Introduction to PE by Sunil Goyal - Mar '10_Final

7/28/2019 Introduction to PE by Sunil Goyal - Mar '10_Final

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INTRODUCTIONTO PRIVATE EQUITY FUNDING IN INDIA

March28,2010

PresentedbyCA.SunilGoyal

Copyright2010.StrictlyPrivate&Confidential.NotForCirculation.


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AGENDA

OverviewofPrivateEquity

CurrentMarketScenario

TypicalPrivateEquityFundStructure

Advantagesand

Disadvantages

of

Private

Equity

Q&A

2Copyright2010.StrictlyPrivate&Confidential.NotForCirculation.


3/23

OVERVIEW



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OVERVIEW OF PRIVATE EQUITY

Anassetclassthatinvolvesvalueenhancementandhighreturnsgenerationby

sharingbusinessexpertiseoftheInvestorcomplementingtheEntrepreneur

o yp ca va uea ons rom e un ousecou nc u e ra egy ormu a on, nanc a

Expertiseand

Global/Domestic

Networks

(including

other

investee

companies)

otherpassiveassetclasseslikeequities,mutualfund,realestate,commodities,fixed

income

o Activeinvolvement

and

influence

on

the

company,

including

board

seat

Equityinvestmentsinrelativelymature,primarilyunlistedcompaniesrequiring

growthcapital

Eachinvestmentisbackedbyaninvestmentthesiswhichplaysoutoveraperiodof

threetofiveyears



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TYPES OF PEFUNDS AND STAGES OF INVESTMENT

SMEs

Mid Large

Business

StagesofBusinessStagesofBusiness Mature

Business

Ideas

MicroBusiness

Incubation

Fundsby

Promoters

Family&

Friends,

Angel

VentureCapital

PrivateEquity

Mezzanine

CapitalMarkets/

PrivateEquity

Mezzanine

BuyOutFunds/

CapitalMarkets

VentureCapital


ypeso r va e qu y un sypeso r va e qu y un s


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VENTURE CAPITAL

Sector

MajorTwosectors

EarlyStage

KeyDriver

science

Fundsstartupand

earlyexpansion

nnovat on

Investment

andExit

Highlyskilled

professional,scientists,

innovators

Success

nnova ve us ness

idea,developmentofa

newproduct,new

technology,etc.

Upto$10mn;

Exitsthrough

StrategicSale/IPO

g mor a yra e

andfewgreat

successes;



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GROWTH STAGE PRIVATE EQUITY

Success

Fewfailuresand

KeyDriver

and

ExitFrom$5mnto

$500mn

Growthstage

Sca a i ity

CapacityExpansion,

newproducts,

new

geographies,etc.

SectoragnosticInvestorsfundsat

thegrowthstageof

Company

Manu actur ng

to

Consumergoodsto

InfrastructuretoIT



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BUYOUTS

Globallymost

important

strategy

of

PE;

though

not

avery

prevalent

strategy

in

India

Generallybuyoutsdoneatmaturedstageofbusiness

Takingacontrollingstakeinthecompanythroughleveragedbuyout(LBO)orthrough

managementteamalongsidethePEfund(MBO)

Maturecompanieswithleadingmarketposition,activemanagementteam,strong

cashflow

PEfundsprovidecapitalforexpansion,promoters/corporatedivestures,succession

issues

Developmentofabusinessplanover4to6yearsinordertoaddvalue

Revenuegrowth

+Margins

improvement

+deleveraging

=added

value

Company Financialinvestor Value(USDMn) TypeFlextronicsSoftwareSystems KohlbergKravisRoberts&Co. 900 LBO

GECapitalInternationalServices(GECIS) GeneralAtlanticPartners,OakHill 600 LBO

NilgirisDairy

Farm

Actis

Capital

65

MBO

WNSGlobalServices WarburgPincus 40 MBO

InfomediaIndia ICICIVenture 25 LBO

Nirulas Navis CapitalPartners 20 MBO


Go a asExport B ac stone 165 MBO


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MEZZANINE DEBT /STRUCTURED PRODUCT

Mezzaninefinancing

is

provided

by

mezzanine

funds

and

sometimes

hedge

funds

FinanceasDebtinstrument/structuredproductlikepartlyoroptionallyconvertible

instrumentsetc.,immediatelysubordinatedtoequity

Mezzaninefinancingmightinclude,besidescouponbearingdebt,anequitysweetener

aswell

Consideredas

debt

instrument

with

very

high

yield

which

at

times

in

substitution

of

equity

Returnsgeneratedbythefundare

o Interest fixedrateorfluctuatealonganindex(e.g.LIBOR)ORapreagreedIRR

o Upsidepotential

through

Equity

access

SinceJuly2007andlackoffunding,mezzaninefundingisback

~ ~

2007

9Copyright2010.StrictlyPrivate&Confidential.NotForCirculation.ICICIVentures BanyanTree MezzAsia CapitalLP,CLSA


10/23

KEY DIFFERENTIATORS

Criteria VentureCapital Private Equity Buyouts MezzanineStageof

Company

LevelofRisk High Moderate Moderate Moderate

Assessment

Focus

Mostly

Technology Diversified DiversifiedDiversified

InvestmentSize < $10Mn >$10Mn >$50 Mn >$5Mn



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TYPICAL PRIVATE EQUITY FUND STRUCTURES



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TYPICAL PRIVATE EQUITY FUND STRUCTURES

Overseas/Domestic

(Institutional,Retail)

InvestmentAdvisor/

Managementture

ust

nt

ent

nt

Company

Investee

LimitedPartners

(LPs)

GeneralPartners(GPs)

Foreign/Domestic

Fund SEBI

Inde

ofT

Investm

Mana

ge

Agre

em Company

Investee

Identify,evaluatenegotiate,

structureand

present

the

investmentopportunities

RegisteredTrust

Trustee

nager

InvesteeCom anBoard of Directors

Investments

TrusteeCompany

Local

Ma

Investee

Company

And

InvestmentCommittee

. , .

Usuallylifeofafundis~710years

Donumberofinvestments,withadurationofaround

threetofiveyears

Fundmanagersgenerallyindicateanagreedtargetrateofreturn

orhurdlerate,whichisusually8to10%compoundedperannum

Fundmanagersusuallyreceiveanannualmanagementfeeof

around1.5%2%ofthevalueofthefund


Fundmanagersusuallytakeanactiveroleinthe

managementofthecompany Fundmanagersareusuallyentitledto20%oftheprofitabove

thehurdlerate,whiletheinvestorswillreceivetheremaining

80%


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CURRENT SCENARIO



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CURRENT MARKET SCENARIO

Globally aggregate PE commitments ~$2 trillion (v/sPrivateEquity

$1 trillion in 2003 and an expected $5 trillion within 5

to 7 years)

Globally ~1,500 funds are currently seeking to raise

more than $800 Bn in funds19.03

302

405

312

206

200

300

400

500

10

20

$Billion

ea

a ue ea s

looking for good investment opportunities

Interest in investing in sectors supporting Indias

domestic growth like education, healthcare,

consumer oods infrastructure Power cleantech etc.

7.8610.59

3.40 1.83

100

2006 2007 2008 2009 20102M

US

PESectorDealSummary Looking at big size transactions and proven business

models

Various India centric funds are being launched

globally to invest in India

Bankingand

Financial

Services,11%

IT&ITeS,6%

Mediaand

Entertainment

,6%

Education,3% Hospitality,2%

Retail,1%

Evaluation of deals has become far more stringent

Valuation has impacted substantially

The total value of PE deals announced in India in the

CY09 stands at $3.4 billion

Pharma,Healt

hcareand

Biotech,4%Others,21%

Average PE ticket size decreased from $34 million in2008 to $17 million during 2009 and again increased

to $37 million for first two months of 2010

Real Estate, BFSI, Power and Pharma, sectors were

RealEstate

andInfra

Management

26%

Energy,12%


t e ea ers as ar as sectora va ues are concerne

Shippingand

Ports,5%

e ecom,


15/23

RECENT DEALS

Investors Investee Sector Investment

(USDMillion)BainCapital Himadri Chemicals&

IndustriesLtd

Plastic&Chemicals 54

GoldmanSachs,Indivision andOak Tikona Di italNetworks IT&ITES 106

India

Sequoia CapitalIndia Stovekraft Pvt Ltd FMCG,

Food

&

Beverages 11

InternationalFinance Corporation AuraMiraEnergyCompany Power&Energy 10

FungCapital FutureSupplyChain

Solutions

Logistics 30

ICICIVentures Lavasa Corporation

Ltd Real

Estate

&

Infra 53

FranklinTempleton CareerPoint Education 10

MatrixPartnersIndia FIITJEELtd Education 22

SequoiaCapitalIndia JustDial Media,Entertainment& 9

MilestoneReligare KrishnaInstituteofMedical

SciencesLimited

Hospital 13

ApolloManagement DishTVIndiaLtd Media 100


International FinanceCorporation JainIrrigationSystemsLtd PlasticsandChemicals 16


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INVESTMENT PROCESS



17/23

PEINVESTMENT PROCESS

StructuringtheBusiness

PreparationofBusinessPlanand

Marketingcollateral

Shortlist andevinceinterestfrom

theInvestors

,Valuationand

NegotiationObtainTermSheetDueDiligence

Definitive

Agreement



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ADVANTAGES AND DISADVANTAGES OF PRIVATE EQUITY



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ADVANTAGES OF PRIVATE EQUITY

Meet

Financial

Objective CorporateGovernance

NetworkingandGlobalIntegration

O erationalOrientation

CorporateStrategies

LongTermCapitalCommitment

Easieraccessothersourceoffinance

Experience&ExpertiseinRiskRewardAnalysisandCapitalallocation

BuildConfidencein Customers,Employees,Suppliers,Banks&otherlending

institutionand

Markets

RelativelylessexpensivefundraisingexerciseincomparisontoIPO



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DISADVANTAGES OF PRIVATE EQUITY

Raising

Private

Equity

finance

is

demanding,

time

consuming;

at

times

the

business

maysufferifpromoterdevotesmoretimeforthetransaction

Dependingontheinvestor,promotersmayloseacertainamountofpowertomake

managementdecisions

Willhavetoinvestmanagementtimetoprovideregularinformationfortheinvestorto

monitor MightcreateconflictordifferingopinioninlongtermstrategyduetopressuresofEXIT

Thecostofcomplyingwithregulationscouldberelativelyhigher

Non

alignment

of

Interest

of

fund

manager

on

the

board

and

entrepreneur

could



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Q&A



22/23

CONTACT

Phone : +919821120591

Email : [email protected]

SunilGoyal



23/23

THANK YOU


Documents

Introduction to PE by Sunil Goyal - Mar '10_Final