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8/14/2019 Lesson 05 Private Equity Funds November 2012
1/39
Universit di TorinoFacolt di Economia
CourseofBusinessCombination
November2012
PrivateEquityFunds
8/14/2019 Lesson 05 Private Equity Funds November 2012
2/39
Agenda
PrivateEquity
2
Definition andClassification
CaseStudy
The
Investment Process
Exit
8/14/2019 Lesson 05 Private Equity Funds November 2012
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PrivateEquity:Definition
3
Acquisitionofmajorityandminoritystakesinthesharecapital offinancialand(mainly)industrial
companies
Theobjectiveistoinvesttosupportacompanyatdifferentstagesofitslifecycle,injectingcapital
andmanagerialskillstocreateavaluehigherthantheinitialinvestmentcost
Investmentscan
be
made
in
two
ways:
Usingthebuyersowncapital,or
Creatingaclosedendfundfinancedbyinvestorsandmanagedbyaspecialistteam, i.e.a
privateequityfund
A
private
equity
fund
is
an
investment
vehicle
that
realizes
between
7
20
investments
during
its
existence(512years)
Investmentsatdifferentdevelopmentstagesofacompany:
Venture/StartUp/SeedCapital:earlystage
ExpansionFinancing:growthstage
ReplacementCapital:
to
restructure
/change
the
shareholder
base,
typically:
o LeveragedBuyOut:acquisitionwithlargeuseofdebt
o ManagementBuyOut/In:acquisitionbyexternalorinternalmanagerswithlargeuse
ofdebt
Turnaround:fixingcorporatecrisis
8/14/2019 Lesson 05 Private Equity Funds November 2012
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PrivateEquity:Classification
4
Earlystagefinancing(seed
capital/startup):createa
newcompany
Expansioncapital:
realise
developmentprojectswithan
internalorexternalgrowth
Replacementcapital/buy
out/bridge:changethe
corporateownership/financial
structure
Turnaround:execute
restructuringandrecovering
ofacompany
Investmentswithmediumlonghorizonrealisedbyprincipalsorclosedendfunds
Theobjectiveistorealiseaperformanceof1530%ofInternalRateofReturn(IRR)bybuyingand,
fewyearslater,sellingastakeinatargetcompany
Businesscycle
of
the
target
company
Majorityinvestments(industrialrationale)
Investors handsoninvolvementinthe
operationalmanagement,alsothrough
trustedmanagementteams
Noconstraintsforextraordinarytransactions
Exitusuallyviathesaleofthecompany
Minorityinvestments(financialrationale)
Agreementbetweenthemajorityshareholder
andtheindustrialpartnerto:
Discipline
the
companys
governance
Setthebusinessplanstargets
Formalizetheexitparameters
Investments
Venture
Capital
Private
Equity
8/14/2019 Lesson 05 Private Equity Funds November 2012
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8/14/2019 Lesson 05 Private Equity Funds November 2012
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PrivateEquity:Classification
InvestmentinanentrepreneurialideaorventurePrincipalfeatures:
Highlyspecialised
investors
Highriskofprojectfailure
Seedinmanysituations,ofwhichonly
fewwillusuallysucceed
SeedCapital
Aproduct/serviceisalreadyexisting(prototype),butitscommercialeffectivenesshasnotbeentestedyetPrincipal
features:
Highlyspecialisedinvestors
Highriskofprojectfailure
StartUp Earlystage
Acceleratethetargetcompanysgrowthwiththeuseofcapitalfinalisedtosupportinternalorexternalgrowthstrategies Growth
of
capacity/volumes/market
share
Expansioninnewmarkets/productsor
verticalintegration
Acquisitions
Expansion/DevelopmentCapital
Replacement:Assetacquisitionfromothershareholders(eg,generationaltransition,secondary)
Buyout:
Acquisitionofmajoritystakes
togetherwithamanagerialandstrategicchange
Significantuseofleverage(LBO,MBO)
ReplacementCapitalandBuyOut
6
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PrivateEquity:Organization
LegalStructure:
Limitedpartnerships(sponsoredbyPEfirms)
PEfirmsaresmallorganizations(averaging10professionals)whoserveasthe
GeneralPartners(GP)forPEfunds
Investors:
Pensionfunds,banks,insurancecompanies,foundations
Committoinvestoveracertainnumberofyears
Fees:ManagementFee:TypicalarrangementisforLPstopayasetpercentageof
committedcapitaleveryyear,mostcommonly2%
Sometimesthefeeisconstantovertime,sometimesitdropsafterthefirstfive
years
CarriedInterest
(Carry):
The
basic
idea
issimple:
ifthe
committed
capital
is100
ml.andtotalexitproceedsare200ml.,thetotalprofitis100ml.A20%carried
interestwouldproduce20ml.Thestandardcarriedinterestisindeed20%
Timing:5yearinvestmentperiod,10yearfundhorizon
PriorityReturn,Clawback
7
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8
InvestmentType Operator
Earlystage Venturecapitalist
Spinoff Generalistfund
Expansion/
Development Generalistfund
Countryfund
IndustryfundReplacement/
Buyout
Bridge
financing Generalist
fundTurnaround
Specialsituationfunds
IndustryfundsExtrajudicialrestructuring
Dualroleofbanks,giventheirroleofcreditintermediaries:
preventivefunction
monitoringfunction
PrivateEquityClassification:Summary
8/14/2019 Lesson 05 Private Equity Funds November 2012
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D D
PrivateEquity:LeverageImpact
E
9
E100
50
P=200
PD=150
150vs.50
Return3x
D
E
D
E
100
P=200
110
PD=110
110vs 10
Return11x
10
90 90
150
5050
8/14/2019 Lesson 05 Private Equity Funds November 2012
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PrivateEquity:Classification
Theobjectiveofturnaroundinvestmentsistorestructureacompanyinacritical
state,viaextraordinaryoperationsthatprovide:
Financial
resourcesFinancialdiscipline
Managerialskillsandknowhow
Synergies
Challenges:
Managerialexpertiseisrequired
Potentialconflictofinterestsandnegotiationswiththestakeholdersinvolved
(existingshareholders,lenders,unions,management)
Turnaround
Inturnaroundsituations,theprivateequityfundassumescontrolofthecompany
throughdirectmanagementoftherestructuringprocess
10
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Turnaround:StrategicAlternativesinManagingaCompanyinCrisis
11
Write
off
of
part
of
the
loansbythebanks
DebtRenegotiation
Bankruptcy/Liquidation
Debt/EquitySwap
Company
inastate
ofcrisis
Restructuring
Liquidation
Judicial
Extrajudicial
Merger
Liquidation
Temporarycrisis:e.g.,causedbyliquidity
shortage, thenrescue
planisfeasible
Structuralcrisis:ifthe
fairvalue
of
the
assets
issignificantlylower
thantheliabilities,
thenliquidation
Oncethecrisisbecomesevident,the
companyand
its
lendershaveto:
agreeonarestructuringplan
oftenappoint
consultants
lookforalternativecapitalsources,
suchasprivate
equityfunds
Usuallyan
investment
bank
and
alaw
firm
act
as
advisors
Success
Not
Success
L=Valueofthecompanyintheevent
ofliquidation
V= Value
of
the
company
after
restructuring
L>V Liquidation
L
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Turnaround:StrategicAlternativesinManagingaCompanyinCrisis
12
Oncechosenthe
recoveryplan,the
investmentbya
privateequity
fund
representsjustone
ofthepossible
alternatives
Original
Founder/
Ownership
Injectionof
New
Capital
/Resources
Lending
Banks
ThirdParty
Investors
Injectionofcapitalby theoriginalowners representsoneofthefirstoptions
Lack of commitmentof capital by the original owners could
makeitdifficult
to
pursue
arestructuring
plan
Asecondalternativeisadirectinvolvementofthelenders inthetargetcompanyscapital,throughadebtequityswap,i.e.
thetransformationofloansintoastakeinthecompany
Fromanaccountingpointofview,theeffectisanincreasein
the
companys
equity
and
a
reduction
in
its
debt,
without
changingitscashposition
This alternative could result in extreme cases anddependingonthelevelofleverage inthebankstakingover
thecompany.Thisisusuallyanoptionnotfavouredbybanks
Anotheralternative
isthe
entry
of
athird
party
investor,
either:
Anindustrialpartner,or
A financial partner, i.e. a private equity fund, or anotherinstitutional investor specialized in distressed/critical
situationswiththeskillstopursueacorporateturnaround
8/14/2019 Lesson 05 Private Equity Funds November 2012
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Turnaround:StrategicAlternativesinManagingaCompanyinCrisis
13
Redefinethecompanysstrategicpositioningthrough: Rationalizeproduct/marketstrategies
Recoverthecashrequiredtorelaunchthebusiness
Redefinetheoperating/organizationstructureandrecoverproductivity
Selectedactions:
Replacemanagement
Disposeofnoncoreactivitiesandrefocusonthecorebusiness Revampproductionprocesses Industrialpartnerships/JVs Redefinecommercialandmarketingstrategies
Short/mediumtermforecast(e.g.,volumes,sales,GOP) keyelementsofthebusinessplan
KeyElements
of
the
Restructuring
Plan
8/14/2019 Lesson 05 Private Equity Funds November 2012
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Turnaround:StrategicAlternativesinManagingaCompanyinCrisis
14
KeyElements
of
the
Restructuring
Plan
Actionstoreestablishanappropriatefinancialstructureofthecompany:
Setnewtermstoremunerateandrepaytheoutstandingdebt
Definetheoptionstoprovidethecompanywithnewresourcesinorderto(i)continuethe
ordinarybusiness
activity,
and
(ii)
pursue
new
projects
Debtrenegotiationcanbeachievedwiththefollowing:
Extendmaturitiesanddefinenewrepaymentschedule(generallybetween38years)
Lenderstowriteoffpartofcapital/interests
Lower ranking in repayment however, senior ranking to certain lenders (e.g., new
investors)
datio insolutum, i.e.agreement to transfer theownershipofassets/rights inplaceofaloanrepayment
Debt/equityswap
Replaceoutstandingbondswithanewbondissue
Sweeten writeoffs of part of the capital / interests by offering warrants and/or
convertiblebonds
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Agenda
PrivateEquity
15
Definition andClassification
CaseStudy
The
Investment Process
Exit
8/14/2019 Lesson 05 Private Equity Funds November 2012
16/39
ProcessofaPrivateEquityInvestment
Theprocessofaprivateequityinvestmentconsistsofthefollowingactivities:
Identification of Opportunities /Dealsourcing
Apotentialdealcanbesourcedthroughtheshareholdersofthetargetcompany,whoapproachestheprivateequityfund,orabrokerwhowilltrytobringbothpartiestoclosethedeal
Alternatively,theprivateequityfundcanapproachcompanieswhoareexpandingandwishtogrowfurther
Structuring andExecution
Thebusinessduediligenceisperformed bytheprivateequityteamondifferentareas/potentialofthe
company.
Auditors
and
consultants
are
appointed
to
conduct
the
financial, tax
and
legal
due
diligence Thepartiesandtheirlegaladvisorsnegotiatetheagreements
PostAcquisition Management
Themanagementteamappointedbytheprivateequityfundclosely monitorsthecompanysperformance,
fromanoperationalandfinancialpointofview,benchmarkingit againsttheoriginalbusinessplan
Thenewshareholderusuallydrivesimprovementsin manyareasofthecompany,suchasoperations,
corporategovernance,
financial
structure/discipline
and
general reporting
Exit
ExecutedviaIPO,atradesaleoraBuyBackbytheoriginalowners
Afterexitingthetargetcompany,theprivateequityfundreturnstoinvestorsthecapitalinvestedwiththe
profitearned
16
8/14/2019 Lesson 05 Private Equity Funds November 2012
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8/14/2019 Lesson 05 Private Equity Funds November 2012
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StructuringaPrivateEquityInvestment
BusinessPlan
Mainbasetoassesstheexpectedvaluecreation
Setthemediumlongtermobjectivesofthecompany,itscompetitivepositioning andstrategies,the
development
of
the
financial
structure/economic
results
Valuation
Basedondifferentmethodologies(e.g.tradingcomparables,prepaids andDCF)
Sensitivityanalysisisperformedonthebusinessplansmainassumptions
DueDiligence
Analysisconducted
to
review
the
companys
data
and
information
and
to
identify
potential
areas
of
riskandvaluecreation
Usuallyfocusedonthefinancialaccounts,managementcontrol,legalandtaxrisk
Agreements
Thelegaladvisorsprepareandnegotiateallthedocumentsneededforthetransaction(e.g.
ConfidentialityAgreement,
Memorandum
of
Understanding,
Share
Purchase
Agreement)
Governance
Definethecompanysdecisional,reportingandmanagementprocesses
Regulate therelationsbetweentheprivateequityinvestorandtheothershareholders
Principalstages
of
the
investment
process
18
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Agenda
PrivateEquity
19
Definition andClassification
CaseStudy
The
Investment Process
Exit
8/14/2019 Lesson 05 Private Equity Funds November 2012
20/39
ValueCreationinaPrivateEquityInvestment
ThevaluecreationisalwaysmeasuredintermsofIRR ortimestheinitialcost
Leversofthevaluearethefollowing:
entryprice
expectationsontheexitprice
investmentduration
thevaluecreationpotential
Theseaspectsreflect:
theeconomicresults
thepotentialmarket
the
companys
attractiveness themultiplevaluesatthetimeoftheexit
20
8/14/2019 Lesson 05 Private Equity Funds November 2012
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Exit
ExitfromaPrivateEquityInvestment
Keyisthechoiceoftheexitstimingandmethodinordertomaximizethereturnonthe
investedcapital:
IPO:floatationofthetargetcompany
Tradesale:saletoathirdparty,generallyanindustrialbuyer
Buyback:repurchasebytheoriginalfounder
Putoption:givestheprivateequityinvestortherighttosellinthefuture
Secondarybuyoutoreplacement:saletoanotherprivateequityinvestor
Writeoff:followingavaluereductionoftheshareholdinginthetargetcompany
EXIT
Size
Sector Organizationandmanagement
TargetCharacteristicsTargetCharacteristics EconomicCycleEconomicCycle
Macroeconomicsituation
Financialmarket
conditions
Regulatorychanges
IndustrialIndustrial
Achievementsoftargetsof
businessplan
Peersposition/strength
21
8/14/2019 Lesson 05 Private Equity Funds November 2012
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Agenda
PrivateEquity
22
Definition andClassification
CaseStudy:
Banca Profilo
The
Investment Process
Exit
8/14/2019 Lesson 05 Private Equity Funds November 2012
23/39
Autumn2008:TheGlobalFinancialEarthquake
23
160
180
200
220
240
260
280
300
320
02-set 04-set 08-set 10-set 12-set 16-set 18-set 22-set 24-set 26-set 30-set 02-ott 06-ott 08-ott 10-ott 14-ott 16-ott 20-ott 22-ott 24-ott 28-ott
DJ EU Stoxx Banks
Source Bloomberg as at 28 October 2008
7-Sep-08
GSE bailout
22-Sep-08
$9 bn Mitsubishi /MS (LoI)
23-Sep-08
$5 bn Berkshire /Goldman Sachs
6-Oct-08
Fortis carve
upRescuepackage forHRE
6.0 bn Govtrecap of Dexia
8-Oct-08
Central banks rate
cuts
UK Govt
announces
UK bank
recapitalisation
Iceland takescontrol of Glitnir
and Landsbanki
9-Oct-08
IcelandicFSAtakes overKaupthing'soperations
16-Oct-08
CHF10 bn CScapital increaseCHF6 bn Govtrecap of UBS
21-Oct-08
10.5 bnGovernmentrecap of French
banks
27-Oct-08
3.5 bn Govtrecap of KBC
30-Sep-08
Irelandguaranteesdeposits
16-Sep-08
AIG bailout
18-Sep-08
Lloyds / HBOS
29-Sep-08
Congress fails topass TARP
Fed expandsliquidity programs
Citi / WachoviaB&B nationalizedGovernment supportto Fortis,HRE and Glitnir
25-Sep-08
JPMorgan / WaMu
3-Oct-08
WFC / Wachovia
3-Oct-08
TARP approval
14-Oct-08
US Governmenttemporary liquidityguarantee
$250 bn Govt recapof US Banks
20-Oct-08
10 bn Govtrecap of ING
7-Oct-086.6 bn UniCreditcapital increase
17-Sep-08
Barclays buysLehmans NorthAmer ica ops
28-Oct-083.0 bn Govtrecap of Aegon
13-Oct-08
Eurozone Govtsannounce actionplan
37 bn Govt. recapof UK banks
MUFJ / MS close
15-Sep-08
Lehman bankruptcy
BofA / Merrill Lynch
Bankruptcies
GovernmentInterventionsMergers
Recapitalizations
8/14/2019 Lesson 05 Private Equity Funds November 2012
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8
9
12
15
50
35
33
15
15
33
1996 ( bn) 2007 ( bn)
+298%
1.UBS
10.SocGen
2.Allianz
3.HBOS
5.CS
4.HSBC
6.Barclays
7.ING
8.CA
9.AXA
1.HSBC
2.UCI
3.UBS
4.RBS
5.BNP
7.ING
6.Santander
9.SocGen
10.Barclays
Average:89.6bnAverage:22.5bn
68
69
73
73
161
99
93
84
87
89
8.IntesaSP
The10biggest bankinggroups by marketcapitalization
24
2008 ( bn)
1.HSBC
2.BNP
3.Santander
4.UBS
5.Intesa
SP
7.CS
6.BBVA
9.SocGen
10.CA 20
21
23
30
116
49
48
31
32
35
8.UCI
54% Average:40.7bn
InthelasttenyearstheEuropeanbankenvironmenthaschangedintermsofplayersandmarketcapwiththecreationofPan
Europeanbanks
Europeanbanks,alongwithUSbanks,arethosethathavesufferedthemostduringthelastcrisisintermsofcapitalization
Top10marketcap:225 bn Top10marketcap:896 bn Top10marketcap:407 bn
8/14/2019 Lesson 05 Private Equity Funds November 2012
25/39
BancaProfilo:Overview
25
Founded
21
years
ago,
Banca Profilo is
a
private
banking and brokerage boutique, headquartered in
Milan
TheBanksmainactivitiesare:
PrivateBanking:performedthrough9branches
mostlylocatedinthewealthyareasofNorthern
Italy,and
by
its
Swiss
60%
owned
subsidiary
Socit Bancaire Prive (SBP)inGeneva.The
GroupsFuM amountedto1.5bn asof31/12/08
CapitalMarketsandBrokerage:oneofthelargest
domesticplayersinequityandfixedincome
products
ProprietaryTrading:centeredona897mln bond
andsecuritiesportfolioanda1bn derivatives
portfolioasof31/12/08,bothintheprocessof
beingdownsized
AssetManagement:managedaccounts
Investment
and
Merchant
Banking:
performed
by
Profilo Merchant, focusing on SMEs and private
equity
In2008theBankreportedaconsolidated lossof78
mln,mainlyresulting from thenegativeperformance
ofitsproprietarytradingactivities
Banca
Profilo
Group
Structure
3Q2009
KeyFinancialData( mln)31/12/07(1) 31/12/08 1H09
P&L
TotalIncome 59.0 (13.0) 23.9OperatingIncome 17.2 (52.3) 3.7NetIncome(Loss) 10.6 (77.9) 0.9BalanceSheetTotalAssets 2,402 2,363 1,903TradingAssets 1,755 1,632 1,242ShareholdersEquity 115 29 33OtherDataFuM 2,386 1,494 1,420Employees 208 194 196
(1) 2007P&LfiguresdonotincludeSBP
9M09
33.3
3.8
0.9
1,595
967
103
1,489
194
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27/03
CompletedtheFirstPhaseoftheTurnaround
TimetableandMainAchievements
FirsteveracquisitionofcontrolofabankbyaprivateequityfundinEurope
Received5regulatoryauthorizationswithin3months(ie,BankofItaly,Consob,ItalianAntitrust,FINMA,FSA)
Nolossof
Private
Bankers
and
increase
offundsundermanagement(+5%in6months)
19/02
Signingof
the
Agreement
withSator
Regulatory
authorization
sandclosing
8/06
Capital
increase
reservedto
Sator
6/07
Rightsissue
5/10
January09 Feb.09 March09 April09 May09 June09 July09 August09 October 09Sept.09
Restructuring
Planapproved
November09
Business
Plan
approved
19/11
26
Completerestructuring ofgovernance,managementandorganizationinlightofthenewbusinessmodel,inItalyandSwitzerland
Significantrestorationoffinancial
stability,bringing
the
Bank
to
break
even
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BancaProfilo:Restructuring andGrowth/Value Creation Potential
27
RestructuringPhase1
Refocusonprivatebankinganddisposalofnoncorebusinessesandnonperformingbranches
HeavyrestructuringoftheItalianoperationsthrough:
ReorganizationanddownsizeoftheFinancedivision
Strengtheningofthirdpartybrokerageactivityoncashandderivatives
Rationalizationofstaffandcostdiscipline
Downscaleofproprietarytradingactivityandrestructuring/runoffofcurrentportfoliosthrough:
Saleofthemostcomplexsecurities
UnwindingofCDSandotherderivatives
Optimizationof
funding
sources
StrengtheningthemanagementteamthroughtheinjectionofSator resources
Growth/ValueCreationPhase2
GrowAuM:
RevampboththeItalianandSwissbanks
Hirenewprivatebankersandattractnewcustomers
Implementaninnovativeapproachtoprivatebanking:highend,highqualityfamilyofficetype
services,open
architecture,
ancillary
services
such
as
advisory
Growrevenues:
Advisoryservices
Revampedassetmanagementproducts
Purebrokerageactivity
Turnaroundbasedonthreepillars:
1. Strong capitalbase:TierIratioexpectedabove23%(oneofthehighestinEurope)attheendof2009
2. Managerialapproachaskeydrivertobusinessrelaunch:Sator willhavegovernancecontrolandkeymanagementinvolvement
3. Disciplineinaccountingandbusinessrestructuring:tacklingcurrentissuesaffectingfinancialmarkets
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ShareholderStructurePostCapitalIncrease
Arepo BP
S.p.A.
55.8%
Market
25.7%
ReferenceShareholders
18.5%
1)CapitalStrengthening
Capitalincreaseofupto110mln
30mln viaarightsissuefullyunderwrittenbythemarketon5/11/2009
80mln without
pre
emptive
rights,
of
which70mln alreadyunderwrittenbyArepo BPon6/7/2009and10mln tobeallocatedbyyearend
CapitalstructuresignificantlystrengthenedtolevelsofexcellencebyEuropeanstandards
RecapitalizationStructure
Arepo BPS.p.A.: parentcompanyoftheBanca
Profilo Group,100%ownedbySator PEFund
28*After
the
allocation
of
the
additional
10
mln,
Arepo BPs
shareholding
will
be
diluted
to
52%
>25%
Tier1Ratio
2007 2008 09/09PF
23.6%
2009F
10.2%6.1%
Amongthe
highestin
Europe
Shareholders EquityEvolution
0.21
pershare
mln2007ConsolidatedShareholders'Equity 115,52008NetLoss (77,9)o/wNetTradingLosses (49,6)o/wGoodwillwriteoff (15,0)o/wProvisions (9,4)2008ConsolidatedShareholders'Equity 29,520099MOrdinaryChanges 3,9 Sator CapitalIncrease(6/07/09) 70,0 RightIssues(5/11/09) 29,820099MConsolidatedShareholders'EquityPF 133,2
8/14/2019 Lesson 05 Private Equity Funds November 2012
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2)RenewalofManagementandOrganization
Appointednewmanagementteam,streamlinedorganizationoftheBank
Strongmanagementrenewal,particularlyinthe
businessareas,inordertoimplementthechangein
strategy
NewOrganization Personnel
Turnover
Private
Banking
(R. Lagorio)
CEOF. Candeli
Risk Mgmt
Planning &Control
ChairmanM. Arpe
GMN. Angileri
Compliance
Legal
Treasury & FX
Sales &Trading
Markets
HR
Accounting
Regulatory
Reporting
Middle Office
Back Office
Administration
(G. Panzeri)
Organizationand IT
(P. Muselli)
Organization
IT
GeneralServices
AssetManagement
WealthPlanning
Research
Credits
ClientRelations
Family Office
Central Office
Communications
Advisory
- Milan
- Brescia
- Rome
- Turin
- R. Emilia
- Genoa
- Forl
- Pistoia
NewResponsibiliti
es
New Hirings
Strongorganizationaldrivethroughinvestmentsin
people,systemsandprojects
NewOngoingProjects
Completereview
of
Management
Controlin
terms
ofmodelandmetrics,supportedbynewITsystems
Overhaul of Risk Management in terms of modelandsystem,to guaranteefullcontrolofrisks
Riskbasedreviewofoperatingprocesses
DevelopmentofFrontEndsystems tosupportthecommercial
network
Headcountat
01/01/09
HiringsDismissals HeadcountYTD
Savings:
1.9mln
Investments:
2.1mln
142 18 21 145
29
Board ofDirectors
Internal Audit
Finance
(C. Marino, L.Barone)
Products and
Services
(P. Moia)
Topmanagement
salariesreducedand
noncompetition
agreementsreviewed
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3)SignificantReductionofFinancialAssetsandRebalanceofFunding
Deleveragingprocesstobecompletedby2009withadditionaldisposals
FundingDevelopmentFinancialAssetDevelopment
*
It
takes
into
account
the
capital
increase
underwritten
on
06/07/09
and
5/10/09
Reducedpositionsinexoticsecurities(75%YTD)
Exposureto
interest
rates
effectively
down
to
zero
Reducednetexposuretoderivates(77%YTD)
Rebalancedfinancialstructure
Createdliquidity
reserves
Extendedmaturities
10
6.7
3.9
2.7
VAR(99%,10days mln)
879
717
474
Funding( mln)
46%
FinancialLeverage
30x
7x
Securities&CDSPortfolios( mln)
12/08 06/09 09/09 12/08 06/09PF* 09/09PF*
4x
1,225
700
586
12/08 06/09 09/09 12/08 06/09 09/09
60% 87%52%
LoansSensitivity:11
mln (100bp shift)
InterestRateSensitivity:
0.1mln (100bp shift)
Averagematurityfunding:
>30days(+36%vs.2008)FundingfromECB at15
Nov:22%(78%vs.2008)
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FeaturesoftheItalianPrivateBankingMarketToday:theGoodNews
Underdevelopedmarketvs.
the
rest
of
Europe,
polarized
betweenlargecommercialbanksandfewnicheplayers
Hugegrowthpotentialswithfewclientsservedby
specialized operators
Attractivemomentum
as
aresult
of
pressure
on
off
shore
markets,despitethecyclicaldownturnsufferedin20072008
Consolidatedtrendofrepatriationofcapitals
Concentratedmarketintermsofnumberofclientsand
geography Abroaddistributionnetworkisnotaprerequisiteforthe
business
Negativecurrentsituationformanyplayersduetothe
internationalcontext(e.g.,SwissandUSbanks)
Independentandfocusedplayersfavoredbythemarket
environment
Thecombinationofstructuralandcyclicalelementscreatessignificantgrowthopportunities,
particularlyforaspecializedplayerwithasmallshare(0.1%)ofahugemarket(836bn)
bn
2008 2009
83
6
2009(incl.Tax
Shield)
80
4
31
No.ofHo useh old s Asset s
Above10ml n 510ml n 15ml n 0.51
5%
30%
+4%
88680
4
+10.2% CAGR 1012
+4%
836
ExpectedMarket
Evolution
WealthConcentration
NonSpecializedPlayers(58%)PrivatePlayers(42%)
8/14/2019 Lesson 05 Private Equity Funds November 2012
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andtheBadNews:theCurrentBusinessModelisNoLongerSustainable
Anewparadigmisnecessarytotakeadvantageofthemarketopportunities
Strongcompetition
in
the
acquisition
of
new
assets
through
externalhiringofprivatebankers
Highacquisitioncosts
Lowanddecliningprofitabilityasaresultof distrusttowards
managedproducts andlowpenetrationofbankingservices(61
bpsvs.
94
bps
in
Europe)
Profitabilitydeclineoffsetbyriskierproductsforclients
Clientsrequireincreasinglygreatertechnicalskillsandthe
abilitytosolvecomplexproblems
Lowimpact
of
traditional
client
and
product
segmentation
strategies
StrongcommercialandorganizationalimpactofrecentEU
regulations(MiFid)
Organizationalflexibilityistheprerequisitenecessarytomanage
regulatorydevelopments
Widespreaduseofmultiplebanks(64%ofclientsusemore
thanonebank)
32
10
6
2
6
Italy Europe
Asset
Management
Loans
Insurance
products
TotalIncome
Margin
53
61
78
94
AssetProfitability
64% 68%
NumberofBanksRelations
36% 32%
40% 41%
16% 16%
5% 5%3% 4%
2008 2007
5Istituti4Istituti3Istituti2Istituti1
Istituto
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Banca Profilo:theNewBusinessModel
Modifytherevenuestructureinasustainableway
1
Increasetherangeofassetsundermanagement
Provideauniqueandnotsimplyreplicablerangeofservicesorproducts,alsoin
exclusivity
Movefromabankmanaging:
Financialwealthonly
toabankmanaging:
Financialwealth
Corporatewealth
Realestate
wealth
Familywealth
Services/RelationCultureProduct/InvestmentCulture
MainLevers
Implications
PillarsoftheNewBusinessModel
33
8/14/2019 Lesson 05 Private Equity Funds November 2012
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Banca Profilo:TheNewBusinessModel
34
RedefinetherelationbetweenthePrivateBankerandtheBank2
TransformationfromdistributionnetworktoagroupofManagers, partnersoftheBankinthe
corporatedecisionprocessesandinsharingitsresults
MainLevers
Implications
FortheBank: ForthePrivateBanker:
Highmanagerialskills
Abilitytomanagemoreassetsand
moreclients
Abilitytomakeclientsloyalwithunique
servicesofhighquality
Fromdistributorofproducts to
banker
Possibility
to
operate
in
a
flat
and
independentorganization
PillarsoftheNewBusinessModel
Scalabilityof
business
Newcompensationmodel:
Noentrybonus
Nobonus
on
net
inflows
Nobonusonamountofmanagedassets
Yesbonusontherelationdepth
Yesparticipationatriskadjusted
profitability
New
participation
model
in
corporate
decision
making
Costreduction
(noagreements)
PrivateBankerowneroftheclient
Makeclientsloyal throughnoncompetitionagreementswithPrivateBankers
PrivateBankings Cost/IncomeRatiohigherthanthatofInvestmentBanking
Lowappreciation
of
the
commercial
network
for
high
value
products/services,
that
imply
sharing
of
clients
Current
Logic
8/14/2019 Lesson 05 Private Equity Funds November 2012
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Banca Profilo:theNewBusinessModel
35
MakeclientsandPrivateBankersloyaltotheBank,
overcomingthetraditionaltradeoff
3
Fromcommercialpoliciesaimedatmaximizingprofitabilitytocommercialpolicies
aimedatmaximizingtheanswerstoclientneedsandthesolutionstotheirproblems
MainLevers
Implications
Reliability:
Fullyindependentbank
Excellentcapitalstrength
ServiceLevels:
Qualityof
offer
and
management
at
all
levels,supportedbyprovenexperienceandprofessionalskills
Breadthofofferrange(onestopshop)
Uniqueservices(servicesinexclusivity)
Nonaggressivecommercialpolicy
(profitability
not
linked
to
risks)
Benefitsfor
clients:
Shareofwallet
increaseand
reductionofclient
turnover
Relations:
Oneonlyreferencepointforthemanagementofwealthandanyothercomplexneed
Opportunitytoaccessdirectlythe
TopManagement
of
the
Bank
RelationBank
Pillarsof
the
New
Business
Model
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BancaProfilo:2012Consolidated Targets
36
TotalClientFuM
bn
8.4
09/200
9
2012E
1.7
Revenues
mln
>100
09/200
9Ann.*
2012E
33
Cost/Income
%
58%
09/200
9
2012E
89%
ROAE
%
17%
09/200
9
2012E
2%
RecognizedBrand
Cohesiveteamwithstrong
corporatespirit
at
all
levels
Satisfied
clients
TangibleTangible
IntangibleIntangible
*NetProfit9Mannualized,excludingpreviousportfolio
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BancaProfilo:StockPerformance
37
Banca Profilo sharesarelistedontheItalianStockExchange
Sharepriceof0.62asof30October2009 MarketCapof389mln
UntiltheannouncementofthedealwithSator*(19Feb2009),Banca Profilo stockhadperformedinlinewiththe
Italianbankingsystem,ie60%LTM and70%L6M
Thestockwasup30%onthedayoftheannouncement,atmorethantwiceSators issueprice,showingthepositive
marketreactiontotheinvolvementofSator inBanca Profilo
Sincethe
deal
announcement,
Banca Profilo stock
price
has
increased
by
nearly
threefold,
despite
the
large
dilution
resultingfromthecapitalincrease
Source:BloombergandCompanydataProfilostockpricereinstated to reflect thecapitalincrease *SatorPrivateEquityFund completed theacquisition of BancaProfiloviaArepo BP,currently holdingcompanyof theBancaProfiloBankingGroup
0.00
0.20
0.40
0.60
0.80
1.00
1.20
1.40
1.60
Jan07
Feb
07
Mar07
Apr07
May07
Jun07
Jul07
Sep07
Oct07
Nov07
Dec07
Jan08
Feb
08
Apr08
May08
Jun08
Jul08
Aug08
Sep08
Oct08
Dec08
Jan09
Feb
09
Mar09
Apr09
May09
Jun09
Aug09
Sep09
Oct09
BancaProfiloshareprice ItalianbankingIndex rebased
SigningoftheAgreementwithSator Sator
CapitalIncrease
RightsIssueStarts
Sator'sInvestmentPrice
BancaProfiloSharePrice(since Jan2007;)
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Banca Profilo:InvestmentCase
AttractiveMarket
Potentialand
Timing
Italyhasoneofthehighestsavingsratesintheworld
Lack
of
a
real
independent,
high
quality
serviceoriented
private
bank
in
Italy
due
to
historical
attractionofoffshorebankingmarket(Switzerland,Monaco)
Appropriatetimingduetocurrentturmoilinthebankingindustry,withclientsinsearchofsafehavens Possiblepotentialrepatriationoftheoffshorewealthduetointernationalpressureonbankingsecrecy
andtaxhavens
Noloanportfolio(90%Afinancialassets,noCDO,subprimeorothertoxic assets)
Turnaround
Upside
Goodplatformtorelaunch theprivatebankingbusiness
Potentialto
reshape
the
service
model,
leveraging
on
existing
infrastructure
while
revamping
brand
andproductportfolio
Injectionofnewexperiencedmanagementteam Downsizingofproptradingactivity/risksandoptimizationoffundingsources
Attractive
Valuation
Attractivevaluationat26mln fortheGroup,reflectingadiscountoncurrentNAV (vs.premia forEuropeanBanks)
Issue price at 0.20 per share, implying a 93% discount to peak market price in 2007, and
approximately1/3
of
the
current
price
38
LandmarkDeal
First bank bailout with private capital in Europe as an alternative to the current Governmentinterventions
FirsteveracquisitionofabankscontrolbyaprivateequityfundinItaly FirsteverexemptiononaminoritytenderofferforabankinItaly
Exit
Expectedtradesalewhenthebusinesshasreachedcriticalmassandprofitability
Scarcitypremium
attached
to
asuccessful
Italian
private
bank
by
strategic
buyers
FitwithSator
Investment
Strategy
Sator PEssweetspot:Italy,turnaround,financialservices,managerialinvolvementandcontrol Complextransactionstructuringandnegotiationsduetothepubliclistingandregulatoryrequirements Criticalduediligenceasaresultofdistressedsituationandfundingconstraints
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Universit di Torino
Facolt di Economia
CourseofBusinessCombination
November2012
PrivateEquityFunds