Maximizing the Value of an Exit Strategy

March 1, 2001

Fabian BarrosMarcelo Bermudez Christopher Rowell

Marimuthu SubburathinamAlexandre Wolynec

Agenda

Learning Objectives

Overview and opportunities for Probil

The Turkish market for an IPO

Cost of Capital

Managing Uncertainties and Real Options

Recommendations

Learning Objectives

Evaluating country risks and mitigating factors

Challenges of doing an IPO in Turkey

Probil’s Cost of Capital

Impact of Uncertainties

Identifying and Modeling Real Options

Learning Objectives

Probil OverviewFounded in 1989

Provides IT solutions

Networks, computer hardware, basic software

Design and implementation services

Support and maintenance services (unique)

Multi-vendor, independent of holding groups

Good reputation: banking, telco, ISPs,

manufacturing

Positioned to help build the internet and perhaps

provide e-business software

Overview and opportunities for Probil

The new Investors

EMEA Technology Investment co-managed by

Kagan Ceran

EFG Hermes (over $2B)

Summer 2000 Invested $21 million to

Merge Probil Group companies and Bordata

Infuse $10 M cash

Take advantage of size and reputation to grow more

rapidly

Expand into e-business applications

Exit required by 2005

Overview and opportunities for Probil

The Business OpportunitiesAcquire a local distributor

Improve delivery efficiency, lower price multiples

Acquire US Internet professional services firm

Access to US market with remote, less expensive Turkey labor

Improve image in Turkey

Source of US$ revenue

Use an IPO to raise cash for acquisitions

When?

How much? 25% of the Company

Consider equity investment?

Overview and opportunities for Probil

Turkey Overview

Country Risks Level Mitigation

Expropriation Low

Currency fluctuation

High Yes

War or violence Low

Political instability High Yes

Corruption Low

Repatriation Low

Military governments an historic stabilization factor

Contract with suppliers to share currency risks

The Turkish market for an IPO

Turkey’s Stock Market

One of the most active Emerging Markets’ Stock Exchanges

High volatilityVolumes ($150m-$1.5bn)Prices

The Turkish market for an IPO

-50%

0%

50%

100%

150%

200%

250%

300%

350%

400%

450%

Mar-99

Jun-99

Sep-99

Dec-99

Mar-00

Jun-00

Sep-00

ISE 100

Nasdaq

S&P500

Doing an IPO in TurkeySmall IPO market

35 new issues in 2000 up from 27 in 1997($157m)

Turkey’s IPOs are among the most undervalued

Pre-IPO condition of the market most important factor

Investment bankers do IPOs on a “best effort” basis

Investors use Adjusted EV/EBITDA ratio

P/E introduces debt and tax structures which may differ

Simple EV/EBITDA assumes same growth rate

The Turkish market for an IPO

The Cost of Capital

Goldman-Integrated ModelUS Risk-free rate: 5.5%Market risk premium: 5.0%Beta of comparable: 1.45Country premium1: 4.5%Cost of Capital 17.25%

Cost of debt in US$ in Turkey: 20%-25%Somewhat inflated because of banking system crisis

1 Source: Moody’s

Cost of Capital

The Cost of Capital

Adjusted ICCRC model

Average country cost of capital 23%

Beta Adjusted 30%

Mitigation factors -3%

Cost of Capital 27%

Cost of Capital

Impact of key uncertainties

Revenue Growth rate

Normal distribution (25%, 15%)

Expected EV/EBITDA ratio

Lognormal

Actual EV/EBITDA ratio

Lognormal, 0.75 correlation with expected

Managing Uncertainties

Base Case NPV

Managing Uncertainties

E(NPV):$38.5MM

St. Dev.:

$15.1MM

Skewness: 1.02

Frequency Chart

Certainty is 95.00% from 15.62 to 74.39

Mean = 38.46.000

.006

.013

.019

.026

0

64

128

192

256

5.69 23.39 41.10 58.81 76.51

10,000 Trials 201 Outliers

Forecast: IPO in 2001

Real Options

Timing of IPO – “Wait for best moment”

Alternative Funding – Use VC Funds

International Expansion

Real Options

Real Option I: Timing of the IPO

If Expected EV/EBITDA < Strike EV/EBITDA

Don’t do the IPO

IPO could be done in any of the next 5 years

Depends on pre-IPO market situation

Drawback

Delays growth boost

Open door for competitor’s IPO

Real Options

Real Option II: Alternative Funding

VC interested in equity investment

EV/EBITDA of 10 for 10% of the company

If Expected EV/EBITDA < Strike Price < 10

Accept the new equity investment offer

Alternative to IPO if we delay it

Allows the company to boost some growth

Reduce exposure to the IPO proceeds volatility

Real Options

Real Option III: Expansion/Flexibility

Option to acquire internet consulting company in the US

Improves image of the companyAdds e-business implementation know-how skill setReduces overall cash flow volatility (“0.2” correlation)Provides flexibilityReduces cost of capital

– ICCRC weighted average for US and Turkey (needs to be calculated)

Requires a $5 million investment (company has this money)

Real Options

Real Options Model

IPO Forecast

IPO/VC

No - Wait next year

Strike Price

Finance Domestic Expansion

Yes

Value to Investor

Excess Cash Cash FlowsCompany

Value 2005

Revenue Growth

International Expansion

Real Options

Real Options ResultsReal Options Value Breakdown

38.5

44.0

1.40.2

3.9

30.0

32.0

34.0

36.0

38.0

40.0

42.0

44.0

46.0B

as

e V

alu

e

IPO

Tim

ing

Alt

ern

ati

ve

Fu

nd

ing

Inte

rna

tio

na

lE

xp

an

sio

n -

20

02

To

tal V

alu

e

NP

V (

$M

M)

Real Options

Recommendations

Probil should wait for a suitable moment to do its IPO

If the market is unfavorable, Probil should consider raising money through VC

They should pursue the international expansion

Decrease growth volatilityImprove image of the company

Conclusions

Timing of IPO Results

E(NPV):$39.9MM

St. Dev.:

$15.7MM

Skewness: .99

Frequency Chart

Certainty is 95.00% from 16.07 to 76.22

Mean = 39.88.000

.006

.012

.018

.025

0

61.25

122.5

183.7

245

5.69 24.25 42.81 61.37 79.94

10,000 Trials 198 Outliers

Forecast: No VC

Real Options

Alternative Funding Results

E(NPV):$40.1MM

St. Dev.:

$16.0MM

Skewness: 1.03

Frequency Chart

Certainty is 95.00% from 16.18 to 78.13

Mean = 40.11.000

.006

.012

.017

.023

0

57.5

115

172.5

230

5.69 24.49 43.28 62.08 80.88

10,000 Trials 199 Outliers

Forecast: VC

Real Options

International Expansion Results

Frequency Chart

Certainty is 95.00% from 17.40 to 86.90

Mean = 44.02.000

.006

.012

.018

.024

0

60

120

180

240

5.58 27.06 48.53 70.01 91.48

10,000 Trials 170 Outliers

Forecast: Expansion in 2002

Frequency Chart

Certainty is 95.00% from 16.95 to 83.88

Mean = 43.47.000

.006

.012

.018

.025

0

61.25

122.5

183.7

245

5.43 26.00 46.57 67.15 87.72

10,000 Trials 195 Outliers

Forecast: Expansion in 2001

E(NPV):$43.5MM

St. Dev.:$17.4MM

Skewness:

.99

E(NPV):$44.0MM

St. Dev.:$17.9MM

Skewness:

1.01

2001

2002

Real Options

END OF PRESENTATION

The following slides were removed from the presentation

Comparables for EV/EBITDA ratios

Managing Uncertainties

Comparison Data - EV/EBITDA

Country EV/EBITDA1999 2000 2001 (E)

DomesticEscort Turkey 18.5 9.4 8Arena Turkey 3.5 4.7 4.3

InternationalTech Data USA 13.9 11.8 8.9Altec Greece N/A 8.1 6.2Computer Land Poland 19.3 14.9 12.2Average 13.8 9.78 7.92

Base Case NPV: IPO in 2001

Base Case Valuation

VALUE FOR EMEA (time horizon = 5 years)

Million US$ 2,000 2,001 2,002 2,003 2,004 2,005

Cash from Operations 1.65 3.08 4.74 6.33 8.31

Cash excess IPO / VC 1.46 - - - -

Cash from sell of remaining shares 86.95

Total Cash Flows 3.10 3.08 4.74 6.33 95.27

NPV $37.93

Cost of Capital 27%