Co-investment in private equity in Russia

Alexander Lupachev, Delta Private Equity

November 2, 2007

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Overview

Co-investment in PE in Russia: status quo

New trends in private equity syndication

Pros and cons of co-investment in PE in Russia

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Co-investment in PE in Russia: status quo

Private equity in Russia is booming like never before

19941994 2002006620020077

1111

8080

10100+0+

Number of PE funds

20052005 … … 1999 1999 ……

11

66

7+7+

Funds under management, $ bln.

19941994 200200662002007720052005 … … 1999 1999

……

Source: RAVI, DPEP

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Co-investment in PE in Russia: status quo

New funds and macroeconomics drive up the average deal size, the fact that makes syndication more practical

Source: RAVI, DPEP

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Co-investment in PE in Russia: status quo

There are four key drivers for syndication in Russian private equity

Syndication

Local PE Local PE fundsfunds

Limit portfolio risks

Diversify value added

Return a favor

Global PE fundsGlobal PE funds

First deal in Russia Local expertise Control going forward

EntrepreneursEntrepreneurs

Leverage investors’ experience

Minimize influence of one single investor

Need a lead investor in equity Bundle debt & equity

Int’l Financial InstitutionsInt’l Financial Institutions

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Co-investment in PE in Russia: status quo

Local funds are the most active in doing club deals

= +1995

2001 = +

2005 = +

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Co-investment in PE in Russia: status quo

Syndication between local and global funds is gaining grownd

1998 +=

2005 = +

2007 = +

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Co-investment in PE in Russia: status quo

Syndication between local funds and international financial institutions remains popular

2003 +=

2005 = +

2007 = +

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New trends in private equity syndication

Clubs deals in Russian PE become more sophisticated

PE funds co-investing with their limited partnersEBRD – limited partner in VTB funds, Tamir Fishman, Troika, Russia

Partners, NorumHedge funds

Syndication between pure-play private equity funds and local pools of capital

Club deals between Russian and global funds outside of Russia

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Pros and cons of co-investment in PE in Russia

Bigger deals, larger companies

Diversify portfolio risks – important for more invested funds

Leverage value added by various groups of PE investors (complementary skill set)

More cash for follow-on rounds

Access to equity AND debt

Club deals generate more value but take a lot of effort and time to put together

Pros Cons

More sophisticated deal structures

Need more time (and lawyers’ fees!) to close the deal

Need to sync time to liquidity for all investors

Herd mentality undermines proper risk assessment / due diligence

More cumbersome corporate governance (too many cooks)

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About Delta Private Equity

Delta Private Equity – pure play international fund operating in Russia since 1995. More than $400 mln. invested into 52 companies.

Financial Services Consumer Goods & Services

Telecoms, Media & Technology