PE Fund Raising Process

8/4/2019 PE Fund Raising Process

1/42

PRIVATE EQUITY INVESTMENT FUNDRAISING PROCESS

3rd September,2010

Presentedby CA.NimeshSalot

Copyright2010.StrictlyPrivate&Confidential.NotForCirculation.


2/42

AGENDA

WhereDoYouBegin?

PlanningForPE

RoleOfAdvisors

BusinessPlanAndMarketingcollateral

StructuringTheBusiness

ShortList AndEvinceInterestFromTheInvestors

ValuationandNegotiation

DueDiligence

DefinitiveAgreement

ExitOptions

Q&A

2Copyright2010.StrictlyPrivate&Confidential.NotForCirculation.


3/42

WHEREDO YOU BEGIN?



4/42

WHERE DO YOU BEGIN?

Plan Negotiate Closure

Right

Get Advisor

^

Documentation

and

market

ImplementationStage



5/42


6/42

PLANNING FOR PE

PLANNING FOR PE

Prepare

forapartner

Prepare

forapartner Expect questions, information requests

Flexibility will be key virtue

Articulate

business

strategy

Articulate

business

strategy

Define niche or unique selling proposition (USP) for the business

Develop growth plan strategy diversify customer base or product line / offering or

geographic presence

StructuringofStructuringof Bring scattered businesses under one entity

Developing

management

Developing

management Professional management in key functions

teamteam

RetainRetain Engage experienced advisors / bankers


goodadvisorsgoodadvisors Broad base your Board of Directors


7/42

ROLE OF ADVISORS



8/42

KEY ADVISORS TO A PRIVATE EQUITY TRANSACTION

Company

nvestor

In houseTeam

DueDiligence

Agencies

Auditor

Legal

Financial

Investment

Banker

LawyerTechnical

Business



9/42

ROLE OF KEY ADVISORS

Planning Formulating Strategy with the Promoter for PE dealnvestment

Banker

nvestment

Banker Execution Documentation and Marketing the Deal

Closure Negotiating and closing the deal

AuditorAuditor Crucial role in decision making

Business Restructuring and Due Diligence Preparation

Hand holds the promoter from start to end

Inhouse

Team

Inhouse

Team

Arranging documentation and necessary data

Supporting the advisors at all levels

DueDiligence

Agencies

DueDiligence

Agencies

Financial

Legal

Technical

LawyerLawyer

Legal Compliance and due diligence

Negotiating the legal terms of the deal


Documentation and legal compliance pertaining to the transaction


10/42

ROLE OF INVESTMENT BANKER

StrategyFormulation

BusinessRestructuring

Auditing

LegalCompliance

PEPlacement Deal

makingandNegotiations

PreparationofIMand

BusinessModel

Assessingthevaluation

CorporateGovernance

ReviewofLegal

documents

CoordinationforDue

Diligence

Coordinationfor

RegularMIS

InternalAudit

CompletionofCPsandCSs



11/42

COST OF ADVISORS

,

environmental, technical)

Fees for the legal documentation



12/42


13/42

PE/VCINVESTMENT PROCESS

StructuringtheBusiness

PreparationofBusinessPlanand

Marketingcollateral

Shortlist andevinceinterestfrom

theInvestors

,Valuationand

NegotiationObtainTermSheetDueDiligence

Definitive

Agreement



14/42

TIME FRAME FOR INVESTMENT

Timelines

Month1 Month2 Month3 Month4 Month5 Month6 Month7

CumulativeWeeks 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27

RestructuringoftheBusiness

reparat ono ar et ng o atera

ShortlistandContactInvestors

BusinessDiscussion&ValuationNegotiation

ObtainTermsheet

Due Dili ence

DefinitiveAgreement

ClosingFormalities

Funding


epen nguponcase ocase o a me ramewou e mon s


15/42

RestructuringtheBusinessPreparationof BusinessPlan

andMarketing collateral

Shortlistandevinceinterest

fromthe

In r

Businessdiscussions &ValuationNegotiation

ObtainTerm SheetDueDiligence

DefinitiveAgreement ClosingFormalities Funding

STRUCTURING THE BUSINESS



16/42

STRUCTURING THE BUSINESS

Scattered businesses

Cross holdings in the business

Fragmented holdings

Value split across entities

Multiple businesses

Capturetheentireworthofthebusinessinoneentity



17/42




fromthe

In r




BUSINESS PLAN AND MARKETING COLLATERAL



18/42

BUSINESS PLAN AND MARKETING COLLATERAL

Overview Contents

Itisthedocumentthatdetailsthebusiness

history,currentstandingandfutureplansof

ExecutiveSummary

MarketandCompetition

Itisabasicmanagementtoolthatguides

thefuturedirectionofacompanyanda

Detai so t ePro uctorServices

TheManagementTeam

BusinessO erationsmandatorydocumenttoseekbusiness

financing

It rovides a considered and lo ical

BusinessStrategyandFuturePlans

CostofProjectandMeansofFinance

frameworktosetoutabusinesssshort

termandlongtermplans,showshowthese

FinancialModel/UnderlineAssumptions

ExitOpportunitiesfortheInvestors

p anscan eac eve ,an emonstrates

thattheplanaddressestherequirementsof

thetargetaudience



19/42




fromthe

In r




SHORT LIST AND EVINCE INTEREST FROM THE INVESTORS



20/42

IDENTIFICATION OF A FUND

Sectors

thatthey

omest c ore gn

Otherthan

money

whatelse?

focuson CorpusandSize

ofInvestments

Current

PrivateEquity

Fund

Portfolioand

Past

Investments

Investment

Expected

IRRBackgroundof

the

Investment

Horizon

LPs



21/42

PEDISCUSSION WITH MANAGEMENT AND PLANT VISIT

Understanding DNA

ofthePromoter

Ownership OtherBusinessInterest

Riskandriskmanagement

UnderstandingBusiness

Processflowandvalueaddition: raw

materialtofinishgood

Scalabilityofthebusiness

Marginsandprofitability

Marketingandbusinessdevelopment

strategy Managementteamandkeydecisionmakers

Competition

Understanding

PromotersviewonfutureoftheIndustry

xecu oncapa y

Marginsandprofitabilitypostexpansion

futureofthe

Business

Capexplanandutilizationoffund

Scalabilityofthe businesspostcapex

Teamrequiredandtimeline

Positionintheindustry

PlantVisit

members Infrastructure

Understandingstepbystep

manufacturingprocess

QualityandTestlabs Sampleofrawmaterials,intermediaryand

finishproducts

Safetymeasures


Understandingtechnology machines,

suppliers

Workingconditionandhygiene


22/42




fromthe

In r




VALUATION AND NEGOTIATION



23/42

BROAD INVESTMENT STRUCTURE

Involvesbuyingoutthe

existingshareholdersof

thecompany

PromoterBuyback

Involvesfreshinfusionof

capitalinthecompany

againstissueoffresh

sharestoaugmentfuture

Investment

Primary

Investment Secondary

Investment

Idealwhenpromoter

wantstocashout(fully

orpartially)orBuyouts

PromoterBuyback

growth

Idealforearly/growth

companies

un o un

Instruments Instruments

DirectEquityConvertible

PreferenceShares

/Debentures

Warrants DirectEquity



24/42

CASE STUDY DIRECT EQUITY

CASEA HotelIndustry Transactioncharacteristics

Chainofhotelsrunning4properties

Managing600rooms across properties

Runningat80%occupancy

Highlycapitalintensive

Lowgrowth

LowRoI,RoEandmargins

newGreenfieldproperties (tobeoperationalby

FY13)

Stablebusinessmodel

ProjectedP&L WhyDirectEquity?

Thestateofbusinessgivesgoodvisibilityandto

acertainextentconfirmsabilitytoscaleup

whichcanprovidecomforttoaninvestor

Investorcommunityprefersconversionwithin

InvestmentConstruction

Comm.Start

Particulars FY09 FY10 FY11 FY12 FY13

o mon s s re c e

Investmentisintoprojectswithlonggestation

cyclebeyond24monthshorizon

Thusdirectequitymakessense..

. . . . .

YoYGrowth 10% 13% 16% 45%

EBITDA 22.00 24.20 27.97 33.16 49.13

EBITDAMargin 22% 22% 23% 23% 24%

PAT 12.00 15.40 18.02 21.63 25.09

PAT Mar in 12% 14% 15% 15% 12%


Futuregrowthlowerthanexpecteddiscountbyinvestor,earlyconversiononexistingbusinessordirectequitypreferred


25/42

CASE STUDY CONVERTIBLE

CASEB Education Transactioncharacteristics

Chainofcoachingclassesoperatinginmultiple

locations

TotalenrollmentforFY10inexcess of23,000

Ex ected enrollment for FY11 is 32 000

Lowcapitalintensive

Highgrowth

HighRoI,RoEandmargins

Wellestablishedbrand

Companyintendstoraiseequity forsettingupa

dedicatedresidentialcampus

B FY13 ro ected batch stren th in excess of

ma ges a onper o

Provenbusinessmodel

80,000

ProjectedP&L WhyConvertible?

Thebusinessisgrowing,generatesgoodcash

flowsandscaleupfromcurrentlevelscanreap

hugebenefits providescomforttoaninvestor

Thereislotofdemandpull,henceselling

Investment

Construction

Comm.Start

INRCrore FY09 FY10 FY11 FY12 FY13

a ona capac eswou eeas er

Investorcommunityprefersconversionwithin

18to24months(stretched)

Investmentisintoprojectswithgestationcycle

BatchStrength 15,500 23,500 32,000 54,100 80,000

Revenue 55.00 77.00 115.50 161.70 242.55

YoYGrowth 40% 50% 40% 50%

EBITDA 24.75 34.65 52.55 74.38 112.79

EBITDAMargin 45% 45% 46% 46% 47%


Thusconvertiblestructuremakessense..

. . . . .

PATMargin 25% 20% 21% 21% 17%


26/42

KEY ASPECTS OF NEGOTIATIONS

Valuation

ea Negotiation

ExitRoutesParticipatory

Rights

CommercialRights


NegotiationisultimatelyasummationofGive(s)andTake(s)


27/42

VALUATION NEGOTIATION

HardAspects SoftAspects

Structure of ro osed A etite for investment in the sector

investment Equity/Convertible

Valuationbenchmarkingvisvis

comparabletransactions,peer

anal sis etc.

Comfortonthepromoterpedigree

Comfortonthepromotersintegrity

andtheoverallintent

Potentialreturnsanalysisinterms

ofRoCE,RoE,investorIRR

Sector/companygrowthpotential

Hardnegotiationsshouldnotgivea

negativeimpression henceshouldbe

inasubtleandstructuredmanner

EntryandExitPEmultipleasviewed

bytheinvestor

CommittedIRRinfavorofinvestor

inmindduringtheprocessof

negotiationswhichwouldclearthe

thoughtprocesstoalargeextent



28/42

VALUATION METHODS

Thereisnorightorwrongwayofvaluingabusiness

Thereareseveralwaysinwhichitcanbedone

Ca italizedEarnin /PeerCom arison

Valuationmethodologythatappliesamultipletotheearningsofabusinesstocapitalizethoseearningsintoavalueofabusiness

AcquisitionComparables

ValuationmethodologythatCompareswithsimilartransactions DiscountedCashFlow

ValuationmethodologythatbasedonExpectedCashFlowsDiscountedattheWeightedAverageCostofCapital



29/42




fromthe

In r




TERMSHEET



30/42

TERM SHEET

Private equity firm sends an Offer Letter, setting out general terms of the proposal,

subject to the outcome of the due diligence and other enquiries and the conclusion of

the negotiations

Negotiating deals with terms that are satisfactory to both sides and ensuring that

stakeholders interests are properly aligned

A Term Sheet is a brief preliminary document designed to facilitate and provide a

framework for negotiations between investors and entrepreneurs

Generally focuses on a given enterprises valuation and the conditions under which

investors agree to provide financing

Usuall contains certain conditions to be met before the investment is com leted and

these are known as Conditions Precedent



31/42

TERM SHEET

TermSheetIncludes

AboutCompany,Promoters,InvestorsandProposedTransaction

CostofProject,BusinessPlan,CurrentShareHoldingPattern

Valuation

ConditionPrecedent

PrincipalCovenants

UtilizationofFund&FreshissueofCapital

Anti DilutionRights

NoPledgingInvestorsShare TagAlongRights

DragAlongRights

RightofFirstRefusal

LiquidityPreference BoardofDirectors

Exit



32/42




fromtheIn r




DUE DILIGENCE



33/42


34/42

TYPES OF DUE DILIGENCE

Legal

Cor orate

Business

Market & Business

Financial

Assessment of Historical

PermitsandConsents

Contracts&Agreements Insurance

Le al Proceedin s

potential

Competition&Peer

Analysis

Assum tion of Financial

CurrentFinancialnumbers

Taxbenefits Indebtedness

Estimatin unforeseen

Employment

Property

Trademark, Patentand

Other Intellectual Pro ert

Model

Supplier&Distributors

Customers

liabilityoutofpast

performance

ManagementInformation

S stem

EnvironmentSafetyPublic

Health



35/42




fromtheIn r




DEFINITIVEAGREEMENT AND CLOSING FORMALITIES


D A A F


36/42

DEFINITIVE AGREEMENT AND FUNDING

ShareSubscriptionandHoldersAgreement

DefinitionandInterpretation

TermsoftheAgreement&Structure,Issue&Subscription

BusinessPlan&UtilizationofFund

,

MonitoringandCorporateGovernance

LiquidationPreferenceandIndemnification

Confidentiality

GoverningLawandDisputeResolution

MiscellaneousProvisions



37/42

EXIT OPTIONS


EXIT OPTIONS


38/42

EXIT OPTIONS

SaletoanotherInvestor

Strate ic TradeSale

Partial

Exit

RepurchasebyCompany

Liquidation



39/42

Q & A


40/42

Q&A


CONTACT


41/42

CONTACT

Phone : +919820128301

Email : [email protected]

NimeshSalot

102A,1stFloor,HallmarkBusinessPlaza,

Gurunanak HospitalRoad,

Bandra (East),

Tel.:+912240336363Fax:+912240336364

EMail:[email protected]

www.ladderup.com


um a

Maharashtra,India


42/42

THANK YOU


PE Fund Raising Process

Documents

Transcript of PE Fund Raising Process