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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

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WHEREDOYOUBEGIN?

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WHERE DO YOU BEGIN?

PlanningStage Planning Stage

Right
Plan GetAdvisor

Documentation andmarket

Negotiate

Closure

ImplementationStage

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PLANNINGFORPE

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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
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ROLEOFADVISORS

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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!
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Lawyer

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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
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Auditor

Inhouse Team

DueDiligence Agencies

Lawyer

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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

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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

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INVESTMENTPROCESS

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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


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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
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RestructuringtheBusiness

PreparationofBusinessPlan andMarketingcollateral

Shortlistand evinceinterest fromthe Investors Investors

DueDiligence

ObtainTermSheet

Businessdiscussions& ValuationNegotiation

DefinitiveAgreement

ClosingFormalities

Funding

STRUCTURINGTHEBUSINESS

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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

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RestructuringtheBusiness

PreparationofBusinessPlan andMarketingcollateral

Shortlistand evinceinterest fromthe Investors Investors

DueDiligence

ObtainTermSheet

Businessdiscussions& ValuationNegotiation

DefinitiveAgreement

ClosingFormalities

Funding

BUSINESSPLANANDMARKETINGCOLLATERAL

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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

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RestructuringtheBusiness

PreparationofBusinessPlan andMarketingcollateral

Shortlistand evinceinterest fromthe Investors Investors

DueDiligence

ObtainTermSheet

Businessdiscussions& ValuationNegotiation

DefinitiveAgreement

ClosingFormalities

Funding

SHORTLISTANDEVINCEINTERESTFROMTHEINVESTORS

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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

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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


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RestructuringtheBusiness

PreparationofBusinessPlan andMarketingcollateral

Shortlistand evinceinterest fromthe Investors Investors

DueDiligence

ObtainTermSheet

Businessdiscussions& ValuationNegotiation

DefinitiveAgreement

ClosingFormalities

Funding

VALUATIONANDNEGOTIATION

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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

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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
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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..
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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%

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KEY ASPECTS OF NEGOTIATIONS

Valuation

Participatory i i Rights

Deal D l Negotiation

ExitRoutes

Commercial Rights

NegotiationisultimatelyasummationofGive(s)andTake(s)
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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

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VALUATION METHODS
Thereisnorightorwrongwayofvaluingabusiness g g y f g Thereareseveralwaysinwhichitcanbedone p g/ p CapitalizedEarning/PeerComparison Valuationmethodologythatappliesamultipletotheearningsofabusinessto capitalizethoseearningsintoavalueofabusiness AcquisitionComparables ValuationmethodologythatCompareswithsimilartransactions DiscountedCashFlow ValuationmethodologythatbasedonExpectedCashFlowsDiscountedattheWeighted AverageCostofCapital

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RestructuringtheBusiness

PreparationofBusinessPlan andMarketingcollateral

Shortlistand evinceinterest fromthe Investors Investors

DueDiligence

ObtainTermSheet

Businessdiscussions& ValuationNegotiation

DefinitiveAgreement

ClosingFormalities

Funding

TERMSHEET

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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

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TERM SHEET
TermSheetIncludes AboutCompany,Promoters,InvestorsandProposedTransaction CostofProject,BusinessPlan,CurrentShareHoldingPattern Valuation ConditionPrecedent PrincipalCovenants UtilizationofFund&FreshissueofCapital AntiDilutionRights NoPledgingInvestorsShare TagAlongRights DragAlongRights RightofFirstRefusal LiquidityPreference BoardofDirectors Exit

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RestructuringtheBusiness

PreparationofBusinessPlan andMarketingcollateral

Shortlistand evinceinterest fromthe Investors Investors

DueDiligence

ObtainTermSheet

Businessdiscussions& ValuationNegotiation

DefinitiveAgreement

ClosingFormalities

Funding

DUEDILIGENCE

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DUE DILIGENCE
Analysesandvalidatesthefinancial,commercial,operational,andstrategic Analyses and validates the financial commercial operational and strategic assumptionsunderpinningthecompanythrough: Historicalfinancials Contractualdocumentprovidedbythecompanyincludingalllegaldocuments Publiclyavailableindustryandcompetitorinformation,and Duediligenceislinkedtotheinvestorscorporatestrategy

Goalofduediligenceistodeterminewhetheratransactionwithagiventargetisinline whatwascommunicatedtotheinvestor
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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


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RestructuringtheBusiness

PreparationofBusinessPlan andMarketingcollateral

Shortlistand evinceinterest fromthe Investors Investors

DueDiligence

ObtainTermSheet

Businessdiscussions& ValuationNegotiation

DefinitiveAgreement

ClosingFormalities

Funding

DEFINITIVEAGREEMENTANDCLOSINGFORMALITIES

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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

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EXITOPTIONS

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EXIT OPTIONS
IPO SaletoanotherInvestor g / Strategic/TradeSale PartialExit RepurchasebyCompany Liquidation

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PEFundraisingisnottheendoftheJourney Itsjustthebeginning Its just the beginning

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Q&A

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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

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THANKYOU

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