EBRD 2004, all rights reserved Russian Financial Markets Conference 5 May 2004, Boston Private...

EBRD 2004, all rights reserved

Russian Financial Markets Conference5 May 2004, Boston

Private Equity in Russia

Andre TikhomirovSenior Banker


Introduction - What is the EBRD?Introduction - What is the EBRD?

International financial institution est. 1991, owned by 62 national and supranational shareholders

Promotes market-based economies in 27 countries in Central & Eastern Europe and the former Soviet Union

Committed €22.7 billion for 1,017 projects to date

Capital base of €20 billion

*2003 figures unaudited

2

0

5

10

15

20

25

97 98 99 00 01 02 03*


Introduction - Key MessagesIntroduction - Key Messages

EBRD’s experience offers a unique insight into the private equity market in the region, and EBRD wants to raise awareness of this market

The asset class is young and returns are only starting to emerge

Over 250 exits by EBRD investee funds are examined, which in aggregate show a 22% IRR (25% IRR excluding non-institutional quality funds)

1


Introduction – EBRD’s Private Equity Introduction – EBRD’s Private Equity ObjectivesObjectives

To build an industry that provides capital to growing local private companies

To support & develop efficient equity investment intermediaries with the aim to make industry self-sustainable

To remain the region’s “Investor of Choice”an anchor investor who is committed to invest in the

region through economic cycles

for prospective institutional investors, an active investor with significant insight into the region

3


Introduction – Est. CEE/CIS PE MarketIntroduction – Est. CEE/CIS PE Market

EBRD investee funds represent 37% of estimated market and 53% of known funds

4

EBRD committed

EBRD funds committed capital

Including non-EBRD Funds estimated

capital

Plus 20% & EBRD direct = estimated private equity

market

€ b

illio

n

€ 1.3 bn

€ 4.2 bn

€ 8.0 bn

€ 11.3 bn

0

2

4

6

8

10

12


Introduction – EBRD DatabaseIntroduction – EBRD Database

721 “gross” investments in companies by funds in one database, of which 265 “results” (exits or write-offs)

Of which, “Consenters” represent 686 investments and 253 exits

Database also tracks “net” performance for EBRD, but portfolio is still young

End-2002 data; 2003 ready soon (June)

5


Results – All InvestmentsResults – All Investments 33% of investments by value have been exited or written off• Aggregate performance of fully realised and written off investments: 1.7x, 22% IRR

(vs. 2.0x and 25% IRR last year)

$503m

$1,211m$199m

$139m

$173m

$1,232m

$1,313m

Fully Realised Written Off Partly Realised Unrealised

Investment at Cost (USD 2.1bn) Total Value (USD 2.6bn)

UR: 0.9x, -2.7% IRR

PR: 1.2x, 5.5% IRR

FR & WO: 1.7x, 21.6% IRR

686 investments

Overall TVPI: 1.2x, 8.0% IRR

FR & FR: 2.4x, 31.3% IRR

Source: EBRD (consenting funds only)

6


Conclusions – What’s the State of the Conclusions – What’s the State of the Region’s PE Market?Region’s PE Market?

Capital available lags western comparables

Private equity market has developed that is

approaching critical mass and institutional quality

Initial performance & returns are promising but

credibility to deliver returns needs to be

cemented

24


Results for Results for Russia-focused fundsRussia-focused funds


Russia: Portfolio SnapshotRussia: Portfolio Snapshot

Total # of Investments: 163

Total Investment Cost: USD 571.8m

Average % Owned: 28.48%

Total Exit Proceeds & Cash Returns: USD 397.6m

Total Carrying Value of Remaining Portfolio: USD 317.5m

Total Investment Value: USD 715.1m

Total Investment Profitability: USD 143.3m


Russia: Portfolio Snapshot by Exit Russia: Portfolio Snapshot by Exit StatusStatus

$125.9m

$365.9m$37.0m

$32.5m$361.0m

$315.7m$48.0m

$1.0m

$0.0m

$100.0m

$200.0m

$300.0m

$400.0m

$500.0m

$600.0m

$700.0m

$800.0m

Investment at Cost ($571.8m) Total Value ($715.1m)

Fully Realised (FR) Partly Realised (PR) Unrealised (UR) Written Off (WO)

Overall: 1.3x TVPI, 9.8% IRR

U: 0.9x TVPI, -4.6% IRR

PR: 0.9x TVPI, -3.4% IRR

FR/FR: 2.9x TVPI, 42.1% IRR


Russia: Fully Realised by Type of ExitRussia: Fully Realised by Type of Exit

$0.0m

$50.0m

$100.0m

$150.0m

•$200.0m

$250.0m

Trade Sale (TS) Flotation/Secondary

Sale

Sale to

Management (MB)

Write-off (WO)

Investment Cost

Exit Proceeds & Cash Returns

Note: excludes Repayment of Loans

• Although trade sale and IPO are still viewed as preferred options, MBO proliferated

• Russian strategic buyers are coming en masse


Russia: Fully Realised by Stage of Russia: Fully Realised by Stage of InvestmentInvestment

$0.0m

$20.0m

$40.0m

$60.0m

$80.0m

$100.0m

$120.0m

$140.0m

Expansion

(EX)

Other Early Stage

(OE)

Secondary

Purchase (SP)

Start Up (SU) OTHER

Investment Cost

Exit Proceeds & Cash Returns

• Start-ups are nobody’s favorites

• Expansions, and most recently, buyouts are in fashion


Russia: Fully Realised by Deal SizeRussia: Fully Realised by Deal Size

$0.0m

$20.0m

$40.0m

$60.0m

$80.0m

$100.0m

$120.0m

$140.0m

$160.0m

$180.0m

Below USD 2.5m USD 2.5m - 5.0m USD 5.0m - 10.0m Above USD 10.0m

Investment Cost Exit Proceeds & Cash Returns

• Size matters as usual

• Large deals are snapped by the Russian money


Russia: Portfolio and Performance by Russia: Portfolio and Performance by SectorSector

$0.0m

$20.0m

$40.0m

$60.0m

$80.0m

$100.0m

$120.0m

$140.0m

$160.0m

$180.0m

$200.0m

TIM Food &

BeverageManufacturing Primary &

EnergyService Other

Total Investment CostInvestment Cost (FR)

Exit Proceeds & Cash Returns (FR)

• TIM is still a darling, but others also began to deliver

• specialty funds are being launched


Russia: Performance by VintageRussia: Performance by Vintage

$0.0m

$20.0m

$40.0m

$60.0m

$80.0m

$100.0m

$120.0m

$140.0m

$160.0m

$180.0m

$200.0m

1993-94 1995-96 1997-98 1999-00 2001-02

FR Inv Cost FR Inv Value

UR Inv Cost UR Inv Value

• 2000-2002 preparations for harvest

• 2003-2004 are going to be big for exits


EBRD’s Priorities in RussiaEBRD’s Priorities in Russia

to support the existing successful management groups with which the Bank has a long-standing relationship helping to consolidate limited funding resources in the hands of the winners;

to build new relationships by carefully selecting up-coming competent management teams;

to increase awareness among the leading institutional investors of the Russian PE opportunities and leverage Bank’s credibility and capital to attract those investors into Russia-focused funds managed by the best managers.


Copyright 2004 EBRD. All rights Copyright 2004 EBRD. All rights reservedreservedThis material is for the recipient’s private information. No part of this document may be reproduced or transmitted in any form or by any means, including photocopying and recording, without the written permission of the Bank. Such written permission must also be obtained before any part of this publication is stored in a retrieval system of any nature. While the information contained herein was compiled by the EBRD, we do not guarantee its accuracy or completeness. We accept no liability in relation to use of this information. Copyright 2004 European Bank for Reconstruction and

Development. All rights reserved.

EBRD 2004, all rights reserved Russian Financial Markets Conference 5 May 2004, Boston Private...

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