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Private Equity Deals – an Investor’s perspective

Private Equity Deals – an Investor’s perspective. S M Sundaram Partner & CFO Baring Private Equity Partners, India April 6, 2008. “Some men see things the way they are and ask why . Others dream of things that never were and ask why not ” . - George Bernard Shaw.

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Private Equity Deals – an Investor’s perspective

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  1. Private Equity Deals –an Investor’s perspective S M Sundaram Partner & CFO Baring Private Equity Partners, India April 6, 2008

  2. “Some men see things the way they are and ask why. Others dream of things that never were and ask why not”. - George Bernard Shaw

  3. What does a VC look for? • Typical Investment Process • Investor Fit & Value-add • The Exit Process

  4. What does a VC look for?

  5. VCs

  6. Baring’s 5 Ps … • People • People • People • Project • Price

  7. What does a VC look for? • Strong management team • Integrity • Prior relevant experience • Good people management and business development skills • Commitment – risks taken / capital invested

  8. What does a VC look for? (contd.) • Sound business model • Compelling value proposition / USP • Large and willing target segments • Equipped to scale-up rapidly • Sustainable & profitable growth after fully factored costs • Sales & Marketing capability • Proven customer revenues and pipeline • Sustainability of revenues • Well-networked sales team • Processes and Systems

  9. What does a VC look for? (contd.) • Compelling financial incentives • Good & predictable return on capital • Low capital intensity • Profitable growth • Disruptive concept / first-mover advantage (high-risk / high-return)

  10. Other factors … • Systemic focus – process-dependent, not people-dependent • Innovate to keep capital needs LOW • Address customer needs constantly • Think Long-term

  11. DOs & DON’Ts

  12. Sine qua nons • Have a cogent story: clarity in communication • Be transparent • Address concerns: Risk perception ‘gap’ • Play the Value Creation game • Speak the Investor’s language • Bad news should ALWAYS come first! • Treat the PE investor as a fellow-investor & entrepreneur

  13. DON’Ts • Underestimate constraints in execution • Avoid / evade issues or ignore conflicts • Overemphasise Jargons • Play the ‘Valuation’ game! Never sacrifice the long-term for short-term gains

  14. So old, they have grey whiskers ... • Lack of barriers to entry • “We are the only ones who do this” • “By launching my service at 50% of competitor price, I will become market leader” • “As soon as I raise money, things will fall into place”

  15. What does a VC look for? • Typical Investment Process

  16. Typical Investment Process Between saying ‘I accept’& ‘I do’

  17. Between saying ‘I accept’ and ‘I do’ • Meet the management • Analyse Business plan and financials • Valuation • Term Sheet • Diligence • Commercial • Financial • Legal • Shareholder Agreements … and then the real work starts

  18. What does a VC look for? • Typical Investment Process • Investor Fit & Value-add

  19. Determine the fit … • Stage focus & market focus • Past track record • Culture & reputation of the VC • Partnership approach, philosophy and values • Accessibility & availability • Value-add

  20. Perception of value-add by PEs Source: Reuters interviews 2006

  21. Value Addition – The Baring Standard • Bringing industry best practices • Corporate Governance • Financial Reporting (MIS) • A/R Management • Growing the business • Customer introduction and acquisition • Augmenting the management • Aiding to build long term strategy • Mergers and Acquisitions • Diversification of • Geographies • Customer base • Solutions offered • Aiding Processes and Systems • Helping set business decision processes • Building organizational structure • Risk management processes (forex, business risks etc.) • Financial value-add • Helping arrange alternate means of financing at low cost • Optimizing capital structure

  22. What does a VC look for? • Typical Investment Process • Investor Fit & Value-add • The Exit Process

  23. Types of exits • IPO • Buyback of shares • M&A / trade-sale • Secondary buy-out

  24. For a smooth exit … • Expect divergence of objectives • Stage focus of investor • Timing of exit for outgoing investor • Plan for an exit well in advance • Minimise distraction to management • Protect interests of continuing investors /management • All parties should walk away with a ‘win’ feel

  25. Baring Private Equity Partners • Globally • Founded in 1984 • One of the largest private equity players • Operations in Latin America, Europe, Russia, SE Asia, India • Over USD 7 billion under management • In India • Started in 1997, Headquartered in Delhi • Best performing fund of 1998 vintage • Investments through 3 Funds. Theme : India growth story • Team of 15 investment professionals • Assets of around $1 billion under management

  26. Thank You

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