fund raising insights - ver 1 004
DESCRIPTION
AUMTRANSCRIPT
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A Note on Private Equity Investment
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Agenda
Section 1 A Background
Section 2 What is Private Equity
Section 3 Private Equity Value Propositions
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Section 4 Case Studies
Section 5 The Roadmap
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Fund Raising initiatives
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Snapshot of various options
BACKGROUND
Public issue of Debt
Access to Institutional Investors:
Majority of players in the bond market
are institutions rather than retail
investors
Inadequate Market Breadth: The
Indian bond market is not yet mature
Leverage: Volume raised determined
by the company‟s ability to offer
tangible security & service the same
Size: Small companies not favoured
by the market
Private Equity (PE)
Market Image: Positive impact on
market perception
Strategic Inputs: Demonstrable
strategic contribution by PE partners
Systems & Processes: Access to
global best practices leading to IPO
readiness of the company
Flexibility: PE investment can be
structured in sync with the
requirements of the business
Fund Availability: Several tranches
can be availed from the PE fraternity
once the business proves to be PE
friendly
Long term commitment: PE funds
usually have an investment horizon of
3-5 years
Higher Accountability: PE investors,
being serious stakeholders, may
require more rigour in operations &
administration
IPO’s
Listing: Gives the company access to
a liquid market in securities
Coverage: Potentially more exposure
to research and higher visibility
Employee Motivation: An IPO can
provide a convenient route for
encashment of employee stock
Regulatory Compliance: Listed
companies are required to follow a
strict regulatory code (SEBI/SEs/MCA)
Lack of flexibility: Difficult to structure
the offering as per the financial
requirements/value expectation of
promoters
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PR
OS
CO
NS
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What is Private Equity?
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Private Equity investors
generally
• Finance unlisted companies
or take exposure in stocks
that are illiquid
• Through acquisition of equity
or equity linked instruments in
investee companies
• Assist in the development of
new products or services and
exploring new markets
through a “mentoring” process
• Add value to the company
through active participation
• Take higher risks with the
expectation of higher rewards
and
• Have a long term orientation
Private EquityBasic Concepts
WHAT IS PRIVATE EQUITY?
In the strictest interpretation of the term, private equity limits itself to pure, unadulterated equity
investment in privately owned businesses.
Over time, a non-literal, but conceptually accurate definition of private equity has evolved that works
something like this:
Private = The investment is illiquid. The holding period is likely to be three, four, or five years, may
be even longer
Equity = The risk profile of the investment is equity-like, although the investment could be
structured as a quasi-equity/mezzanine instrument with a convertibility clause
Private equity is often described as „patient capital‟.
The usual investment horizon of a private equity investor is about 3-5 years
PE funds prefer to “grow” with the sponsors and partner with them in their strategic plans
PE investors can provide a number of value-added services including business „mentoring‟ and the
introduction to strategic alliances while staying in the background
Private equity investors generally take a minority stake in the company and do not seek day to
day control of a business
In the last few decades, PE funds have emerged as the preferred providers of capital to underserved
segments
Encouragement of new businesses and/or new sectors
Growth driver for capital starved businesses
Enabler of structural change
Introduction of fiscal discipline and corporate governance in line with global standards
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Private Equity (Cont‟d)Investment Parameters of Private Equity Investors
WHAT IS PRIVATE EQUITY?
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PE investors primarily look at a “growth
story”
PE investors prefer businesses which
promise high growth, i.e. visible &
compounding cash flows, in the short-
medium term
There could be industry/business specific
preferences
Some PE funds are focused on a certain
set of industries, e.g. TMT, construction,
pharma/healthcare, biotechnology, etc.
Many large PE funds, however, are
industry neutral because they have
sufficient cross-sectoral expertise
Most private equity investors have a “size
preference” – i.e. a “sweet spot” in terms of
the volume of deals they do
Private equity investors usually tend to
focus on businesses that are relatively
independent of “business cycles”
Time …
We
alt
h C
rea
tio
n …
Pvt. Equity Funds would like
to enter here …
and preferably exit
hereGrowth Map of
the Company
Upside potential
PE investors do not seek
control on operational aspects
of the business
So, they would like to invest in
a company where the
operational management is
professional, transparent and
progressive
Quality of management is an
important parameter in guiding
PE funds in evaluation of
targets
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Private Equity (Cont‟d)The Opportunity Evaluation Paradigm
WHAT IS PRIVATE EQUITY?
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• Each PE Fund has its own
opportunity evaluation criteria
and risk assessment
mechanism
• The issues that are examined
in detail in most cases are:-
• The Business of the
Company
• Financial Track Record
• The Growth Strategy
• Management Quality
• The Operating Environment
including the industry,
competition, etc.
• Overall, the idea would be to
establish whether an
investment in the Company is a
risk worth taking
Business
Management
Track Record
Growth Story
Environment
Private Equity Funds evaluate an investment opportunity on the basis of a
detailed due diligence – a process that requires complete sponsor commitment
and well developed systems and processes
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Private Equity (cont‟d)Common Covenants
WHAT IS PRIVATE EQUITY?
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Board seats: PE Investors usually seek positions on the board of directors of the
company in which they invest. A board seat gives a PE Fund a means of direct
interface with the existing management
Exit Route: PE Investors would usually insist on a clearly charted roadmap for an IPO
(in case of unlisted companies) or liquidity enhancement processes (in case of listed
companies) in order to ensure a smooth and profitable exit
Drag-along rights: The right to compel the other shareholders to sell their shares to
an outside party
Tag-along rights: The right to “piggy-back” on the sale of shares by existing
shareholders
While PE Investors seek involvement in the management, they usually prefer
to retain a NON-INTERVENTIONIST role, unless they perceive a threat to their
interests. In most cases, the involvement of the PE Investor in the strategic &
functional matters lead to tangible gains for the company.
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Private Equity Value Propositions
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Education entrepreneurs feel that
regulatory and scalability related
issues can be addressed through
creative strategies and a flexible
approach – often facilitated and
encouraged by PE investors with
a global footprint and presence
across sectors
“Edu-preneurs” have benefited immensely from PE investmentPE Funds have been partners with some of the fastest growing education companies
VALUE PROPOSITIONS
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Growth
Acceleration
V. Ganesh Ram (MD of Veta) found that PE investment had
significantly enhanced the speed with which his company could
extend its network of company owned model centres
Leapfrogging
growth stages
S. Rajagopalan (Educational Initiatives) says that PE
partners can help entrepreneurs get into newer orbits of scale
and growth within a short span of time
Relationship
Network
V. Ganesh Ram (Veta) has benefited from wide contacts of PE
investors across various industries resulting in enhanced
business prospects
Best Practices
& Systems
Vinay Parischa (WLC College) maintains that PE Investors
establish good practices at the Board level and help the
company set up good systems
Introduction of
a World View
S. Rajagopalan (Educational Initiatives) argues that PE
Investors bring to the table their experience in similar sectors in
a variety of other global contexts and countries
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The USA is traditionally the
largest market for “for profit”
education and PE activity in the
US education sector has been
quite intense
Asian education markets in
South Korea, China and India
and the Middle East, are
emerging as attractive
destinations for PE investment
Europe, where education has
till recently been a largely state
driven initiative, is also
becoming a key market for PE
investments
PE Investment in Education – the global experienceSeveral leading education companies in the world have derived benefits from PE investments
VALUE PROPOSITIONS
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Company Sector Country PE/VC Partner
DeVry University University USA Frontenac Company
Strayer Education University USA New Mountain Partners,
DB Capital Partners
Megastudy Test-prep South Korea Cornerstone Equity
Partners
Bernesse Corp Correspondence
Courses
Japan Vestar Capital Partners
Anhanguera
Educational
University Brazil Patria Investimentos
Leading International Educational Companies that have partnered with PE firms
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Case Studies-Facts and Figures
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The Education Sector in India has attracted
considerable PE attention in recent times
Close to USD 150 Million of PE investments have been made in the Education Sector till May
2010 – more than the investment made during the entire year in 2009
CASE STUDIES
• Private Equity players have
demonstrated keen interest in
the education sector
• Private equity players have
been value creators for the
sector
• Education companies has
witnessed exponential growth
after accessing private equity
Year Month Investee Investor Investment ($ Million)
2010May Aspire Human Capital Management Foundation Capital 4.5
2010Apr Framboxx-IIFM
India Alternatives Investment
Advisors Private Limited 6.2
2010Apr Pathways World School
Reliance Equity Advisors (India)
Ltd (REAIL) 22.2
2010Apr Resonance Eduventures Pvt Ltd (REPL)
Milestone Religare Investment
Advisors 13.3
2010Apr Resonance Eduventures
Milestone Religare Investment
Advisors 13.3
2010Feb Manipal Universal Learning Premji Invest 43.3
2010Feb Career Point Infosystems Ltd Nadathur Group 10.0
2010Jan
IL&FS Education and Technology
Services (IETS) India Equity Partners (IEP) 38.2
2009Dec Manipal Universal Learning Premji Invest 33.3
2009Nov i-Nurture Education Management GVFL $2.2-3.3
2009Sept IMS Learning Resources Milestone Religare 5.6
2009July FIITJEE Ltd Matrix Partners India 20.0
2009July LearningMate Solutions Pvt Ltd Helix Investments 10.0
2009June NIIT Ltd Elephant Capital 1.0
2009Apr Edutech Navis Capital Partners 30.0
2008Dec Prolific Systems & Technologies Al Tanmiya Holdings 2.2
2008Nov Educomp TreeLine Investment Managers 33.1
2008Aug Tree House Matrix Partners India 7.0
2008July Idenizen Smartware NEA-IndoUS Ventures 2.3
2008July TutorVista Sequoia, Lightspeed 10.0
2008May Everonn Systems
New Vernon, Blackstone,
Deutsche Securities 23.5
2008Jan StudyPlaces Inc KPCB, Sherpalo, InfoEdge 3.0
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ICA Infotech
CASE STUDIES
ICA Infotech Pvt. Ltd.
CEO and Promoter: Narendra Shyamsukha
Founded: 1999
Headquarters: Kolkata, India
Status: Private
SAIF Investment Date: $12.5M in September 2007
Amount of SAIF Investment:$12.5M for 33.3% fully-diluted ownership
COMPANY OVERVIEW
ICA Infotech Pvt. Ltd. is India’s largest provider of job-oriented vocational training to arts and commerce graduates. It offers courses in the currently vacant non-IT/software segment. ICA currently provides mainly accounting, finance and personality development courses across its ~300 centers in the country, and is experimenting with a few other relevant curricula, e.g. hardware & networking, retailing, etc. It also provides a “job guarantee” to its students, and has a dedicated placement department which co-ordinates with prospective employers to help place students.
FINANCIAL HIGHLIGHTS –EXPECTED (Source: Market Feedback)
FY ended March 31, 2010: INR 714.8M in revenue and (72.5M) in net loss
FY March 31, 2011 forecast: INR720M in revenue and 10M in net income
RECENT BUSINESS DEVELOPMENTS (PRIVATE EQUITY EFFORT)
The Company has scaled down unprofitable centers by converting them to franchisee centers. As a result, the number of centers owned and operated by ICA has been reduced 15 in June 2010.
The Company continued to be EBITDA break-even in June FY11 quarter.
With the improved operating cash flow, the Company is expected to be able to market more aggressively its program in alliance with an University for students to earn a University degree and vocational training simultaneously.
PRIVATE EQUITY PARTICIPATION
PE assisted the Company to scale down unprofitable businesses & centers
PE has been actively helping in identification and recruitment of senior management team, including the CFO
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Manipal Universal Learning
CASE STUDIES
Manipal Universal Learning
Chancellor :Dr Ramdas M Pai
Headquarters: Bangalore , India
Status: Private
IDFC & Capital International:$70.0M in May 2007
COMPANY OVERVIEW
Manipal Universal Learning (MUL) is the “for-profit” arm of the Manipal Education and Medical Group (MEMG)
The business configuration of MUL comprises Distance Education, Corporate Training, Professional Education and conducting International Courses in overseas campuses
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Mahesh Tutorials
CASE STUDIES
Mahesh Tutorials
Promoter:Mahesh Shetty
Headquarters: Maharashtra, India
Status:Private
Helix Investment:$12.0M in Aug 2007
COMPANY OVERVIEW
Over the last 2 decades Mahesh Tutorials – a brainchild of Mr. Mahesh Shetty– has transformed from a single centre in Mulund West to 172 centers spread across Maharashtra, Gujarat, Tamil Nadu, Karnataka & Dubai. With a teaching staff strength of over 1000 and support staff close to 1200, Mahesh Tutorials (MT) has over 60,000 student enrollments a year and an alumni of over 1,50,000 students
RECENT BUSINESS DEVELOPMENTS (PRIVATE EQUITY EFFORT)
Expanded the division across the country, especially in highly competitive Mumbai and Delhi markets
MT has become India’s largest chain of K12 tutoring centers
Expanded into related segments in the education services industry including engineering test preparation, medical test preparation, aptitude test preparation and vocational skills training
Expansion outside India with network in Dubai as well
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Pathways World School
CASE STUDIES
Pathways World School
Chairman:Pramod K. Jain
Headquarters: Haryana, India
Status:Private
Reliance Equity$22.2M in Apr 2010
COMPANY OVERVIEW
Pathways world school is located at Aravali, Noida and Gurgaon. PWS pioneer approaches to teaching and learning which are well-tried elsewhere but new to India. While preserving the best in traditional Indian and International education and culture, they have opted for a student-centred system with ample opportunities for project work and discovery learning, guided by a well-qualified international teaching faculty with generous access to quality in service training both in India and abroad. The school applies the Multiple Intelligences approach, developed by Dr. Howard Gardner from Harvard University.
RECENT BUSINESS DEVELOPMENTS (PRIVATE EQUITY EFFORT)
PE has been actively helping in identification and recruitment of senior management team
More expansion plan lined up for next level of growth
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Career Launcher
CASE STUDIES
Career Launcher
CEO:Satya R
Headquarters: Haryana, India
Status:Private
Gaja Capital$8.3 M in Oct 2007
COMPANY OVERVIEW
Career Launcher provides test preparatory and vocational training services to over 60,000 students across 130 locations in India and overseas. The firm was founded in 1995 by a group of IIM students who left corporate positions to pursue their passion in entrepreneurship and education. Career Launcher initially helped students prepare for the CAT entrance exam, but quickly expanding its product offerings to school and college students seeking admission to a broad range of professional courses.
RECENT BUSINESS DEVELOPMENTS (PRIVATE EQUITY EFFORT)
Career Launcher is also an emerging leader in the K12, Higher Education, and Vocational Training markets
More expansion plan lined up for next level of growth
Expanded to overseas location as well
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PE investment – a precursor to a successful capital
market entry
CASE STUDIES
• Private equity is the stepping
stone for IPO
• Private equity paves the wayf
for a benchmark valuation for a
company‟s IPO
• Private Equity provides the
necessary enablers to the
investee company to become
“IPO Ready” through
• An understanding of
transparency and disclosure
requirements
• Strengthening corporate
governance and developing
the requisite decision
support systems
• Improved sector networking
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Company Name PE Name PE Investment Year IPO Year
Educomp Carlyle June 2000 Dec 2005
Career Point Infosystems Franklin Templeton July 2009 Filed DRHP
Hindustan Media Ventures Citigroup Dec 2004 Jul 2010
Parabolic Drugs BTS India Private Equity May 2008 Jul 2010
Jaypee Infratech Bennett Coleman and
Company Limited.
Jan 2009 May 2010
Nitesh Estates Siachen Capital Jan 2006 May 2010
Talwalkars Better Value
Fitness
Pantaloon Retails Oct 2006 May 2010
Shree Ganesh Jewellery
House
Credit Suisse Mar 2008 Apr 2010
Persistent Systems Norwest Partner Dec 2005 Apr 2010
DQ Entertainment
(International)
International Finance
Corporation
Jan 2008 Mar 2010
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Proposed Roadmap
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Investment Process – Way AheadInvestment Process
PROPOSED ROADMAP
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Typically, PE investors are quite proactive
in responding to approaches
The investment process of a typical PE
fund would include a thorough analysis of
the company, its position in its industry and
the proposed transaction.
While transactions can be structured to
meet the financing requirements and cash
flow characteristics of the company, there
could be fund specific priorities relating to
type of instrument, duration, covenants,
etc.
To expedite the analysis of an investment
opportunity by a PE fund, a comprehensive
information docket comprising an
Information Memorandum, company
profile, annual accounts of the company,
etc. is necessary
Once the potential investee appears
acceptable, the transaction must be
structured to the satisfaction of both PE
fund and the company in which
investments are being made
Regulatory, tax and compliance issues
need to be adequately addressed
Submit Information
Docket including IM
Furnish other Information
as required
Discuss & Finalize
Structure
Due Diligence & Price
Fixation
Documentation
Deal Closure
Typically, a PE
exercise takes about
4-6 months. But, the
calendar would
depend on deal
specific issues
Initiate Contact &
Make Presentation
Issue of Term Sheet
The PE investment process, if
managed and administered in a
disciplined manner, can be
successfully completed within
4-6 months
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