PE Fund Raising Process

PRIVATEEQUITYINVESTMENT FUNDRAISINGPROCESS
3rd September,2010 p ,
Presentedby CA.NimeshSalot
Copyright2010.StrictlyPrivate&Confidential.NotForCirculation.
AGENDA
WhereDoYouBegin? PlanningForPE RoleOfAdvisors InvestmentProcess Investment Process StructuringTheBusiness BusinessPlanAndMarketingcollateral ShortListAndEvinceInterestFromTheInvestors ValuationandNegotiation TermSheet Term Sheet DueDiligence DefinitiveAgreement ExitOptions Q&A
WHEREDOYOUBEGIN?
WHERE DO YOU BEGIN?
PlanningStage Planning Stage
Right
Plan GetAdvisor
Documentation andmarket
Negotiate
Closure
ImplementationStage
PLANNINGFORPE
PLANNING FOR PE
Prepare forapartner Value the experience and input potential of the PE Fund Expect questions, information requests Flexibility will be key virtue
PLANNING FOR PE
Articulate business strategy
Define niche or unique selling proposition (USP) for the business Develop growth plan strategy diversify customer base or product line / offering or geographic presence Develop implementation plan for the strategy
Structuringof theBusiness the Business
Bring scattered businesses under one entity Simplify the Business Structure
Developing management team
Professional management in key functions Experienced in scaling up and managing growth
Retain goodadvisors
Engage experienced advisors / bankers Attorney and Accountant are your business partners Broad base your Board of Directors
Copyright2010.StrictlyPrivate&Confidential.NotForCirculation. 6
ROLEOFADVISORS
KEY ADVISORS TO A PRIVATE EQUITY TRANSACTION

Investor I t Company DueDiligence Agencies In houseTeam Investment Banker Auditor Legal Financial Technical Business GettheRIGHTAdvisor! Get the RIGHT Advisor!
8
Lawyer
ROLE OF KEY ADVISORS

Investment I t t Banker
Planning Formulating Strategy with the Promoter for PE deal g g gy Execution Documentation and Marketing the Deal Closure Negotiating and closing the deal Long association and trusted advisor to the promoter Crucial role in decision making Business Restructuring and Due Diligence Preparation Hand holds the promoter from start to end Arranging documentation and necessary data Supporting the advisors at all levels Financial Legal Technical Business Legal Compliance and due diligence Negotiating the legal terms of the deal Documentation and legal compliance pertaining to the transaction
9
Auditor
Inhouse Team
DueDiligence Agencies
Lawyer
ROLE OF INVESTMENT BANKER

PlanningStage Planning Stage
StrategyFormulation BusinessRestructuring PreparationofIMand BusinessModel Assessingthevaluation RegularMIS InternalAudit
Execution
PEPlacement Deal makingandNegotiations CoordinationforDue Diligence Coordinationfor CompletionofCPsandCSs
Compliance
Auditing LegalCompliance CorporateGovernance ReviewofLegal documents
10
COST OF ADVISORS
Advisor s Advisors fees (usually around 2 4% depends on the quantum of fund raising) 4%,
Fees to due diligence agencies (usually a lump some amount finance/accounts, legal, environmental, technical)
Fees for the legal documentation
11
INVESTMENTPROCESS
12
PE/VCINVESTMENT PROCESS
Preparationof BusinessPlanand Marketingcollateral Shortlistand evinceinterestfrom theInvestors
Structuringthe Business
DueDiligence
ObtainTermSheet
Structuring, Structuring Valuationand Negotiation
Definitive Agreement
Closing Formalities ClosingFormalities
Funding
TimeFrame4to8months Time Frame 4 to 8 months

TIME FRAME FOR INVESTMENT

Timelines CumulativeWeeks RestructuringoftheBusiness PreparationofMarketingCollateral P ti f M k ti C ll t l ShortlistandContactInvestors BusinessDiscussion&ValuationNegotiation ObtainTermsheet DueDiligence Due Diligence DefinitiveAgreement ClosingFormalities Funding Month1 Month2 Month3 Month4 Month5 Month6 Month7 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27
Dependinguponcasetocasetotaltimeframewouldbe58months D di t t t l ti f ld b 5 8 th
RestructuringtheBusiness
PreparationofBusinessPlan andMarketingcollateral
Shortlistand evinceinterest fromthe Investors Investors
DueDiligence
ObtainTermSheet
Businessdiscussions& ValuationNegotiation
DefinitiveAgreement
ClosingFormalities
Funding
STRUCTURINGTHEBUSINESS
15
STRUCTURING THE BUSINESS

Companies need to structure their businesses in order to create investor interest
Scattered businesses Cross holdings in the business Fragmented holdings Value split across entities Multiple businesses
Capturetheentireworthofthebusinessinoneentity
16
DueDiligence
ObtainTermSheet
DefinitiveAgreement
ClosingFormalities
Funding
BUSINESSPLANANDMARKETINGCOLLATERAL
17
BUSINESS PLAN AND MARKETING COLLATERAL

Overview Contents
Itisthedocumentthatdetailsthebusiness history,currentstandingandfutureplansof thecompany the company Itisabasicmanagementtoolthatguides thefuturedirectionofacompanyanda mandatorydocumenttoseekbusiness financing Itprovidesaconsideredandlogical It provides a considered and logical frameworktosetoutabusinesssshort termandlongtermplans,showshowthese planscanbeachieved,anddemonstrates l b hi d d d t t thattheplanaddressestherequirementsof thetargetaudience
ExecutiveSummary MarketandCompetition il f h d S i DetailsoftheProductorServices TheManagementTeam p BusinessOperations BusinessStrategyandFuturePlans CostofProjectandMeansofFinance FinancialModel/UnderlineAssumptions ExitOpportunitiesfortheInvestors
18
DueDiligence
ObtainTermSheet
DefinitiveAgreement
ClosingFormalities
Funding
SHORTLISTANDEVINCEINTERESTFROMTHEINVESTORS
19
IDENTIFICATION OF A FUND
Domestic D ti
Sectors thatthey focuson Otherthan money whatelse?
Foreign F i
CorpusandSize ofInvestments Current Portfolioand Past Investments
Investment philosophy
PrivateEquity Fund
Backgroundof the Management/ Management/ LPs
Expected IRR Investment Horizon
20
PEDISCUSSION WITH MANAGEMENT AND PLANT VISIT

Understanding DNA ofthePromoter Genesisofthebusiness Genesis of the business Ownership Succession OtherBusinessInterest
Understanding Business
IndustryandBusiness Industry and Business Processflowandvalueaddition: raw materialtofinishgood Scalabilityofthebusiness Marginsandprofitability g p y
Riskandriskmanagement Marketingandbusinessdevelopment strategy Managementteamandkeydecisionmakers Competition Executioncapability E ti bilit
Understanding futureofthe Business
PromotersviewonfutureoftheIndustry anditsbusiness and its business Capexplanandutilizationoffund Scalabilityofthebusinesspostcapex MeetingPlantmanagerandotherkey Meeting Plant manager and other key members Infrastructure Understandingstepbystep manufacturingprocess Understandingtechnology machines, suppliers
Marginsandprofitabilitypostexpansion Teamrequiredandtimeline Positionintheindustry
PlantVisit
QualityandTestlabs Sampleofrawmaterials,intermediaryand finishproducts Safetymeasures Workingconditionandhygiene

21
DueDiligence
ObtainTermSheet
DefinitiveAgreement
ClosingFormalities
Funding
VALUATIONANDNEGOTIATION
22
BROAD INVESTMENT STRUCTURE

PrivateEquity Private Equity Investment Involvesbuyingoutthe existingshareholdersof thecompany PromoterBuyback Idealwhenpromoter wantstocashout(fully orpartially)orBuyouts PromoterBuyback F dt F d FundtoFund
Involvesfreshinfusionof capitalinthecompany againstissueoffresh sharestoaugmentfuture growth Idealforearly/growth companies Primary Investment
Secondary Investment
Instruments
Instruments
DirectEquity
Convertible PreferenceShares /Debentures
Warrants
DirectEquity
23
CASE STUDY DIRECT EQUITY

CASEA HotelIndustry Chainofhotelsrunning4properties Managing600roomsacrossproperties Runningat80%occupancy Companyintendstoraiseequityforsettingup4 Company intends to raise equity for settingup 4 newGreenfieldproperties (tobeoperationalby FY13) Transactioncharacteristics Highlycapitalintensive Lowgrowth LowRoI,RoEandmargins Longgestationperiod Long gestation period Stablebusinessmodel
ProjectedP&L
Investment Construction
WhyDirectEquity?
Comm.Start Thestateofbusinessgivesgoodvisibilityandto
Particulars Revenue Revenue

YoYGrowth
FY09 FY10 FY11 FY12 FY13 100.00 110.00 124.30 144.19 209.07 100 00 110 00 124 30 144 19 209 07
10% 13% 16% 45%
EBITDA
EBITDAMargin
22.00
22%
24.20
22%
27.97
23%
33.16
23%
49.13
24%
PAT
PATMargin PAT Margin
12.00
12%
15.40
14%
18.02
15%
21.63
15%
25.09
12%
acertainextentconfirmsabilitytoscaleup whichcanprovidecomforttoaninvestor Investorcommunityprefersconversionwithin 18to24months(stretched) 18 t 24 th ( t t h d) Investmentisintoprojectswithlonggestation cyclebeyond24monthshorizon Thusdirectequitymakessense..
Futuregrowthlowerthanexpecteddiscountbyinvestor,earlyconversiononexistingbusinessordirectequitypreferred
CASE STUDY CONVERTIBLE

CASEB Education Chainofcoachingclassesoperatinginmultiple locations TotalenrollmentforFY10inexcessof23,000 ExpectedenrollmentforFY11is32,000 Expected enrollment for FY11 is 32,000 Wellestablishedbrand Companyintendstoraiseequityforsettingupa dedicatedresidentialcampus ByFY13,projectedbatchstrengthinexcessof By FY13, projected batch strength in excess of 80,000 ProjectedP&L
Investment Comm.Start Construction
Transactioncharacteristics Lowcapitalintensive Highgrowth HighRoI,RoEandmargins Smallgestationperiod S ll t ti i d Provenbusinessmodel
WhyConvertible? Thebusinessisgrowing,generatesgoodcash flowsandscaleupfromcurrentlevelscanreap hugebenefits providescomforttoaninvestor Thereislotofdemandpull,henceselling additionalcapacitieswouldbeeasier dditi l iti ld b i Investorcommunityprefersconversionwithin 18to24months(stretched) Investmentisintoprojectswithgestationcycle of12to24months of 12 to 24 months Thusconvertiblestructuremakessense..
25
INRCrore BatchStrength Revenue

YoYGrowth
FY09 15,500 55.00 24.75

45%
FY10 FY11 FY12 FY13 23,500 32,000 54,100 80,000 77.00 115.50 161.70 242.55
40% 50% 40% 46% 50% 47%
EBITDA
EBITDAMargin
34.65
45%
52.55
46%
74.38 112.79 33.96 33 96

21%
PAT
PATMargin
13.75 13 75
25%
15.40 15 40
20%
23.68 23 68
21%
41.23 41 23
17%
KEY ASPECTS OF NEGOTIATIONS
Valuation
Participatory i i Rights
Deal D l Negotiation
ExitRoutes
Commercial Rights
NegotiationisultimatelyasummationofGive(s)andTake(s)
VALUATION NEGOTIATION
HardAspects
Structureofproposed Structure of proposed investment Equity/Convertible Valuationbenchmarkingvisvis comparabletransactions,peer analysis,etc. y , Potentialreturnsanalysisinterms ofRoCE,RoE,investorIRR Sector/companygrowthpotential andothereconomicaspects and other economic aspects EntryandExitPEmultipleasviewed bytheinvestor CommittedIRRinfavorofinvestor
SoftAspects
Appetiteforinvestmentinthesector Appetite for investment in the sector Comfortonthepromoterpedigree Comfortonthepromotersintegrity andtheoverallintent Hardnegotiationsshouldnotgivea negativeimpression henceshouldbe inasubtleandstructuredmanner Investor sinterestshouldbekept Investors interest should be kept inmindduringtheprocessof negotiationswhichwouldclearthe thoughtprocesstoalargeextent
27
VALUATION METHODS
Thereisnorightorwrongwayofvaluingabusiness g g y f g Thereareseveralwaysinwhichitcanbedone p g/ p CapitalizedEarning/PeerComparison Valuationmethodologythatappliesamultipletotheearningsofabusinessto capitalizethoseearningsintoavalueofabusiness AcquisitionComparables ValuationmethodologythatCompareswithsimilartransactions DiscountedCashFlow ValuationmethodologythatbasedonExpectedCashFlowsDiscountedattheWeighted AverageCostofCapital
28
DueDiligence
ObtainTermSheet
DefinitiveAgreement
ClosingFormalities
Funding
TERMSHEET
29
TERM SHEET
Private equity firm sends an Offer Letter, setting out general terms of the proposal, q y ff g g p p subject to the outcome of the due diligence and other enquiries and the conclusion of the negotiations Negotiating deals with terms that are satisfactory to both sides and ensuring that stakeholders interests are properly aligned A Term Sheet is a brief preliminary document designed to facilitate and provide a framework for negotiations between investors and entrepreneurs Generally focuses on a given enterprises valuation and the conditions under which investors agree to provide financing Usually contains certain conditions to be met before the investment is completed and these are known as Conditions Precedent
30
TERM SHEET
TermSheetIncludes AboutCompany,Promoters,InvestorsandProposedTransaction CostofProject,BusinessPlan,CurrentShareHoldingPattern Valuation ConditionPrecedent PrincipalCovenants UtilizationofFund&FreshissueofCapital AntiDilutionRights NoPledgingInvestorsShare TagAlongRights DragAlongRights RightofFirstRefusal LiquidityPreference BoardofDirectors Exit
31
DueDiligence
ObtainTermSheet
DefinitiveAgreement
ClosingFormalities
Funding
DUEDILIGENCE
32
DUE DILIGENCE
Analysesandvalidatesthefinancial,commercial,operational,andstrategic Analyses and validates the financial commercial operational and strategic assumptionsunderpinningthecompanythrough: Historicalfinancials Contractualdocumentprovidedbythecompanyincludingalllegaldocuments Publiclyavailableindustryandcompetitorinformation,and Duediligenceislinkedtotheinvestorscorporatestrategy
Goalofduediligenceistodeterminewhetheratransactionwithagiventargetisinline whatwascommunicatedtotheinvestor
TYPES OF DUE DILIGENCE

Financial
AssessmentofHistorical/ Assessment of Historical / CurrentFinancialnumbers Taxbenefits Indebtedness Estimatingunforeseen Estimating unforeseen liabilityoutofpast performance ManagementInformation System
Legal
Corporate PermitsandConsents Contracts&Agreements Insurance LegalProceedings Legal Proceedings Employment Property Trademark,Patentand OtherIntellectualProperty Other Intellectual Property EnvironmentSafetyPublic Health
Business
Market&Business Market & Business potential Competition&Peer Analysis AssumptionofFinancial Assumption of Financial Model Supplier&Distributors Customers
TimeFrame2to4weeks Time Frame 2 to 4 weeks

34
DueDiligence
ObtainTermSheet
DefinitiveAgreement
ClosingFormalities
Funding
DEFINITIVEAGREEMENTANDCLOSINGFORMALITIES
35
DEFINITIVE AGREEMENT AND FUNDING

ShareSubscriptionandHoldersAgreement p g DefinitionandInterpretation TermsoftheAgreement&Structure,Issue&Subscription BusinessPlan&UtilizationofFund UndertakingfromPromoters,TransferofObligationandRestrictions Undertaking from Promoters Transfer of Obligation and Restrictions MonitoringandCorporateGovernance Representation&Warranties Representation & Warranties LiquidationPreferenceandIndemnification Confidentiality GoverningLawandDisputeResolution MiscellaneousProvisions
36
EXITOPTIONS
37
EXIT OPTIONS
IPO SaletoanotherInvestor g / Strategic/TradeSale PartialExit RepurchasebyCompany Liquidation
38
PEFundraisingisnottheendoftheJourney Itsjustthebeginning Its just the beginning
39
Q&A
40
CONTACT
NimeshSalot
Phone Email : +919820128301 : nimesh@ladderup.com
102A,1stFloor, HallmarkBusinessPlaza, Gurunanak HospitalRoad, Bandra (East), Mumbai M b i 400051 Maharashtra,India
Tel.:+912240336363 Fax:+912240336364 EMail:info@ladderup.com www.ladderup.com
41
THANKYOU
42

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PRIVATEEQUITYINVESTMENT FUNDRAISINGPROCESS

WHERE DO YOU BEGIN?

PlanningStage Planning Stage

Structuringof theBusiness the Business

Developing management team

Professional management in key functions Experienced in scaling up and managing growth

KEY ADVISORS TO A PRIVATE EQUITY TRANSACTION

ROLE OF KEY ADVISORS

ROLE OF INVESTMENT BANKER

Fees for the legal documentation

Structuring, Structuring Valuationand Negotiation

Closing Formalities ClosingFormalities

TimeFrame4to8months Time Frame 4 to 8 months

TIME FRAME FOR INVESTMENT

Shortlistand evinceinterest fromthe Investors Investors

STRUCTURING THE BUSINESS

Shortlistand evinceinterest fromthe Investors Investors

BUSINESS PLAN AND MARKETING COLLATERAL

ExecutiveSummary MarketandCompetition il f h d S i DetailsoftheProductorServices TheManagementTeam p BusinessOperations BusinessStrategyandFuturePlans CostofProjectandMeansofFinance FinancialModel/UnderlineAssumptions ExitOpportunitiesfortheInvestors

Shortlistand evinceinterest fromthe Investors Investors

CorpusandSize ofInvestments Current Portfolioand Past Investments

Backgroundof the Management/ Management/ LPs

Expected IRR Investment Horizon

PEDISCUSSION WITH MANAGEMENT AND PLANT VISIT

IndustryandBusiness Industry and Business Processflowandvalueaddition: raw materialtofinishgood Scalabilityofthebusiness Marginsandprofitability g p y

Riskandriskmanagement Marketingandbusinessdevelopment strategy Managementteamandkeydecisionmakers Competition Executioncapability E ti bilit

Understanding futureofthe Business

Marginsandprofitabilitypostexpansion Teamrequiredandtimeline Positionintheindustry

QualityandTestlabs Sampleofrawmaterials,intermediaryand finishproducts Safetymeasures Workingconditionandhygiene

Shortlistand evinceinterest fromthe Investors Investors

BROAD INVESTMENT STRUCTURE

Involvesfreshinfusionof capitalinthecompany againstissueoffresh sharestoaugmentfuture growth Idealforearly/growth companies Primary Investment

Convertible PreferenceShares /Debentures

CASE STUDY DIRECT EQUITY

Particulars Revenue Revenue

acertainextentconfirmsabilitytoscaleup whichcanprovidecomforttoaninvestor Investorcommunityprefersconversionwithin 18to24months(stretched) 18 t 24 th ( t t h d) Investmentisintoprojectswithlonggestation cyclebeyond24monthshorizon Thusdirectequitymakessense..

CASE STUDY CONVERTIBLE

Transactioncharacteristics Lowcapitalintensive Highgrowth HighRoI,RoEandmargins Smallgestationperiod S ll t ti i d Provenbusinessmodel

INRCrore BatchStrength Revenue

FY09 15,500 55.00 24.75

74.38 112.79 33.96 33 96

KEY ASPECTS OF NEGOTIATIONS

Shortlistand evinceinterest fromthe Investors Investors

Shortlistand evinceinterest fromthe Investors Investors

TYPES OF DUE DILIGENCE

TimeFrame2to4weeks Time Frame 2 to 4 weeks

Shortlistand evinceinterest fromthe Investors Investors

DEFINITIVE AGREEMENT AND FUNDING

PEFundraisingisnottheendoftheJourney Itsjustthebeginning Its just the beginning

102A,1stFloor, HallmarkBusinessPlaza, Gurunanak HospitalRoad, Bandra (East), Mumbai M b i 400051 Maharashtra,India

Tel.:+912240336363 Fax:+912240336364 EMail:info@ladderup.com www.ladderup.com

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