Kinnevik Broker Report Apr-15
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Long: Investment AB Kinnevik (KINVB: SS)by Joshua Soong, CFA
About our firm
Deerwood Capital, LLCis a California-based registered investment adviser with a fundamental value-
oriented approach to investing in publicly traded securities. Deerwood selectively invests in undervalued
companies across a broad spectrum of industries and market capitalizations. We were founded in 2009
to provide a concentrated, non-leveraged, low-turnover alternative to the typical alternative investment.
Our investment philosophy is based on buying securities at discounts to their intrinsic value and treating
share ownership as equivalent to owning the entire business. We invest in businesses with sustainable
competitive advantages, purchased at prices yielding significant appreciation potential, and run by
skilled management aligned with shareholders.
About the author
Before starting Deerwood in April 2009, Mr. Soong was an Equity Analyst at Picoco,
LLC, a family office in Newport Beach, where from 2006-2009 he was responsible for
investments in the retail and transportation sectors. From 2004-2005, he was a
Trader at Citadel, where he managed a portfolio of electricity and natural gas swaps,
forwards and options. Mr. Soong graduated with dual B.S. degrees from MIT in EECS
and Economics, and earned the CFA designation in 2009.
Specialacknowledgement goes to Deerwood Analyst Connor Ni for his valuable
contributions to this report.
_____________________________________________________________________________________
Disclaimer:This report has been distributed for information purposes only. Neither the information nor any
opinions expressed constitute a recommendation to buy or sell the assets or securities mentioned, or to invest
in any investment strategy or product related to such assets or securities. It is not intended to provide
personal investment advice, and it does not take into account the financial situation, specific investment
objectives, or particular needs of any person or entity that may receive this report. Persons reading this report
should seek professional financial advice regarding the appropriateness of investing in any assets or securities
discussed in this report. As of the publication date of this report, Deerwood Capital, LLC (Deerwood), has
long positions in and may own option interests on the stock of the Company covered herein (Investment AB
Kinnevik), and stand to realize gains in the event that the price of the stock increases. Following publication,
Deerwood may transact in the securities of the Company. Deerwood has obtained all information herein fromsources believed to be reliable and accurate. However, such information is presented as is, without
warranty of any kind whether express or implied and without any representation as to the results obtained
from its use. All expressions of opinion are subject to change without notice, and Deerwood does not
undertake to update this report or any information contained herein. Past performance is not necessarily
indicative of future results. This report is not a recommendation to buy or sell any securities or assets of
companies covered herein. Past performance is not necessarily indicative of future results. Please read our full
legal disclaimer at the end of this report.
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Investment AB Kinnevik (KINVB: SS)
Executive Summary: Co-invest with Swedish value-oriented owner-operators with a 30-year track
record of 16% annual returns while acquiring a unique portfolio of emerging market online, e-
commerce, and telecom businesses at a discount to net asset value.
Key Figures (as of February 27, 2015)
Share Price: SEK 281/share
Market Cap: SEK 77.9 billion (USD $9.3 billion)
Annual dividend: SEK 7.25 per share (2.58% yield)
ADV: 700,000 shares per day
2017 target price: SEK 446/share
Estimated 3-year total return: 67% cumulative, or +18.5% annualized
We believe an investment in Kinnevik will produce mid-teens annual returns over a long time horizon for
three reasons:
1)
The third generation of Kinnevik management, led by Cristina Stenbeck since 2007, has
successfully pivoted their capital allocation focus to actively backing online and e-commerce
ventures in developing countries. Over the past eight years, the online investment portfolio has
generated an average annual growth rate of 34%. Through its network of relationships with
world-class institutional investors, Kinnevik has evolved into a leading partner for entrepreneurs
building the next generation of internet franchises.
2) Kinneviks portfolio will benefit tremendously from rapidly growing demand for internet and e-
commerce services in the core markets outside the US and China. The three megatrends behind
this tailwind are growth in smartphone and internet penetration, shift in consumer spending
from offline to online, and the export of proven business models to new, untapped markets. We
believe multiple portfolio companies are well-positioned to become the emerging market
equivalents of Amazon, Alibaba, Craigslist, and Zalando.
3) We estimate Kinneviks 2017 sum-of-the-parts net asset value of SEK 446 per share, which is an
+18.5% annualized total return (including dividends) from the current price of SEK 281 per
share. Catalysts for closing the discount between market price and NAV are potential IPOs of
Avito and Global Fashion Group, strategic consolidation of telecom and media stakes, and
continued development and disclosure of the rapidly growing unlisted online ventures.
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Kinnevik at a Glance
Investment AB Kinnevik is a publicly traded investment company domiciled and located in Sweden. It
has been owner-operated by the original three founding families since 1936, who control the company
using super-voting shares. Over the past 30 years the annual total return of Kinnevik Class B shares has
been16%,compared to the S&P 500 annual total return of11.4%.
Kinnevikinvests globallyin the telecom, media, and online sectors. At the end of 2014, its portfolio of
public and private companies was valued at a total net asset value of USD $10.2 billion. Of the total net
asset value, 82% is attributed to publicly traded investments and 18% is attributed to private unlisted
investments. Many of the private holdings are only accessible to the public via Kinnevik, such as
interests in Quikr, Saltside, Bayport, and Bima.
Source:Kinnevik 2014 4Q Report
As a family-controlled company with permanent capital, Kinnevik has the flexibility to invest across
companies in various stages of growth and over multi-decade time horizons. Post-investment, Kinnevik
creates additional value as an active owner-partner by seeking to stimulate operational improvements,
provide strategic leadership and bring capital discipline across the portfolio, as stated in the 2013
Annual Report.
After current management assumed control in 2007 with the appointment of Cristina Stenbeck as
Chairman, the total annual return to shareholders from 2007-2014 has been 12.1%, compared to theS&P 500 total annual return of 7.0%. Managements long-term goal is to increase the share price and
NAV at 15% per year.
Under Cristinas leadership, Kinnevik is best known for being the earliest and largest outside investor
that funded Rocket Internet (111% IRR) and Zalando (38% IRR) to their eventual multibillion-dollar IPOs.
41%
23%
13%
7%
6%
5%3%3%
Millicom and Tele2
Zalando
Rocket Internet
Global Fashion Group
Other e-commerce &
marketplaces
Entertainment
Financial Services & Other
Avito
http://www.kinnevik.se/en/Investor/Kinnevik-in-brief/http://www.kinnevik.se/en/Investor/Kinnevik-in-brief/http://www.kinnevik.se/en/Investor/Kinnevik-in-brief/http://www.moneychimp.com/features/market_cagr.htmhttp://www.moneychimp.com/features/market_cagr.htmhttp://www.moneychimp.com/features/market_cagr.htmhttp://www.kinnevik.se/Global/Om%20Kinnevik/Market%20presence%202013.pdfhttp://www.kinnevik.se/Global/Om%20Kinnevik/Market%20presence%202013.pdfhttp://www.kinnevik.se/Global/Om%20Kinnevik/Market%20presence%202013.pdfhttp://www.kinnevik.se/Documents/Q4%202014/Kinnevik_Q4_2014_FINAL.pdfhttp://www.kinnevik.se/Documents/Q4%202014/Kinnevik_Q4_2014_FINAL.pdfhttp://www.kinnevik.se/Documents/Q4%202014/Kinnevik_Q4_2014_FINAL.pdfhttps://sumzero.com/https://sumzero.com/http://www.kinnevik.se/Documents/Q4%202014/Kinnevik_Q4_2014_FINAL.pdfhttp://www.kinnevik.se/Global/Om%20Kinnevik/Market%20presence%202013.pdfhttp://www.moneychimp.com/features/market_cagr.htmhttp://www.kinnevik.se/en/Investor/Kinnevik-in-brief/ -
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Why Kinnevik, Why Now?
Kinnevik has several differentiating and favorable characteristics compared to other publicly traded
investment holding companies in the emerging markets telecom/media/technology space, such as
Naspers, Softbank, and Rocket Internet, which we believe are its closest comparables.
The first difference is that Kinnevik, with a market capitalization of USD $9.3 billion is much smaller thanNaspers ($58 billion market cap), and Softbank ($74 billion market cap), and thus has higher return
potential. Kinnevik has not (yet) scored a home-run investment that accounts for the majority of its
value, as in the cases of Naspers/Tencent and Softbank/Alibaba. Generally, higher returns come from
buying before the home-run investment becomes obvious, not after.
The second difference is that Kinnevik trades at an 8% discount to its net asset value, with no value
ascribed to management or its investing platform. In contrast, Rocket Internet ($9.7 billion market cap),
is priced at a 43% premium to its net asset value, implying a "platform value" ascribed to Rocket's
management of $2.9 billion. It is ironic that Kinnevik, which is directly co-invested with the majority ofRockets portfolio, is priced at a multi-billion dollar discount, despite an excellent track record
independently backing Avito, Bayport, Quikr, Saltside, and Konga. As Cristina and her team continue to
prove themselves as an effective venture capital platform, the NAV discount could turn into a NAV
premium.
The third difference is that Kinnevik has no debt at the holding company leveland does not own highly
leveraged operating businesses. Management has indicated that all capital allocation decisions will bemade within the requirements of holding a net cash position. As investors focused on avoiding downside
as much as capturing upside, we believe this is the correct and prudent way to own a portfolio of growth
equity assets, which require the flexibility and long-term horizon of a non-leveraged investor.
Finally, we believe that the market is mispricing Kinnevik shares because the traditional investor base
remains skeptical of the unprofitable yet rapidly growing online companies, as seen by the shares' 25-40%
discount to NAV during 2009-2013. After Zalando and Rocket Internet were listed publicly, the discountnarrowed to 0-15% during 2014. As the smaller unlisted companies grow their NAV contribution and
eventually IPO, further shareholder value will be unlocked via higher NAV and a narrower discount.
I skate to where the puck is going to be, not to where it has been -Wayne Gretzky
"Kinnevik has a very clear vision: to be a best in class, value added investor focused on creating
shareholder returns by driving industry consolidation in mature businesses and by supporting
new, consumer-focused digital growth companies."
-Cristina Stenbeck,2013 Letter to Shareholders
"I've seen more people fail because of liquor and leverage - leverage being borrowed money.
You really don't need leverage in this world much. If you're smart, you're going to make a lot of
money without borrowing." -Warren Buffett
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NAV Growth Forecast, 2015-2017
Based on an individual analysis of each company in Kinneviks portfolio, we estimate that Kinneviks NAV
per share will increase 47% to SEK 446 from 2015-2017. Of the total cumulative growth in NAV, 53% is
attributed to unlisted private investmentsand 47% is attributed to publicly traded investments.
Source: Deerwood estimates
As most of the unlisted holdings are in the Online portfolio, 70% of the cumulative gain is attributed to
Online, 26% to Telecom, and 4% to Financial Services and Entertainment.
The valuation estimates for each individual company are summarized in our NAV model below, and ourmethodology and rationale are described in the 2017 NAV Valuation Model and Methodology section
onpage 23.Our individual company analyses begin onpage 26.
250
275
300
325
350
375
400
425
450
475
2014endingNAV
RocketInternet
Zalando
Millicom
Tele2
ModernTimesGroup
Qliro
GlobalFashionGroup
HomeandLiving
Generale-commerce
Avito
Quikr
Saltside
Othermarketplaces
FinancialServices
Metro
2017endingNAV
Kinnevik NAV Growth Forecast, 2015-2017
Publiclylisted investments
(47% of total gain)
Private unlisted investments
(53% of total gain)
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Kinnevik Estimated Net Asset Value, 2017
Source: Kinnevik, company data, Deerwood estimates
($ mm, SEK mm)
100%
Valuation(USD)
KINV
Ownership
NAV
Contribution(SEK)
100%
Valuation(USD)
KINV
Ownership
NAV
Contribution(SEK)
Valuation
Growth
Change in NAV
per share
Online
Rocket Internet $9,735 14% 10,620 $11,986 13% 12,988 23% 9
Zalando $6,572 32% 19,030 $9,089 32% 23,996 38% 18
Global Fashion Group $2,892 26% 6,092 $6,176 24% 12,249 114% 22
Lamoda $828 26% inc. GFG $1,306 24% inc. GFG 58% inc. GFG
Dafiti $895 26% inc. GFG $1,247 23% inc. GFG 39% inc. GFG
Namshi $121 26% inc. GFG $565 26% inc. GFG 368% inc. GFG
Jabong $446 26% inc. GFG $2,217 25% inc. GFG 397% inc. GFG
Zalora $603 26% inc. GFG $842 22% inc. GFG 40% inc. GFG
Home and Living
Home24 $937 20% 833 $1,086 20% 1,789 16% 3
Westwing $516 13% 379 $923 13% 989 79% 2
Other $107 Mixed 93 $11 Mixed 93 0
Qliro $295 29% 737 $428 29% 1,005 45% 1
Other E-commerce
Lazada $1,220 10% 739 $2,829 10% 2,331 132% 7
Linio $326 9% inc. Lazada $809 7% 449 148% inc. Lazada
Jumia $543 10% 409 $776 8% 543 43% 0
Konga $92 41% 292 $349 30% 849 280% 2
Other $31 Mixed 257 $31 Mixed 257 0
Marketplaces
Avito $957 31% 2,298 $3,290 31% 8,514 244% 22
Quikr $343 16% 425 $1,461 16% 1,926 326% 5
Saltside $23 88% 154 $307 61% 1,543 1260% 5
Wimdu $170 29% 381 $312 29% 745 84% 1
Other $14 Mixed 115 $14 Mixed 115 0% 0
Telecom
Millicom $6,916 38% 22,039 $11,236 38% 35,047 62% 47
Tele2 $5,320 30% 12,865 $3,954 30% 9,839 -26% -11
EntertainmentModern Times Group $2,135 20% 3,358 $2,645 20% 4,359 24% 4
Metro $39 100% 321 $0 100% 0 -100% -1
Net cash, Metro $17 100% 140 $17 100% 140 0% 0
Other $13 100% 106 $13 100% 106 0% 0
Financial Services & Other
Bayport $430 31% 1,032 $725 31% 1,852 69% 3
Transcom $224 33% 494 $224 33% 609 0% 0
Black Earth Farming $76 25% 151 $76 25% 155 0% 0
Bima $64 39% 206 $140 39% 450 118% 1
Rolnyvik $30 100% 250 $30 100% 250 0% 0
Other $51 100% 424 $51 100% 424 0% 0
Net Cash $16 100% 130 $16 100% 130 0% 0
Debt $0 100% 0 $0 100% 0 0% 0
Total $15,330 84,370 $19,127 123,742
Shares outstanding 277 277
NAV per share 304 446 142
2014 4Q Valuation 2017 Projected Valuation 2015-2017 Change
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Risks
Disconnect between share price and net asset value
Historically, Kinneviks shares have traded at an average discount to NAV of 22% from 2005-2014, and
the discount has been as wide as 45% in 2008. Although the discount has narrowed considerably in the
last year due to the listing of Zalando and Rocket Internet, there is no guarantee that shares will trade at
100% of NAV in 2017. However, based on managements recent comments in 20144Q, if shares tradedsignificantly below internal estimates of intrinsic value Kinnevik would repurchase shares in the open
market.
Currency risks
Kinneviks shares are denominated in Swedish Krona (SEK), and its portfolio companies' revenues and
assets are denominated in a variety of global currencies, including the Russian Ruble (RUB). As a result,
investors owning Kinnevik will be exposed to currency fluctuations.
Financing and operational risks
Many companies in the online portfolio require significant amounts of financing before reaching
profitability. By our estimates, in 2014 the unprofitable companies had aggregate EBITDA losses of EUR -867 million, and over the next three years will require total financing of EUR 1.1 billion. If new financing
cannot be raised due to deterioration in fundamental and competitive performance, or a poor capital
market environment, Kinnevik will incur losses. Mitigating the financing risk is Rockets successful track
record of raising capital from private and public sources.
Political and expropriation risks
A number of Kinneviks companies operate in countries with unfavorable political and economic regimes,
such as Avito, Lamoda, and MTG in Russia, and Konga and Jumia in Nigeria. If government authorities in
those regions take actions adverse to the interests of private shareholders, then Kinnevik will incur
losses.
Valuation risks
Valuation of securities is challenging and subject to uncertainty, particularly when valuing younger,
rapidly growing ventures such as those owned by Kinnevik. Our NAV estimate in 2017 is our best
attempt at predicting future values based on current available information. If the underlying portfolio
company fundamentals do not develop as we have forecast, then our NAV estimate will be different
than future realized NAV.
Corporate governance risks
Kinnevik has a dual-class share structure that gives the founding families and executives the majority of
voting power with a relatively small amount of equity. Families and senior managers could take actions
adverse to shareholder interests, with no recourse available to non-controlling shareholders.
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Table of ContentsExecutive Summary ................................................................................................................................ 1
Kinnevik at a Glance ............................................................................................................................... 2
Why Kinnevik, Why Now? ...................................................................................................................... 3
NAV Growth Forecast, 2015-2017 .......................................................................................................... 4
Risks ........................................................................................................................................................ 6
Management and Share Ownership....................................................................................................... 8
Kinneviks Investing Track Record ........................................................................................................ 10
Three Megatrends Driving E-commerce Growth in Emerging Markets ............................................... 15
2017 NAV Valuation Model and Methodology .................................................................................... 23
Rocket Internet ................................................................................................................................. 26
Zalando ............................................................................................................................................. 32
Global Fashion Group ....................................................................................................................... 37Home24 ............................................................................................................................................ 45
Westwing .......................................................................................................................................... 49
Qliro .................................................................................................................................................. 53
Lazada ............................................................................................................................................... 57
Linio .................................................................................................................................................. 61
Jumia and Konga ............................................................................................................................... 66
Avito ................................................................................................................................................. 73
Quikr ................................................................................................................................................. 79
Saltside ............................................................................................................................................. 82
Wimdu .............................................................................................................................................. 85
Millicom ............................................................................................................................................ 88
Tele2 ................................................................................................................................................. 94
Modern Times Group ....................................................................................................................... 97
Bayport ........................................................................................................................................... 102
Bima ................................................................................................................................................ 106
Miscellaneous company analyses .................................................................................................. 110
Full Legal Disclaimer ........................................................................................................................... 113
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Management and Share Ownership
We believe the primary decision makers for Kinnevik are Cristina Stenbeck, Executive Chairman, and
Lorenzo Grabau, CEO, who work in close conjunction with the Board of Directors and the Investment
Committee on all aspects of running the company.
Cristina Stenbeck,Executive ChairmanCristinas first role within the Kinnevik group was joining the board of Invik & Co., a financial services
spin-off, in 1997 at the age of 21. She was appointed Vice Chairman of Kinnevik in 2003, and Chairman in
2007. She serves on the boards of Qliro, Millicom, Modern Times Group, Tele2, and Zalando.
Ms. Stenbeck, through her 50% stake in holding company Verdere, Sarl, owns 14.8 million KINV Class A
shares worth USD $502 million, representing 5.3% of capital and 22.4% of total voting power.
Lorenzo Grabau,Chief Executive Officer
Lorenzo was appointed CEO in 2014, replacing former CEO Mia Brunell Livfors. Before being appointed
CEO, he served on the Board of Kinnevik from 2013-2014. Previously, he worked in investment banking
at Goldman Sachs from 1994-2011. He serves on the boards of Modern Times Group, Millicom, Zalando,
Avito, Qliro, and Tele2.Mr. Grabau owns 955,000 Class B shares, worth USD $33 million, the majority of which were purchased
with his personal funds in May 2013 when he joined Kinneviks Board of Directors.
Joakim Andersson, Chief Financial Officer of Kinnevik
Joakim has been with Kinnevik since 2007, and was formerly the Treasurer of Kinnevik until February
2015, when he replaced former CFO Mikael Larsson. He owns 10,333 Class B shares.
Other executives of note are Investment Directors Anders Kronborg, Stina Andersson, Christoph
Barchewitz and Chris Bischoff, who were mostly hired during 2012-2013. Their role is to source new
investments and help manage the existing portfolio of listed and unlisted companies.
Management and Insiders Ownership
The Stenbeck, Klingspor, and von Horn founding families control the company with an aggregate 58% of
voting power and 14.6% of capital worth USD $1.4 billion. Class A shares have 10 votes per share and
Class B shares have 1 vote per share. We believe managementssignificant ownership aligns their
interests with the rest of the shareholder base.
Kinnevik Beneficial Owners
Source:Kinnevik 2013 Annual Report
A Shares B Shares Capital Votes Value ($ mm)
Cristina Stenbeck 14.8 0.0 5.3% 22.4% $502
Max Stenbeck 14.8 0.0 5.3% 22.4% $502
Klingspor Family 6.5 2.2 3.1% 10.2% $295
von Horn Family 2.0 0.4 0.9% 3.1% $82
JPM Chase 0.0 32.6 11.7% 5.0% $1,111
Other shareholders 4.4 200.2 73.7% 37.0% $6,970
Total 42.4 235.4 100% 100% $9,462
http://www.kinnevik.se/en/Corporate-Governance/Board-of-Directors/Members-of-the-Board-of-Directors/http://www.kinnevik.se/en/Corporate-Governance/Board-of-Directors/Members-of-the-Board-of-Directors/http://www.kinnevik.se/en/Corporate-Governance/Board-of-Directors/Members-of-the-Board-of-Directors/http://www.kinnevik.se/en/About-Kinnevik/Management-Team/http://www.kinnevik.se/en/About-Kinnevik/Management-Team/http://www.kinnevik.se/en/About-Kinnevik/Management-Team/http://www.kinnevik.se/Documents/Pdf/AnnualReports/en/Annual%20Report_2013.pdfhttp://www.kinnevik.se/Documents/Pdf/AnnualReports/en/Annual%20Report_2013.pdfhttp://www.kinnevik.se/Documents/Pdf/AnnualReports/en/Annual%20Report_2013.pdfhttp://www.kinnevik.se/Documents/Pdf/AnnualReports/en/Annual%20Report_2013.pdfhttps://sumzero.com/https://sumzero.com/http://www.kinnevik.se/Documents/Pdf/AnnualReports/en/Annual%20Report_2013.pdfhttp://www.kinnevik.se/en/About-Kinnevik/Management-Team/http://www.kinnevik.se/en/Corporate-Governance/Board-of-Directors/Members-of-the-Board-of-Directors/ -
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Management Compensation
Executive compensation at Kinnevik is reasonable and modest, especially compared to US companies of
comparable size. In 2013 the CEO received total remuneration of SEK 15 million (USD $2 million), and 7
other Senior Executives received total remuneration of SEK 37 million ($700,000 each).
The long-term incentive plan awarding KINV shares to management is derived from a formula based on
the total return to Class B shares, growth in net asset value, and average return of portfolio company
groups, over a rolling three-year period. There is a maximum number of incentive shares awarded with
caps on dilution and profit per share, and is approved by a 90% vote of the Board of Directors.
In 2013, the total cost of running Kinneviks holding company investment operation, which includes
compensation for 30 employees, was SEK 218 million ($31 million), or 0.30% of net asset value, a good
value for shareholders when compared to a venture capital funds fees of "2 and 20", or active asset
managers' fees of 1.0-2.0%.
Key Events in Kinnevik History, 1936-2014
Kinneviks history can be divided into three periods, corresponding to the three generations of
Stenbecks that have guided the company through three investment paradigms. From 1936-1976, HugoStenbeck invested primarily in industrials in the Scandinavian region. From 1976-2006, Jan Stenbeck, son
of Hugo Stenbeck, invested primarily in European and emerging markets telecom and media sectors.
From 2006 and onwards, Cristina Stenbeck, daughter of Jan Stenbeck, shifted focus to the internet,
online, and e-commerce sectors.
Below is a timeline of key events in Kinneviks history from inception to today:
1936Kinnevik is founded by 3 friends, Robert von Horn, Wilhelm Klingspor, and Hugo Stenbeck (their
attorney), after selling their sugar company and were left with a farming company and cash. The
first investment was buying shares of Korsnas, a Swedish forestry and sawmill group.
1954Kinnevik listed publicly.1971Jan Stenbeck, son of Hugo Stenbeck, joins the Kinnevik Board at the age of 30.
1976Jan Stenbeck assumes management of the company after the passing of Hugo Stenbeck, and is
appointed Chairman 17 years later in 1993.
1979 - Kinnevik begins investing in mobile telecom and media businesses, which eventually become
Millicom, Tele2, and Modern Times Group.
1985Invik & Co., the finance and asset management segment, is spun-out and listed publicly.
1997Cristina Stenbeck, daughter of Jan Stenbeck, joins the board of Invik & Co. at age 21.
2002Jan Stenbeck passes away.
2003 - Cristina Stenbeck is appointed Vice Chairman of Kinnevik.
2004Invik & Co. is merged into Kinnevik. 1 year later, Invik & Co. is spun-off, listed publicly, and
acquired by a third party in 2007.
2006Mia Brunell Livfors is appointed CEO, replacing Vigo Carlund. Kinnevik begins investing in onlineventures, starting with Kontakt East, the predecessor of Avito.
2007Cristina Stenbeck appointed Chairman of Kinnevik.
2009Kinnevik acquires Emesco AB, eliminating a cross-shareholding corporate structure. Begins
partnership with Rocket Internet and ramping up investments in internet and e-commerce.
2013Divested remaining interests in Korsnas. Net cash position achieved at the Kinnevik holding
company level.
2014Lorenzo Grabau is appointed CEO. Zalando and Rocket Internet listed publicly.Source: Kinnevik website, filings, data
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Kinneviks Investing Track Record
In the tables below, we present the results of our independent analysis of Kinneviks investment
performance during 2007-2014, split between Online and Non-Online portfolios. We chose the period
starting in 2007 because that was the year current management assumed full control.
Since our calculations are derived from publicly available information, our calculated IRRs are mostlylower compared to managements IRR numbers in the2014 4Q Presentation,due to undisclosed timing
of specific company financing rounds within a calendar year and treatment of dividends from Rocket
Internet. However we are confident that our results are very close to actual economic performance,
because our multiple-on-invested capital (MOIC) numbers are almost identical to managements MOIC
numbers, with the only differences coming from our inclusion of the Kontakt East investments from
2006-2008 in Avitos accumulated investment, and our assumption of an initial investment of SEK 747
million in Rocket Internet, compared to Kinneviks estimated assumption of SEK 974 million.
Online investments track record, 2007-2014
Non-online investments track record, 2007-2014
Source: Kinnevik reports, company data, Deerwood estimates
*IRRs differ from managementsIRR data in 2014 4Q, due to undisclosed timing of specific financing rounds.
*Avito accumulated investment includes 2006-2008 Kontakt East investment totaling SEK 222 million.
*Saltside accumulated return based on 1/2015 financing round at estimated USD $112 million valuation.
*Non-Online IRRs assumes initial investment at Kinnevik's fair value mark at 12/31/06, includes dividends received, and adjusted
for 2009 Emesco acquisitions.
83% of the total accumulated return in the online portfolio comes from just 3 investments - Rocket
Internet, Zalando, and Global Fashion Group (GFG). The smaller, non-Rocket investments have high IRRs
(SEK mm)
Accumulated
return
Accumulated
investment
Investment
period (yrs)
Date of initial
investment
Date of
valuation
IRR MOIC
Rocket Internet 10,620 (3,077) 4 2010 2014/12 111% 14.2xSaltside 563 195 2 2013 2015/1 51% 2.9x
Zalando 19,030 7,916 4 2010 2014/12 38% 2.4x
Avito 2,298 617 8 2006 2014/12 26% 3.7x
Konga 292 209 1 2013 2014/12 24% 1.4x
Westwing 379 175 3 2011 2014/12 21% 2.2x
GFG 6,092 3,620 3 2011 2014/12 19% 1.7x
BigCommerce + Lazada 739 680 2 2012 2014/12 4% 1.1x
Home24 833 794 3 2011 2014/12 1% 1.0x
Wimdu/Airizu 381 429 3 2012 2014/12 -3% 0.9x
Other E-commerce 666 807 8 2006 2014/12 -5% 0.8x
CDON 737 887 4 2010 2014/12 -6% 0.8x
Quikr 425 362 0.75 2014 2014/12 n/m n/m
(SEK mm)
Accumulated
return
Accumulated
investment
Investment
period (yrs)
Date of initial
Investment
Date of
valuation
IRR MOIC
Milvik/Bima 206 84 1 2013 2014/12 99% 2.5x
Bayport 1,032 573 7 2007 2014/12 12% 1.8x
Tele2 24,819 12,548 8 2006 2014/12 11% 2.0x
Millicom 27,997 16,326 8 2006 2014/12 8% 1.7x
Korsnas 13,635 11,559 7 2006 2013/12 3% 1.2x
MTG 3,936 4,471 8 2006 2014/12 -2% 0.9x
Transcom 494 1,148 8 2006 2014/12 -11% 0.4x
Metro 461 2,661 8 2006 2014/12 -21% 0.2x
Black Earth Farming 151 791 8 2006 2014/12 -23% 0.2x
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but lower dollar gainsSaltside Technologies generated a 51% IRR, Avito 26%, and Konga 24%. Low
performers are the Airbnb clone Wimdu/Airizu, Qliro, and other undisclosed e-commerce and
marketplace investments (we believe this consist of stakes in IROKOtv, Fab Furnish, Yell.ru, Dealdey,
Foodpanda, and other undisclosed investments).
The non-online investment track record is mixed, with solid results from the newer financial ventures in
Milvik/Bima and Bayport, average returns from Tele2, Millicom, and MTG, and poor results from
Transcom, Metro, and Black Earth Farming.
On an aggregate basis, the online portfolio produced a weighted average annual return of 34%,
compared to the non-online portfolio weighted average annual return of 5%, for a total blended annual
return of 10% from 2007-2014. The remaining 2% per year total return on KINV shares during that
period came from dividends and a narrowing of the NAV discount from 30% in 2007 to 8% in 2014.
Aggregate investment performance, 2007-2014
Source: Kinnevik reports, company data and filings, press releases, Deerwood estimates
Managements strategy of shifting capital allocation from the non-online legacy portfolio to the online
portfolio appears correct, assuming that the high returns from online investing continue in the future.
The long-term goal of 15% total return to shareholders should consist of 10% returns from the legacy
holdings (primarily Millicom and Tele2) combined with 20-30% returns from the e-commerce and
marketplace ventures.
Capital Allocation, 2007-2014
For the same period of 2007-2014, we also categorized Kinnevik's cumulative cash flows from
operations, investing, and financing to see how management allocated capital. The cash + financial
assets amounts in 2007 and 2014 are very close proxies to net asset value, so the table below also
shows the drivers of net asset value growth over the past 8 years.
Total investment
(SEK mm)
Total return
(SEK mm)
Weighted
average years
MOIC CAGR
Online Portfolio Performance 13,614 43,055 4.0 3.2x 34%Non-online Portfolio Performance 50,161 72,730 7.8 1.4x 5%
Total Portfolio Performance 63,775 115,785 6.4 1.8x 10%
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Kinnevik cumulative cash flows by category, 2007-2014
Source: Kinnevik annual reports
From 2007-2014, total cash inflow from dividends, cash flows from operations (primarily Korsnas), and
sales of existing financial assets was SEK 33.1 billion. Of this total cash inflow, 50% was invested in
financial assets, 27% was paid out as dividends, 12% was used to pay down debt, and the remaining 19%
was used for CAPEX, interest expense, acquisitions of subsidiaries and a small amount of share
repurchase in 2008.
During the 8 year period, the total gain in cash + financial assets was SEK 47.2 billion, closely matching
the gain in NAV of SEK 45.2 billion. During that time, a total of SEK 16.5 billion was invested into financial
assets, producing unrealized gains on financial assets of SEK 49.8 billion, which was the primary driver of
the increase in NAV during the time period.
(SEK mm)
Cash Flow % of Total
Inflows
% of Total
Gain
NAV
2007 starting cash + financial assets 37,624 39,168
Dividend and interest income 22,465 48%
Cash flows from operations 4,582 10%
Sale of financial assets 5,734 12%
Sale of subsidiaries 322 1%
Investment in financial assets (16,464) 50% -35%
Dividends paid (8,879) 27% -19%
Net debt reduction (3,893) 12% -8%
CAPEX (2,905) 9% -6%
Interest (2,068) 6% -4%
Acquisitions (1,170) 4% -2%
Share repurchase (279) 1% -1%
Unrealized gains on f inancial assets 49,784 n/m 105%
2014 ending cash + financial assets 84,853 84,370
Total cash inflows 33,103
Total cash outflows (35,658)
Unrealized gains on financial assets 49,784
Total gain, 2007-2014 47,229 45,202
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Historical Discount to NAV
Similar to other investment holding companies, Kinnevik shares have historically traded at an average
ratio of market price to net asset value of 78% (discount of 22%), from 2005-2014.
Source: Kinnevik annual reports, Nasdaq OMX Stockholm
The NAV discount was widest during 2008-2013, when the rapidly growing fair value marks of the online
portfolio were not given full credit by the market until 2014, when shares traded near or even above
100% of NAV.
We think the question of what the correct discount to NAV, whether it is 20% or 0%, is less important
than determining how much NAV will grow in the future. It would be a mistake for an investor to lose
out on even a single year of 15% NAV growth, much less multiple years of compounding at 15%, just to
wait for a one-time 10% discount on the entry price. Furthermore, management indicated in the most
recent2014 4Q earnings conference callthat the company would repurchase shares in the future if thediscount was sufficiently large, signaling to the market that the company would take action to drive its
shares closer to intrinsic value, which was hinted to be at least 100% of NAV.
Growing the Co-investors Network, 2006-2014
Due to the expansion into new regions and sectors after 2006, Kinnevik's investment opportunity set has
never been as favorable and large as it is today, which bodes well for future value-creating partnerships
and co-investments with a wide swath of world-class investors.
In 2006, excluding Millicom, less than 1% of the portfolio was invested outside Europe, consisting of a
small stake in Kontakt East with a handful of private company co-investors. In 2014, 28% of the portfolio
is now invested outside Europe, and Kinnevik has co-invested with over 53 world-class institutions in atleast 1 deal.
0%
20%
40%
60%
80%
100%
120%
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
KINVB price to NAV ratio, 2005-2014
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Kinnevik co-investors, 2006-2014
Source: Kinnevik, Rocket Internet data, Crunchbase, news articles, company press releases
Because Kinnevik is not just a passive financial investor, but an active and strategic manager, it is able to
create additional value by bringing in new partners and driving strategic mergers for their companies.
For example, Kinnevik's evolving relationship with Naspers illustrates the potential synergies and
network effects within the portfolio. In March 2013, Avito was merged with Naspers-owned Slando/OLX
in Russia to create the dominant online classifieds site. At the same time, Naspers participated in an
equity raise for Konga in Nigeria. We see other potential benefits for consolidation between Kinnevik
and Naspers - Quikr and OLX could merge in India, and Saltside and OLX could merge in Bangladesh and
Ghana.
Further expansion of Kinneviks sphere ofco-investors may also lead to investments in new regions suchas China. The most recent financing round for Saltside was led by Kinnevik as the majority shareholder,
when they brought in partners Hillhouse Capital and Brummer & Partners, which previously had no
formal relationship with Kinnevik. Hillhouse has successfully invested in many Chinese ventures (Tencent,
JD.com), and future investments in China may be possible via the Saltside relationship.
A Long Runway for Growth
Kinnevik has done well investing in the online sectorfrom 2007-2014 it achieved an average annual
return of 34% per year. We believe the primary architect of the shift into the online space was Cristina
Stenbeck, which is very positive for long-term Kinnevik shareholders, as she is just shy of forty years old
and has multiple decades ahead of her to create value.
Likewise, the internet ecosystems of developing countries also have many decades of growth ahead of
them, as they benefit from increasing mobile, smartphone, and internet penetration, a shift to e-
commerce, and the proliferation of proven online business models to new markets. In the following
section, we present the argument for why these three megatrends will be beneficial for Kinnevik's
portfolio companies in the coming years.
Co-Investor Investments Co-Investor Investments Co-Investor Investments
Rocket/Global Founders 15 DST 1 Norwest Venture 1
Access Industries 11 eBay 1 Odey 1
Holtzbrinck Ventures 7 Falcon Edge Captal 1 Omidyar Network 1
Summit Partners 7 Fidelity Investments 1 Ontario Teachers Pension Plan 1
Tengelmann 6 Helios 1 Pelham Associates 1
JPMorgan 5 Hillhouse Capital 1 Phenomen Ventures 1
Blakeney Management 2 iMENA Group 1 Philippine Long Distance 1
Naspers 2 International Finance 1 Quadrant Capital Advisors 1
Tiger Global 2 Latin Idea 1 REWE Group 1
Verlinvest 2 Leapfrog Investments 1 Rise Capital 1
Vostok Nafta 2 Leon Group 1 Scopia Capital Management 1
Accel Partners 1 Matrix Partners 1 Temasek 1
Anders Holch Povlsen 1 Millicom 1 Tesco Overseas 1
Baring Vostok 1 MTN Group 1 United Internet Ventures AG 1
Brummer & Partners 1 New Enterprise Assoc. 1 Valorem 1
CDC Group 1 Nokia Growth Partners 1 Warburg Pincus 1
Cohen Capital Advisors 1 Northgate 1 Zimmermann Investment 1
Digicel 1 Northzone Ventures 1
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Three Megatrends Driving E-commerce Growth in Emerging Markets
The 2006 paradigm shift in Kinneviks investment focus to the online/e-commerce sector was not by
accident, but a deliberate, calculated strategy to benefit from three megatrends that are profoundly
changing how emerging market consumers buy, sell, and trade goods and services online:
1.
Developing countries mobile penetration rates are approaching 100%, which leads tosmartphone penetration of 100% and internet penetration of 100%.
2. Higher internet penetration enables consumers to shift spending from offline to online. E-
commerce (both B2C and C2C) will grow much faster than offline retail, particularly in emerging
markets that lack the infrastructure necessary for a brick-and-mortar store network.
3. The proliferation and export of proven business models enables investors (like Kinnevik and
Rocket Internet) to build multi-billion-dollar companies without technological, product, or
market risk (only competition risk remains). What works in the West works in the East.
Over the next 10 years, we believe Kinneviks portfolio of companies are well-positioned to become the
regional equivalents of Amazon, Alibaba, Craigslist, and Zalando, and are confident in our forecasts of
high double digit revenue growth for these companies because of the tailwinds from these trends.
Megatrend #1Mobile, smartphone, and internet penetration will rise to 100% everywhere
It is a given that that the internet is universally useful, its utility increases as more people use it, and all
people want access to the internet. In developing countries without adequate fixed broadband
infrastructure, mobile phones are the primary way to get online. The good news is that mobile phone
penetration in all regions is forecast to reach 100% by 2017, and is already over 100% in CIS, Latin
America, and the Middle East.
Source:A.T. Kearny, The Mobile Economy 2013 Presentation
After people get basic access to the internet using a feature phone, they then use apps and rich media,
which require a smartphone. Global smartphone penetration has increased from 10% in 2010 to over 30%
in 2014, and will continue to rise in the coming years.
https://vimeo.com/22487233https://vimeo.com/22487233https://vimeo.com/22487233https://www.google.com/url?sa=t&rct=j&q=&esrc=s&source=web&cd=1&cad=rja&uact=8&ved=0CB4QFjAA&url=http%3A%2F%2Fwww.atkearney.com%2Fdocuments%2F10192%2F760890%2FThe_Mobile_Economy_2013.pdf&ei=4bT7VMmkLIrUoATj8YHAAQ&usg=AFQjCNFWphTKUBY9U7iBIUAMCrh1M-0rUA&bvm=https://www.google.com/url?sa=t&rct=j&q=&esrc=s&source=web&cd=1&cad=rja&uact=8&ved=0CB4QFjAA&url=http%3A%2F%2Fwww.atkearney.com%2Fdocuments%2F10192%2F760890%2FThe_Mobile_Economy_2013.pdf&ei=4bT7VMmkLIrUoATj8YHAAQ&usg=AFQjCNFWphTKUBY9U7iBIUAMCrh1M-0rUA&bvm=https://www.google.com/url?sa=t&rct=j&q=&esrc=s&source=web&cd=1&cad=rja&uact=8&ved=0CB4QFjAA&url=http%3A%2F%2Fwww.atkearney.com%2Fdocuments%2F10192%2F760890%2FThe_Mobile_Economy_2013.pdf&ei=4bT7VMmkLIrUoATj8YHAAQ&usg=AFQjCNFWphTKUBY9U7iBIUAMCrh1M-0rUA&bvm=https://sumzero.com/https://www.google.com/url?sa=t&rct=j&q=&esrc=s&source=web&cd=1&cad=rja&uact=8&ved=0CB4QFjAA&url=http%3A%2F%2Fwww.atkearney.com%2Fdocuments%2F10192%2F760890%2FThe_Mobile_Economy_2013.pdf&ei=4bT7VMmkLIrUoATj8YHAAQ&usg=AFQjCNFWphTKUBY9U7iBIUAMCrh1M-0rUA&bvm=https://vimeo.com/22487233 -
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Source:KPCB, Mary Meeker Internet Trends 2014 Presentation
In contrast with the US and Western Europe, the top 15 developing countries smartphone penetration
at 23% is significantly lower than the global average, with smartphone subscribers forecast to grow 28%
in 2014.
Source: KPCB Mary Meeker Internet Trends 2014 Presentation
There is strong, material upside for growth in smartphone adoption, which implies high upside in
internet usage and penetration.
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Source: KPCB Mary Meeker Internet Trends 2014 Presentation
The top 15 developing markets with large potential internet populations have an average internet
penetration of 22%, with a total population of 2.5 billion, in contrast to the global average of 37%
internet penetration.
Because of the smaller base, the percentage growth of internet users in non-US, non-European
countries is an order of magnitude higher compared to Western countries, with 33% to 205% growth in
number of internet users from 2009-2013 in the BRIICS countries.
Source:Naspers, 2014 1Q Earnings Presentation
If internet penetration will eventually reach 100% everywhere, and currently the average developing
countrys internet penetration is under 22%, the implication for investors and entrepreneurs is that it is
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better to start a business in an untapped market with low competition. Additionally, the business will
benefit from the dual rising tides of internet user growth and economic growth.
When people get on the internet, they first thing they do is access new information (Google) and
communicate (Facebook). The second thing they do is buy and trade goods and services online. Since
Google and Facebook are already available in emerging markets, but Amazon and Craigslist are not,
there is a tremendous opportunity to capture the unmet, growing demand for e-commerce.
Megatrend #2The oncoming tsunami of e-commerce
The internet allows people to discover, access, and obtain new products they were not able to get
access to previously, by purchasing a new or used item from an online retailer or online classifieds site.
The growth in e-commerce is a global phenomenon, and total B2C e-commerce spending is increasing at
15% per year from a level of $1.5 trillion, handily outpacing GDP growth.
Source:OEX Divante Presentation
Not all countries are growing at the global average, however. Because of the smaller base of people
buying goods online, e-commerce growth in developing markets is much higher with CAGRs of 22-77%
from 2009-2013 (vs. 3-10% for Japan, Western Europe, and US).
http://www.slideshare.net/divanteltd/ecommerce-trends-from-2014-to-2015http://www.slideshare.net/divanteltd/ecommerce-trends-from-2014-to-2015http://www.slideshare.net/divanteltd/ecommerce-trends-from-2014-to-2015https://sumzero.com/http://www.slideshare.net/divanteltd/ecommerce-trends-from-2014-to-2015 -
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Source: Naspers 2014 1Q Earnings Presentation
In Rocket Internet and Kinneviks target markets, e-commerce penetration is currently averaging 2.1%,
compared to China at 5.6% and the US at 7.4%, so there is material upside to capturing a growing
proportion of online spend from a potential population of 5.4 billion people representing $57 trillion in
GDP.
Source:Rocket Internet 2014 1H Results Presentation
https://www.rocket-internet.com/themes/rocket3/download/H1%202014%20Results%20and%20Business%20Update.pdfhttps://www.rocket-internet.com/themes/rocket3/download/H1%202014%20Results%20and%20Business%20Update.pdfhttps://www.rocket-internet.com/themes/rocket3/download/H1%202014%20Results%20and%20Business%20Update.pdfhttps://sumzero.com/https://www.rocket-internet.com/themes/rocket3/download/H1%202014%20Results%20and%20Business%20Update.pdf -
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We believe the potential for e-commerce share of total commerce in developing countries is actually
much higher than in developed countries, because of significantly lower brick-and-mortar retail space
per capita. In the US there is 46 square feet of retail space per capita, compared to China at 6.4 sqft,
India at 2.0 sqft, Russia at 1.0 sqft, and Nigeria at 0.02 sqft.
Source:Alibaba 2014 IPO Prospectus,globaleconomicanalysis,ventures-africa.com,Cushman & Wakefield
As retail spending per capita grows, the leading online retailers will capture the vast majority of
incremental spend in countries lacking a retail store infrastructure, and thus can grow faster than the
overall online market. Even Amazon, which competes intensely with brick and mortar stores in
developed countries, grew faster than the total e-commerce and retail industry during 2013-2014.
Source:Internetretailer.com
0
5
10
15
20
25
30
35
40
45
50
Retail Space per Capita (sqft)
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So how does one build the leading e-commerce company in a new, untapped market? Perhaps investors
and entrepreneurs can learn a thing or two from studying Amazon, Alibaba, JD and Flipkart
Megatrend #3Export of proven business models to new markets
There is tremendous demand for e-commerce in countries where western companies, like Amazon,
have not yet entered. Kinnevik and Rocket Internet, despite being wrongly disparaged as a clone
factory, fill a valuable role in building a countrys nascent online ecosystem. Someone, whether it is
Rocket, Amazon, Alibaba, or a venture capital fund, will invest capital wherever it is needed to provide
the online services consumers desperately desire.
The entrepreneurial strategy of creative imitation of internet businesses is an effective and proven
strategy that has a long history of success in many different regions of the world.
Original and imitator company comparison, by region
Source: Company data, market data
Investors should seriously consider owning those companies that are implementing this strategy in
emerging markets, because they can produce very high returns for long periods of time. If you missed
the first internet wave in 1997 by passing on Amazon and eBay (average annual return 30%+ for 17
years) and also missed the second internet wave in 2001 by passing on Softbank/Alibaba, and
Naspers/Tencent (average annual return 20%+ for 14 years), it may be a mistake to pass on investing in
the third internet wave in 2015 with Kinnevik and Rocket Internet, who are building the next generation
of internet franchises all over the world.
($ bn) Original (valuation) Imitator (valuation)
Russia Yahoo ($41 bn) Mail.ru ($3.6 bn)
Facebook ($219 bn) VK (owned by Mai l.ru)
Amazon ($176 bn) Ozon.ru ($0.7 bn)
China eBay/Amazon ($246 bn) Alibaba ($212 bn)
Amazon ($176 bn) JD ($37 bn)
ICQ/Facebook/Twitter ($250 bn) Tencent ($163 bn)
Latin America eBay ($70 bn) MercadoLibre ($6 bn)
Amazon ($176 bn) B2W Digital ($2 bn)
Europe Zappos ($1 bn) Zalando ($6 bn)
India Amazon ($176 bn) Flipkart ($11 bn)
Craigslist ($1 bn) OLX (owned by Naspers)
http://www.wired.co.uk/magazine/archive/2012/04/features/inside-the-clone-factoryhttp://www.wired.co.uk/magazine/archive/2012/04/features/inside-the-clone-factoryhttp://www.wired.co.uk/magazine/archive/2012/04/features/inside-the-clone-factoryhttps://sumzero.com/http://www.wired.co.uk/magazine/archive/2012/04/features/inside-the-clone-factoryhttp://www.wired.co.uk/magazine/archive/2012/04/features/inside-the-clone-factory -
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Kinneviksonline portfolio original vs. imitator comparison
Source: Company data, Deerwood estimates
The success of the Kinnevik sphere of companies is far from guaranteed, however, with many years of
intense competition before reaching positive cash flowif the companies fall short, shareholders will
suffer. The prices paid for the companies in the portfolio, either directly by Kinnevik or indirectly by
shareholders, will also be a large driver of future returns going forwardif the valuations as implied bythe reported net asset value are too optimistic compared to future revenues and cash flows,
shareholders will suffer. Thus, any forecast of KINVs share price must incorporate an analysis and
valuation estimate of the companies comprising the NAV.
In the next section, we present the methodology and rationale behind our 2017 NAV estimate of
446/share, as well as individual analyses of each of the core companies in Kinneviks portfolio.
Kinnevik Imitators Operates in Valuation ($ bn) Resembles Valuation ($ bn) Growth PotentialZalando Europe 6.6 Zappos Acquired by Amazon n/a
Linio Latin America 0.3 Amazon 176.5 593x
Jumia Africa 0.5 Amazon 176.5 325x
Lazada Southeast Asia 1.2 Amazon 176.5 145x
Jabong India 0.4 Zalando 6.6 15xZalora Southeast Asia 0.6 Zalando 6.6 11x
Lamoda Russia & CIS 0.8 Zalando 6.6 8x
Dafiti Latin America 0.9 Zalando 6.6 7x
Quikr India 0.3 Schibsted 4.8 14x
Avito Russia & CIS 1.0 Schibsted 4.8 5x
Westwing Europe 0.5 Wayfair 1.9 4x
Home24 Europe 0.9 Wayfair 1.9 2x
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2017 NAV Valuation Model and Methodology
The forecast for Kinnevik's 2017 NAV of SEK 446 per share is derived from our individual company
valuation estimates for each of the companies currently in the portfolio.
Kinnevik Estimated Net Asset Value, 2017
Source: Kinnevik, Rocket Internet, company data, Deerwood estimates
($ mm, SEK mm)
100%
Valuation
(USD)
KINV
Ownership
NAV
Contribution
(SEK)
100%
Valuation
(USD)
KINV
Ownership
NAV
Contribution
(SEK)
Valuation
Growth
Change in NAV
per share
Online
Rocket Internet $9,735 14% 10,620 $11,986 13% 12,988 23% 9
Zalando $6,572 32% 19,030 $9,089 32% 23,996 38% 18
Global Fashion Group $2,892 26% 6,092 $6,176 24% 12,249 114% 22
Lamoda $828 26% inc. GFG $1,306 24% inc. GFG 58% inc. GFG
Dafiti $895 26% inc. GFG $1,247 23% inc. GFG 39% inc. GFG
Namshi $121 26% inc. GFG $565 26% inc. GFG 368% inc. GFG
Jabong $446 26% inc. GFG $2,217 25% inc. GFG 397% inc. GFG
Zalora $603 26% inc. GFG $842 22% inc. GFG 40% inc. GFG
Home and Living
Home24 $937 20% 833 $1,086 20% 1,789 16% 3
Westwing $516 13% 379 $923 13% 989 79% 2
Other $107 Mixed 93 $11 Mixed 93 0
Qliro $295 29% 737 $428 29% 1,005 45% 1
Other E-commerce
Lazada $1,220 10% 739 $2,829 10% 2,331 132% 7
Linio $326 9% inc. Lazada $809 7% 449 148% inc. Lazada
Jumia $543 10% 409 $776 8% 543 43% 0
Konga $92 41% 292 $349 30% 849 280% 2
Other $31 Mixed 257 $31 Mixed 257 0
Marketplaces
Avito $957 31% 2,298 $3,290 31% 8,514 244% 22
Quikr $343 16% 425 $1,461 16% 1,926 326% 5
Saltside $23 88% 154 $307 61% 1,543 1260% 5
Wimdu $170 29% 381 $312 29% 745 84% 1
Other $14 Mixed 115 $14 Mixed 115 0% 0
Telecom
Millicom $6,916 38% 22,039 $11,236 38% 35,047 62% 47Tele2 $5,320 30% 12,865 $3,954 30% 9,839 -26% -11
Entertainment
Modern Times Group $2,135 20% 3,358 $2,645 20% 4,359 24% 4
Metro $39 100% 321 $0 100% 0 -100% -1
Net cash, Metro $17 100% 140 $17 100% 140 0% 0
Other $13 100% 106 $13 100% 106 0% 0
Financial Services & Other
Bayport $430 31% 1,032 $725 31% 1,852 69% 3
Transcom $224 33% 494 $224 33% 609 0% 0
Black Earth Farming $76 25% 151 $76 25% 155 0% 0
Bima $64 39% 206 $140 39% 450 118% 1
Rolnyvik $30 100% 250 $30 100% 250 0% 0
Other $51 100% 424 $51 100% 424 0% 0
Net Cash $16 100% 130 $16 100% 130 0% 0
Debt $0 100% 0 $0 100% 0 0% 0
Total $15,330 84,370 $19,127 123,742
Shares outstanding 277 277
NAV per share 304 446 142
2014 4Q Valuation 2017 Projected Valuation 2015-2017 Change
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Valuation Methodology
Currency translation - Historical and estimated financial information is presented using the same
reporting currency as used by each individual company. When comparing companies and calculating
each individual companys contribution to Kinneviks NAV, valuations were translated to USD at the
appropriate historical exchange rate. For dates in the future, such as our 2017 valuation estimates, we
used the exchange rate as of February 2, 2015. For example, Jabong reports revenues and EBITDA in
Indian Rupees (INR). Our estimate of Jabongs2017 revenue is INR 39.1 billion, which implies a valuation
at 3.5x sales multiple of USD $2.2 billion at an exchange rate of 61.75 USD-INR (rate as of February 2,
2015).
For companies with a negative EBITDA estimate in 2017, we chose to value the loss-generating
companies using revenue multiples comparable to publicly traded peers and recent financing rounds of
unlisted peers. In addition, we assumed that Kinnevik's stake would be diluted by the amount of equity
that needs to be raised at the 2017 estimated valuation to offset the cumulative cash deficit incurred by
the end of 2017. Because the companies do not generate cash, the enterprise value was not adjusted by
positive cash balances for purposes of calculating revenue multiples.
For example, in 2017 we forecast that Linio will generate revenue of EUR 352 million, EBITDA loss of -106 million, and incur a cumulative cash deficit of -278 million. Using a 2.0x revenue multiple, our 2017
valuation estimate for Linio is EUR 704 million. Our dilution adjustment assumes that Linio raises EUR
278 million in new equity at a 704 million pre-money valuation, which dilutes Kinnevik's original stake of
9.4% down to 6.7%. Thus, Linios contribution to Kinnevik's NAV in 2017 is 6.7% of EUR 704 million.
For companies with positive EBITDA forecast in 2017, we chose an EV/EBITDA multiple based on an
average of publicly traded peers and EV/EBITDA multiples implied by recent financing rounds of private
peers. For these cash generative companies, we also adjusted enterprise value for net debt/cash and
non-controlling interests.
Telecoms - We chose to value these companies at an EV/EBITDA multiple of 6.5x, slightly higher thanpublicly traded peer averages, but below typical acquisition multiples for telecoms at 7.0-8.5x.
Rocket Internet - we valued Rocket Internet with a sum-of-the-parts NAV methodology similar for our
valuation of Kinnevik, but assumed the current market implied premium to NAV for Rockets "platform
value" of USD $2.9 billion remained constant from 2014-2017.
Online classifieds - For EV/EBITDA multiple comparisons, we chose multiples based on a blend of the
mature Schibsted classifieds segment and the faster-growing publicly traded Chinese classifieds
companies.
Online fashion retailers - We determined future EBITDA margin improvement based on Zalando's
historical EBITDA margin experience. Our assumption was that these companies would reach -10%
EBITDA margin at USD $500 million in revenue, and breakeven EBITDA margin at USD $1 billion in
revenue. Certain companies, such as Jabong, were assigned higher revenue multiples than the others to
account for faster growth and larger addressable markets.
Online general merchandise retailers - Similar to the online fashion retailers, we assumed the companies
would reach -10% EBITDA at $500 million revenue and breakeven EBITDA at $1 billion revenue. We
chose a 2.0x revenue multiple based on Amazon and JD.com current multiples.
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Online home and living retailers - Compared to fashion and general merchandise, home and living
retailers have higher gross margins and higher basket sizes per order, so we assumed these companies
would reach -10% EBITDA at $300 million revenue and breakeven at $500 million in revenue. We chose
a 1.5x sales multiple based on an average of publicly traded peers.
A Final Caveat on Valuation
Valuation is more art than science, particularly so when valuing young, rapidly growing, cash flow
negative companies in the Kinnevik online portfolio. We intended our forecasts and valuation multiples
not to be overly conservative nor overly optimistic, but a best attempt at accurately predicting what will
actually happen in the next three years.
Some (hopefully very few) of Kinnevik's investments will do worse than forecast, and some will do better
than forecast. Even a start-up currently too small to break out separately may end up accounting for the
majority of Kinnevik's NAV. Such is the power lawin venture capital investing.
Buying Kinnevik is similar to owning a non-leveraged portfolio of potentially very valuable options
funded by stable, cash-generative businesses. We believe this situation represents low downside andhigh upside, and that significant value will be created for shareholders over time.
In the following section, we present our individual company analyses and 2017 valuation estimates to
help readers gain a deeper understanding of Kinneviks underlying portfolio.
http://blakemasters.com/post/21869934240/peter-thiels-cs183-startup-class-7-notes-essayhttp://blakemasters.com/post/21869934240/peter-thiels-cs183-startup-class-7-notes-essayhttp://blakemasters.com/post/21869934240/peter-thiels-cs183-startup-class-7-notes-essayhttps://sumzero.com/http://blakemasters.com/post/21869934240/peter-thiels-cs183-startup-class-7-notes-essay -
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Rocket Internet
Overview
Rocket Internet (Rocket, or RKET) is a German-based internet platform founded in 2007 by the
Samwer brothers. The company has incubated and maintained interests in a number of international
start-ups (many also owned by Kinnevik) such as HelloFresh, Lazada, Home24 and the Global Fashion
Group. Rocket Internet has been listed on the Frankfurt Stock Exchange since its IPO in October 2014.
Source:Kinnevik Capital Markets Day, September 2014
Management and Ownership Structure
The Samwer brothers, Oliver, Alexander, and Marc, are successful serial entrepreneurs. They founded a
German version of eBay, Alando.de, and sold it to eBay for$43 millionin 1999. Then they sold another
start-up, Jamba!, to VeriSign for$273 millionin 2004. Later the brothers started their own venture
capital company, European Founders Fund (predecessor to Global Founders Capital), which seeded
Rocket Internet and now owns 38% of shares outstanding.
CEO Oliver Samwer is the architect behind Rocket. In anemailhe sent out to his global team in 2011, he
described himself as the most aggressive guy on internet on the planet and that he will die to win.
While some might consider Mr. Samwer a controversial figure, we consider his ambition and
commitment favorable to shareholders and a necessity in the fiercely competitive and fast-moving start-
up environment.
The following chart demonstrates Rockets track record under Oliver's leadership in mass-producing e-
commerce start-ups and raising financing. These ventures have generated 22x- 264x money-on-money
multiples all within 2-5 years.
http://www.kinnevik.se/Documents/Capital%20Markets%20Day%20September%202014/10.%2020140918%20CMD%20Pres%20Rocket%20v13.pdfhttp://www.kinnevik.se/Documents/Capital%20Markets%20Day%20September%202014/10.%2020140918%20CMD%20Pres%20Rocket%20v13.pdfhttp://www.kinnevik.se/Documents/Capital%20Markets%20Day%20September%202014/10.%2020140918%20CMD%20Pres%20Rocket%20v13.pdfhttp://partners.nytimes.com/library/tech/99/09/biztech/technology/22mcgr.htmlhttp://partners.nytimes.com/library/tech/99/09/biztech/technology/22mcgr.htmlhttp://partners.nytimes.com/library/tech/99/09/biztech/technology/22mcgr.htmlhttp://www.networkworld.com/article/2333353/network-security/verisign-acquires-wireless-services-provider-jamba.htmlhttp://www.networkworld.com/article/2333353/network-security/verisign-acquires-wireless-services-provider-jamba.htmlhttp://www.networkworld.com/article/2333353/network-security/verisign-acquires-wireless-services-provider-jamba.htmlhttp://techcrunch.com/2011/12/22/in-confidential-email-samwer-describes-online-furniture-strategy-as-a-blitzkrieg/http://techcrunch.com/2011/12/22/in-confidential-email-samwer-describes-online-furniture-strategy-as-a-blitzkrieg/http://techcrunch.com/2011/12/22/in-confidential-email-samwer-describes-online-furniture-strategy-as-a-blitzkrieg/https://sumzero.com/http://techcrunch.com/2011/12/22/in-confidential-email-samwer-describes-online-furniture-strategy-as-a-blitzkrieg/http://www.networkworld.com/article/2333353/network-security/verisign-acquires-wireless-services-provider-jamba.htmlhttp://partners.nytimes.com/library/tech/99/09/biztech/technology/22mcgr.htmlhttp://www.kinnevik.se/Documents/Capital%20Markets%20Day%20September%202014/10.%2020140918%20CMD%20Pres%20Rocket%20v13.pdf -
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Rocket Internet selected money-on-money multiples, 2010-2014
Source:Rocket Internet 2014 IPO Prospectus
*Money-on-money multiple includes distributions but excludes Holtzbrinck contribution in-kind
We anticipate the Samwer brothers passion for winning and intense focus on execution will continue to
drive the creation of new successful ventures going forward.
Rocket Internet ownership structure
Source: Rocket Internet data
Kinnevik is the second largest shareholder of Rocket after Global Founders (the Samwers' private
investment vehicle). The significant stake and close relationship with Rocket allow Kinnevik access to
ventures backed by the Rocket platform and selective participation in deals in which the prospects andvaluation makes sense. In addition, Kinnevik contributes expertise in corporate governance, strategy and
public company management that we think complements Rocket Internet's core skills. The rest of the
shareholder base consists of several other long-term partners Rocket has worked with over the years. Its
diverse source of capital provides a solid foundation for Rockets expansion to new areas and
geographies.
Year
Founded
Total funding
by Rocket ( mm)
Total funding
received ( mm)
Stake-weighted
valuation ( mm)
Money-on-money
multiple
Jumia 2012 0.2 62 57 264x
Hellofresh 2011 0.5 39 49 71x
Linio 2011 1.4 120 91 63x
Zalora 2011 2.6 292 131 60x
Lazada 2011 2.5 319 135 54x
Namshi 2012 0.8 47 36 44x
Dafiti 2010 5 218 177 40x
Westwing 2011 3.3 155 119 30x
Lamoda 2010 6.6 219 169 29x
Home24 2009 9.7 205 247 23x
Jabong 2010 4.3 189 83 22x
https://www.rocket-internet.com/themes/rocket3/download/ipo-history/Rocket%20Internet%20Prospectus.PDFhttps://www.rocket-internet.com/themes/rocket3/download/ipo-history/Rocket%20Internet%20Prospectus.PDFhttps://www.rocket-internet.com/themes/rocket3/download/ipo-history/Rocket%20Internet%20Prospectus.PDFhttps://sumzero.com/https://sumzero.com/https://www.rocket-internet.com/themes/rocket3/download/ipo-history/Rocket%20Internet%20Prospectus.PDF -
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Competitive Position
Rocket Internets strategy is to export proven business models to new, untapped markets. The vast
majority of Rockets companies are clones of other successful internet businesses. Linio and Lazada are
Amazon clones in Latin America and Southeast Asia, the Global Fashion Group businesses are cloned
from Zalando which is cloned from Zappos, Westwing is a One Kings Lane clone, Wimdu is similar to
Airbnb, etc. The advantage of this strategy is that Rocket avoids technological risk - it does not have to
develop any new technology for its start-ups to succeed. It also eliminates business model risk because
the chosen business models have already proven their potential for scalability and profitability in mature
markets. Rockets superiority in execution is what sets it apart from competitors.
We believe Rocket has developed over the years the following key competitive advantages compared to
a typical venture capital fund.
Sufficient capital base
Due to its track record, Rocket is able to raise funds from many different world-class investors at
premium valuations. In addition to strategic partners such as Kinnevik, Millicom and Access Industries,
notable names include J.P. Morgan, Tengelmann, and Summit Partners. Unlike a typical venture capital
fund which has mandates on stage and exit timing, Rocket has the flexibility to invest across companiesin various stages of growth and over time horizons much longer than 10 years. As a publicly listed
company, Rocket has additional access to permanent sources of capital for funding its ventures. Being
well-capitalized allows Rocket to spend big marketing dollars and invest in infrastructure quickly in order
to gain market share.
Industrialized start-up production process
The graphic below outlines the highly structured process Rocket uses to expedite global execution of its
many start-ups across the world.
Source: Kinnevik Rocket Capital Markets Day, May 2014
http://www.kinnevik.se/Global/Kinnevik%20Rocket%20CMD%202014/Rocket%20Internet_Kinnevik%20Rocket%20CMD%202014.pdfhttp://www.kinnevik.se/Global/Kinnevik%20Rocket%20CMD%202014/Rocket%20Internet_Kinnevik%20Rocket%20CMD%202014.pdfhttp://www.kinnevik.se/Global/Kinnevik%20Rocket%20CMD%202014/Rocket%20Internet_Kinnevik%20Rocket%20CMD%202014.pdfhttps://sumzero.com/http://www.kinnevik.se/Global/Kinnevik%20Rocket%20CMD%202014/Rocket%20Internet_Kinnevik%20Rocket%20CMD%202014.pdf -
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On average, Rocket founds 10 new companies per year. Rockets highly data-driven new venture
production process enables product development, data analysis, and even marketing to be handled in a
centralized location and quickly rolled out to all of the regions. Rocket constantly recruits founders
from consulting firms, banks and top business schools and sends them to the local country level to build
the business, and build it fast. The end result is Rocket can launch a new venture in less than 100 days
with full functional support and quickly become the first-mover in any new market it sees fit.
Network and synergies
Rockets ownership in a global network of businesses gives it a distinct competitive advantage. There are
four dimensions for Rocket to leverage synergies:
1. Sourcing. By combining the five regional online fashion retailers into Global Fashion Group,
Rocket will benefit from economies of scale in sourcing products from global and private-label
brands. The recently restructured Global Online Takeaway Group can attract more restaurant
partners for each of its individual group members due to scale. More choices for diners reinforce
the network effects which drives more orders from even more customers.
2. Knowledge sharing. Rocket is a self-learning, self-replicating machine that has accumulated
invaluable experiences and best practices that are shared among its portfolio companies. For
example, Zalandos success in building fulfillment infrastructure and creating compellingcustomer experiences can be fully integrated into the Global Fashion Group companies. In
furniture and home accessories, Rocket has the capacity to quickly build sisters companies to
Home24 and Westwing in other regions by exporting the infrastructure and knowledge already
learned.
3. Customer acquisition.Companies across multiple product categories can take advantages of
cross-selling and co-marketing opportunities that exist within the network to acquire new
customers and higher share of spend.
4. Talent attraction. A large internet platform such as Rocket can more easily attract top talent
than smaller standalone start-ups, and shift personnel between regions and companies.
As the number of companies within Rocket's sphere grows each year, we anticipate more opportunitiesto benefit from such synergies and scale advantages.
Strategic partnerships
Rocket has developed strategic partnerships with a number of telecommunications service providers
such as Millicom, MTN Group, and Philippine Long Distance Telephone Company. These strategic
partners are co-investors in the Regional Internet Groups and add significant value in developing and
distributing Rockets e-commerce apps and mobile payment services in their respective markets.
Retailers Tesco and Rewe Group are co-invested in Rockets e-commerce businesses and help broaden
Rockets merchandise selection and establish its credibility in new markets. By sharing ownership with
variety of other strategic partners/institutions, Rocket gains benefits in distribution, marketing, and
access to capital for its companies.
Valuation
Rockets value comes from two sources: the Net Asset Value of its portfolio and its
platform/management value. To project Rockets future portfolio NAV, we combined all future
individual company values and added the net cash position, which was assumed to remain constant
from 2014-2017. Most of the Proven Winners have co-ownership with Kinnevik; therefore we used
our internal 2017 valuation estimates for these investments. For the rest of the venture portfolio
without disclosed financials, we assumed a 30% total increase in value over 3 years.
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Rocket Internet Estimated Value, 2017
Source: Rocket and Kinnevik Data, Deerwood estimates
*KINV % interest and RKET cash and shares outstanding adjusted for 2/2015 RKET share issuance of 12 mm shares and
acquisition of 30% of Delivery Hero
2015-2017 Comparison
($ mm)
100%
Valuation
(USD)
Rocket
Ownership
Value
Contribution
(USD)
100%
Valuation
(USD)
Rocket
Ownership
Value
Contribution
(USD)
Valuation Growth
Proven Winners
Global Fashion Group
Dafiti $895 23% $203 $1,247 20% $251 39%
Lamoda $828 24% $195 $1,306 22% $285 58%
Zalora $603 25% $151 $842 21% $174 40%
Namshi $121 34% $42 $565 34% $194 368%
Jabong $446 21% $95 $2,217 20% $453 397%
Home and Living
Home24 $937 50% $468 $1,086 50% $542 16%
Westwing $516 34% $176 $923 34% $314 79%
Other E-commerce
Lazada $1,220 24% $290 $2,829 24% $673 132%
Linio $326 35% $115 $809 25% $204 148%
Jumia $543 29% $156 $776 25% $194 43%
Hellofresh $717 52% $371 $933 52% $482 30%
Delivery Hero $1,901 30% $570 $2,472 30% $742 30%
Emerging StarsFabFurnish n/a 26% n/a n/a 26% n/a n/a
Zanui n/a 31% n/a n/a 31% n/a n/a
foodpanda $287 50% $143 $373 50% $185 30%
Wimdu $170 52% $89 $312 52% $163 84%
CupoNation $45 40% $18 $58 40% $24 30%
Helpling $106 40% $42 $138 40% $55 30%
Lendico $138 56% $77 $179 56% $100 30%
PAYMILL $39 50% $19 $51 50% $25 30%
Zencap $99 74% $73 $129 74% $95 30%
TravelBird $161 16% $26 $209 16% $34 30%
Concepts
EatFirst $23 78% $18 $30 78% $23 30%
ZipJet $24 95% $23 $31 95% $30 30%
Bonalivo $21 86% $18 $27 86% $23 30%SpaceWays $19 91% $17 $25 91% $22 30%
tripda $17 66% $11 $22 66% $14 30%
Shopwings $23 90% $21 $30 90% $27 30%
Others n/m n/m $9 n/m n/m $11 n/m
Regional Internet Groups
Africa Internet Group $580 33% $193 $753 33% $251 30%
Asia Internet Group $414 50% $207 $538 50% $269 30%
LATAM Internet Group $307 65% $200 $399 65% $259 30%
Mid.East Internet Group $138 50% $69 $179 50% $90 30%
Strategic participations $208 $271 30%
Other investments $274 $356 30%
Cash in hand $2,313 $2,313 0%
Liabilities ($110) ($110) 0%
Net Asset Value $6,788 $9,039 33%
NAV Premium/Discount 43% 33%
Implied Platform Value $2,947 $2,947
Market Cap $9,735 $11,986
KINV % interest 13.15% 13.15%
KINV interest value ($ mm) $1,280 $1,576
2014 4Q Valuations 2017 Projected Valuations
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Based on the difference between Rockets current market cap and our estimate of the current NAV, the
market-implied value for Rockets business-building platform is approximately USD $2.9 billion. It is
difficult to pinpoint an exact value for the platform. However, we think the $2.9 billion implied value for
the platform is justified by Rockets future value of high quality business creation (10+ per year), unique
set of competitive advantages from global synergies and scale, and a passionate and committed
leadership team to drive performance in the underpenetrated emerging markets that have huge
potential.