competitive edge or
unique selling point (USP)? Is it globally competitive?
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Do you and/or your management team have relevant industry sector
experience? Do you have a clear team leader and a team with complementary
areas of expertise, such as management, marketing and finance?
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If your answers are “yes”, private equity is worth considering
Private & Confidential
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Private Equity – Typical deal terms
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Target 20-40% ownership
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Board Representation
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Liquidation Preference
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Participation Rights
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Certain control and veto rights
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Tag and Drag
Period of exclusivity to close the transaction
Private & Confidential
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Bankers methodology and timelines
Phase 1
Business
review,
Profile of
desired
investor/
strategic
partner
•Review of
business
•Review
relevant
operational,
financial and
regulatory
issues
•Address
relevant issues
Phase 3
Phase 4
Phase 5
Phase 6
Preparation
of
information
on Company
Contact
investors/
strategic
partner,
evaluate
proposals
Negotiation
with
shortlisted
investors/
strategic
partner
Due
diligence,
shareholder
agreements
Transaction
closure,
Investment
•Obtain
required
information
•Contact
investors
•Negotiate with
shortlisted
investors
•Send profiles,
•Prepare
elicit investor
discussion draft interest
of IM
•Arrange and
•Review with
coordinate
the Company
meetings
•Finalise IM
•Conclude on
preferred
structure
2-4 weeks
Private & Confidential
Phase 2
•Finalise key
terms of
investment
•Make
presentations to
interested
investors
•Finalise and
execute term
sheet
6-8 weeks
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•Advise
company on
commercial
issues that may
arise during due
diligence
•Work with
company till
receipt of
investment
•Work with
company’s
lawyers to
advise company
on commercial
issues
pertaining to
shareholders
agreement
1-4 weeks
The business plan
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An essential document to identify its critical success factors
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Emphasis on why you are convinced that the business will be successful and
convey what is so unique about it
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Key elements of the plan:
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The market for product or service
The management team
Business operations
Financial projections
Amount and use of finance required and exit opportunities
It should show potential investors that, you and your team will give them a
unique opportunity to participate in making an excellent return
Private & Confidential
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How do private equity firms evaluate a business plan?
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Is the product or service commercially viable?
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Does the company have potential for sustained growth?
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Does management have the ability to exploit this potential and control the
company through the growth phases?
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Does the possible reward justify the risk?
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Does the potential financial return on the investment meet their investment
criteria?
Private & Confidential
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Where do Private Equity investors see green?
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Investors look at “Entrepreneurial businesses”, investors look at companies with
high growth prospects, which are managed by experienced and ambitious
teams who are capable of turning their business plan into reality
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Many small companies are “life-style” businesses whose main purpose is to
provide a good standard of living and job satisfaction for their owners and are
not suitable for private equity investments
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As a rule of thumb, unless a business can offer the prospect of significant
turnover growth within three years, it is unlikely to be of interest to a private
equity investor
Private & Confidential
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What a good PE will add
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Advice and strategy
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Internationalisation, a catalyst for alliances
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Hiring
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Trusted service provider relationships
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Advisory board
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Search/recruiting
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CEO/CFO/COO
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Branding/PR
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Country managers
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Finance, etc
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Sales
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Partnerships
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Profile and PR
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Work in conjunction with other providers
of finance
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Exit optimisation
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Knowledge/contacts with
relevant buyers
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Experience with process
Access to a higher earnings multiple
during an IPO
Private equity backed companies have been shown to grow faster than other types of companies
Private & Confidential
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What you can do to attract Private Equity?
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Before looking at new external sources of finance, make sure you are making
optimal use of your internal financial resources
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Focus predominantly on the business not fund raising
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Evidence of executional ability is more exciting to a PE than a 100 page
business plan
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Transparency in discussions and openness of relationship
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Reasonable valuation expectation
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Provide risk management tools
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Ensure high standards of corporate governance
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Acknowledge the value addition and commitment from the investor
Within a few years your “slice of the cake” should be worth considerably more than
the whole “cake” was to you before
Private & Confidential
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Key things to consider
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Relationship
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Vs
Any partner at best price
Speak to other founders
Portfolio
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Right partner at a fair price
References
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With key individual (s); and
Broader team
Relevant experience
Non competitive
Community you want to be a part of
Valuation and associated deal terms
Private & Confidential
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Summary
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Committed capital to fill the demand gap left by traditional financial institutions
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Emergence of a mature Indian Private Equity market
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Return expectations - that out of 10 investments, 2 may fail completely,5 may
give average returns and 3 may give superlative returns
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Investor needs reasonable size of operation, mutual comfort, execution
capability and ethical conduct
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Paucity of doable deals and transactions may take more than three months to
close
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Increase a company’s value to its owners, without managerial interference
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Entrepreneur is assisted with all the learning and resources which can be
mustered by the fund to help him realise his dream
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Value creation recipe….. Growth capital for ambitious entrepreneurs
Private & Confidential
Page 19
Thank you

Mosaic Capital Services Pvt Ltd

Mumbai

Bangalore

London

Vinay Shah
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[email protected]

Ashutosh Ghanekar
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[email protected]

Vikram Bihani

[email protected]

Sanjay Krishnan

[email protected]
Private & Confidential
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