1. In retrospect - Investment Proposal
Reference Material
Author
Johan Werbrouck: Managing Partner
Steinberg Capital Management S.A.
Steinberg Capital SICAR S.C.A.
SC_MASTER_GALT&TAGGART 1
2. AGENDA
Steinberg Capital’s SICAR S.C.A. and its Management Company Steinberg Capital
Management S.A. wish to engage in a strategic Partnership Agreement.
A. The decision about opening a SICAR for Ukraine was taken due to five preconditions
B. Executive Summary Steinberg Capital SICAR SCA
C. Development perspectives of Ukrainian economy – between European Union and Russia
SC_MASTER_GALT&TAGGART 2
3. A. The decision about opening a SICAR for Ukraine was taken due to five
preconditions
SC_MASTER_GALT&TAGGART 3
4. The decision about opening a SICAR for Ukraine was taken due to
five preconditions
Preconditions for launching a SICAR for Ukraine
1 Ukraine is one of the largest European countries with the huge
potential
2 Stability of macroeconomic situation
Launch of Steinberg
3 Economical growth and positive development forecast
Capital SICAR S.C.A.
in July 2007.
4 Flow-in of foreign investments into national economics
5 Inefficiencies available for high IRR’s
SC_MASTER_GALT&TAGGART 4
5. 1
ONE OF THE BIGGEST EUROPEAN COUNTRIES
Ukraine is one of the biggest European countries with the huge
development potential
Ukraine within the European context
Top-10 European countries, GDP1) in 2006 [bn USD] and forecast of GDP
area [thousand km2] Population [m people] annual growth for 2007-2011
Russia Russia Germany 1,9%
Ukraine Germany Great Britain 2,3%
France France France 2,0%
Spain England Italy 1,4%
Sweden Italy Russia 4,8%
Germany Ukraine Spain 2,3%
Finland Spain Poland 4,3%
Norway Poland Netherlands 2,8%
Poland Romania Ukraine 6,0%
Italy Netherlands Belgium 2,1%
1) GDP is calculated according to purchase capability
Source: CIA SC_MASTER_GALT&TAGGART 5
6. 2 ECONOMICAL STABILIZATION
Improvement of all the major macroeconomic indicators, and GDP
tripled in 7 years
Ukrainian economics – major indicators, from 2000 till 2006/2007(forecast)1)
2000 Δ 6 years 2006 2007
Nominal GDP [bn USD] 31 x 3,2 >100 106
Inflation rate 25,8% x 2,2 11,6% 10,7%
Budget balance
+0,6% -2,4% -1,8% -2,0%
[% from GDP]
Foreign-exchange
reserves [bn USD] 1,5 x 15 22,2 25,0
Foreign trade [bn USD] 30,4 x3 81,4 90,0
Direct foreign investments [bn
0,6 x 7,5 4,5 5,2
USD]
Direct foreign investments [ %
1,9% x2 4,5% 4,9%
from GDP]
1) Some data from 2006 are preliminary, the data for 2007 forecasted
Sources: EIU, National Bank of Ukraine,State committee of statistics of Ukraine, Steinberg Capital SC_MASTER_GALT&TAGGART 6
7. 3 POSITIVE DEVELOPMENT FORECAST
According to forecasts, high growth speed of economics will be
preserved
Маcroeconomics: dynamics and forecast
Annual GDP growth, 2000-2011 (forecast) [%] • Financial and budget
discipline
• Growth of Ukrainian
economics and
demand
Inflation, 2000-2011 (forecast) [%] • Increasing income
from the tax charges
to the budgets
• Growth of investment
activity
Sources: EIU, National Bank of Ukraine,State committee of statistics of Ukraine, Steinberg Capital SC_MASTER_GALT&TAGGART 7
8. 4 FOREIGN INVESTMENT FLOW-IN
Starting from 2004 – intensive flow-in of foreign investments into the
economics of the state
Overview of investment activity
Growth of investments in Ukraine, [bn USD] Foreign investments growth in 5 largest regions, 2005 [%]
CAGR1): 32% Kyiv region 4%
х 2,3 Kyiv 22%
20,6
Orange Revolution 16,4
Kyiv
Kharkov
9,0
Dnepropetrovsk
6,8 Donetsk
5,5
4,6 Odessa
3,9 Odessa region 4%
Donetsk region 4%
Dnepropetrovsk region 10,5%
1) Cumulative annual growth
Source: State committee of statistics, Steinberg Capital SC_MASTER_GALT&TAGGART 8
9. 5 Inefficiencies present
Three inefficiencies are going to be present for the next 5-7 years.
Triple Inefficiencies in Ukraine – Private Equity
• riple effect possible: Triple inefficiency play
T
o Market inefficiency: Low acquisition multiples (1-4)
o Business inefficiency: Easy to add value (Full Potential Plans)
o Economy inefficiency: Ride the wave of macroeconomic expansion,
which will aid both business expansion and exit multiples (7-9)
SC_MASTER_GALT&TAGGART 9
10. Opportunities.
Sub-prime Crisis is Opportunity
• urrent market crisis is an opportunity for PE in Ukraine, not a threat
C
-Current turmoil on financial markets is induced by increasing defaults of sub-prime mortgage loans in
USA and, consequently, a re-pricing of risk across the board
-Victims of volatility are:
>hedge funds and bank conduits as they deprived of their short-terrm financing and forced to fire-sell
high quality paper at heavily discounted prices
>private equity operating in mature markets as easy and agressive financing will be very hard to obtain
in the short term
>some merchant banks engaged in agressive buy-out operations which will be unable to syndicate their
debt underwritings
- This crisis is, as a matter of fact, good news for Steinberg Capital's investors
>there is no economic link with the crisis "originator" (sub-prime)
>our buy-out activity will not suffer as limited leverage is expected to be used
>no liquidity crisis to be expected as western banks are still in a buying spreee in Ukraine
>equity multiples are expected to go down, at least on the short term
>investors could benefit from a strong diversification opportunity in a low-debt environment
SC_MASTER_GALT&TAGGART 10
11. B. Executive Summary Investment Proposal of the SICAR towards Limited
Partners
SC_MASTER_GALT&TAGGART 11
12. Executive Summary.
Steinberg Capital’s SICAR S.C.A. Investment proposal in Ukraine ambitions for its
investors a 30-35% net IRR%/year.
• Steinberg Capital targets 35%/year whilst leveraging three inefficiencies present in Ukraine, unexisting elsewhere in Europe and US
- Market inefficiency: Low acquisition multiples (1-4 X EBITDA entry multiples – proprietary dealflow)
- Business inefficiency: Easy to add value (organisational, financial, operational, strategic)
- Economy inefficiency: Ride the wave of macroeconomic expansion (7-9% GDP growth), which will aid both
business expansion and exit multiples (6-8)
• 150-200 Mio $ will be invested in Ukraine for the next 2,5 years in 7-9 mid sized companies and prepared for exit to strategic investors
• The Track record of Steinberg Capital combines the strength of western professionals with a local partner
- Western professionals: BC partners, Industrikapital, 3i, BAIN & Co, McKinsey, GE Capital, BASF, GE, E-on
Fortis Private Equity, Roland Berger, AT Kearny, Deloitte
• Strong Governance mechanisms and deep due dilligence lowers risks for investors
- Luxemburg registered SICAR: Only SICAR for Ukraine, authorised by the Luxemburg authorities
- majority Control Share blocks are transformed into Special Purpose Vehicals and fall under Luxemburg law
- Investee companies are bought with controlling ownership and a controlling seat in the board (general partner role)
- The investment thesis, due dilligence and exit are supported by an active and captive advisory board with strong track record
- Due Dilligence is contracted with local advisors
- Sal. Oppenheim is the custodian and administratorof the accounts in Luxemburg
- Arendt&Medernach is the law firm contracted by Steinberg Capital for the legal and fiscal part
• Existing Dealflow supports the underlying fundamentals in terms of disciplined investment process
• 18 Mio $ commitment with signed contracts on the Sal. Oppenheim held share register
• First Engagement letters(LOI) are signed with 4 belgian groups: in the area of OTC, agrobusiness (2) as potential co-investors
SC_MASTER_GALT&TAGGART 12
13. In the next 10 years, Emerging Markets Private Equity will provide
a unique opportunity to achieve superior returns
Why Ukraine
rolonged period of significant economic recovery and growth expected
P
cquisition multiples of 1-4 times EBITDA are possible in the region
A
xit multiples in 5 years should approach current Western European
E
multiples of 6-10 times EBITDA
ragmented industries with abundance of complementary acquisition
F
opportunities
perating improvements can have high leverage in increasing company
O
value
he Ukraine is exhibiting exceptionally high growth year to year
T
onstantly improving legal and business environment
C
rrival of Western and Russian strategic investors is expected to accelerate
A
post WTO accession increasing exit opportunities for the Fund.
SC_MASTER_GALT&TAGGART 13
14. In the next 10 years, Emerging Markets Private Equity will provide
a unique opportunity to achieve superior returns
Triple Inefficiencies in Ukraine – Private Equity
• riple effect possible: Triple inefficiency play
T
o Market inefficiency: Low acquisition multiples (1-4)
o Business inefficiency: Easy to add value (Full Potential Plans)
o Economy inefficiency: Ride the wave of macroeconomic expansion,
which will aid both business expansion and exit multiples (7-9)
SC_MASTER_GALT&TAGGART 14
15. Fund Thesis: Positioning
Inside Ukraine
Sweet Spot:
• Controlling
Ownership Buyout
• High end Mid Control
Cap (> 51%)
• Strong
Management
• Criticall mass
• Exit options Buyout
• Value Creation Minority
opportunity Ownership Co-
Model Investment
Majority
(< 51%)
Growth
Financing Small to medium cap Medium to large cap
Sweetspot Steinberg Capital 1-5 Mio $ 5-15 Mio $ 15-30 Mio $
No particular focus, Captive Funds, US government focus, No exit enforcement Equity Value
SC_MASTER_GALT&TAGGART 15
• … • … • …
16. As a Buyout Fund, Steinberg Capital is modelled after Bain Capital,
with emphasis on due dilligence and active value creation
Controlling Investment Due Value
Ownership Thesis Dilligence Creation
• Insight in • Commercial • A superior
end game • Legal insight in
Steinberg analysis and • Financial profit and
• Financial
Engineering Capital clearly “Industry • Shareholder value drivers
positioned Concept” structure for the investee
• Fiscal • Leverage of companies
Engineering as active Advisory • Mix of former
Buyout Fund Board, partners private
Investing equity and
Chairmen international
• Activation of directors at
locally based blue chip
advisors companies
- BAIN & Co • Big picture and
Not sustainable • Full strategic value
as differentiator No exit
enforcement Potential insights
in market Driven • Local Partner:
Millennium
Capital
Value
Creation
SC_MASTER_GALT&TAGGART 16
17. Total Size of committed capital is set at 150-200 Mio $ till end of year in two more
closings. Up till now 20 Mio $ has been confirmed and signed as for the first
closing. Segments
HNWI’s, UHNWI’s, Omnibus Seggregated NGO’s: EBRD Institutionals: Hedge
Single & Multiple family Offices Accounts OPIC, IFC Funds, FoF, Holdings
[Mio. $]
150-200
20-50
• EIB
FOR DISCUSSION
55-75
• EBRD
FOR DISCUSSION
55
• IFC
• OPIC
100% 18-20 FOR DISCUSSION
Match:
SC_MASTER_GALT&TAGGART 17
18. The initial closing is executed at end of August and has 20 Mio $
commitments as to date from partners, family offices and HNWI’s.
Status
[Mio. $] Detail / Names / Origin Level of committment2) Closure Segment
20-25
• Industrial Holding
3-7 • N.A. 75% • Belgium
• RE exp. CEE
1 • Additional Eur. Private investors 100%
• Industrials – Flanders • Investing chairmen
2 100%
• Family Offices • Family Offices
2 • Steinberg Capital Partners1) 100% • Founder & partners
• HNWI’s
• "Investors of the first
100% hour„
15 • Entrepreneurs/cashed
in (BBoom G.)/Sell.M
Remarks: Campaign towards First Closing is lined up (Family offices US/EU), Omnibus Seggregated Accounts, UHNWI
Success rate: 70%; driver is pre-qualification and introductions of first investors to personal contacts
Ø ticket: 1,3 Mio. $
SC_MASTER_GALT&TAGGART 18
19. Investment Proposal
Steinberg Capital SICAR ambitions for its investors a yearly 35% IRR with a fiscal
neutral basis. The team tilts the risk/reward curve towards the lower risk zone
Risk Key Drivers in optimising Risk/ Return
High
A. Legal Structure: SICAR & SPV’s - Luxemburg
B. Governance Structures
o Controlling Ownership: enforce exit
o Controlling Seat in the Board/target Company
Medium o Management Buy In & Alignment:
- Envy ratio
- Variable Compensation Plan
C. Investment Process:
o Western Discipline/IC/FIM/PIM
o Advisory Board
Low o Local Advisors: Deep Due Dilligence
D. Active Value Creation: Full Potential Plan
E. Exit thesis based on Industry Concepts
F. Co-Investors/Western Origin
15% 25% 35%
Return (increased by working with three inefficiencies)
SC_MASTER_GALT&TAGGART 19
20. The Legal Structures are designed by Luxemburg based Arendt &
Medernach. Sal. Oppenheim is Custodian, E&Y Auditor.
Advisory Company Luxemburg
2
Oppenheim Pramerica 1 General Partner 20-30 Limited partners
Domicile
Steinberg Sicar Luxemburg
Central Administration
Registrar 5
SPV SPV
4 6
Invested Invested Invested Invested Invested Invested
Sal. Oppenheim Company Company Company Company Company Company
Custody 7
3
1 Instruction on drawdowns
2 Sending out of drawdown notices
3 Collection of monies under the respect of AML en KYC rules
4 Notification & reconciliation of the Sicar's investments
5 Investment decision on transmission of documents on SVP's and properties
6 Notification & reconciliation of the Sicar's investments
7 Check on duty acquisitions & payments
SC_MASTER_GALT&TAGGART 20
21. The Investment process
1 Business 2 Partner 3 Weekly 4 PIM (1) 5 Investment 6 FIM 7 IC II 8 IC III
Proposals Screening: Partner Committe I
J.W. Meeting (IC)
Budget Approval Pre due Full due Conditions
1 Pager Decision Allocation: to be
• Company • Expenses> $5000 dilligence dilligence
Investment Criteria: renegotiated:
• Business • Work > 5 days • Valuation
• Financials • arket Attract.
M Decision:
• ompany Attract.
C Go/No Go • Terms
• Valuation
• eal Structure Attr.
D
• alue Add Potential
V Iterative Process
Pre Selection
• Input Advisory
Board/Experts
Activation of Consultants
• BAIN & Co
• E&Y
• Boutique Experts
(1) PIM: Private Investment Memorandum
(2) FIM: Final Investment Memorandum SC_MASTER_GALT&TAGGART 21
22. Steinberg Capital is focussing on a limited number of industries
for creating value.
Industry Selected Targeted Key-Investment
Sub-Sectors Considerations
Food Processing and • Farming • Rising disposal income
Agri-culture • Meat processing • Low investment in sector to date
• Milk processing • Generally under-managed businesses
• Food ingredients • Low valuations
• Bakery • Strong interest for restructured and well-capitalized businesses from
strategy players in Europe
Basic industries • Light manufacturing • Long term growth in real estate and construction
• Building materials • Market fragmentation
and aggregates • Opportunities for import substitution
• Power equipment • Outsourcing of manufacturing processes from Europe
Financial Services • Insurance • Consumers demand broader product offering
• Consumer Credit • Unexploited market niches
• Leasing • Limited access to capital for local companies creates an opportunity
for leasing services
• Strong interest from potential strategic investors
Technology, media • Publishing • Well-managed middle-market targets
and telecommuni- • Mass media • Fragmented markets
cations
Consumer products • Fastfood restaurants • Regional niches
and services • Retail • Consolidation opportunities
• Significant value creation potential through expanding product
offering and distribution
SC_MASTER_GALT&TAGGART 22
23. Critical Success Factor:
Investment Thesis & Control Management
Investment Thesis & Commercial Due Dilligence
Analysis Industry concept/ End Game
Is the Market attractive? Is the Company attractive? Is the Deal Structure attractive? Can we add susbstantial Value?
GO
NO GO NO GO NO GO NO GO
Industry Selection Exit Thesis: IRR: >35% Full Potential Plan
• Size • Criticall mass Co-Investors • Advisory Board
• Segments • Consolidation Mezzanine Finance • External Advisors
• Growth & Growth drivers • Management/Scalability Legal • > Strategic Full Potential
• Value Chain Integration • Stable Free Cash Flow • > Financial Full Potential
• Key Success Factors • Controlling Ownership • > Operational Full Potential
• Profit Drivers (Rev/Cost) • > Organisational Full Potential
• End Game Analysis
SC_MASTER_GALT&TAGGART 23
24. The current dealflow is multi-sourced (open architecture) and
flanked by advisors and industry experts.
Post Acquisition
Deal Sourcing Due Dilligence Deal Structuring Exit
Value Improvement
Entry Value Creation
Key sources Key success factors Name Sector Size [Mio. $]2) Fit1)
• Third party advisors • Arm's length • Fast food systems Franchise Food N.A.
– Legal advisors • Patronage deals • UPG Food Processing
– Management • Comission based deals • Univest Print Printing
consultants • Exclusivity • Energy (Co/ Renewable Energy
- BAIN & Co. Morgan Stanley)
- Roland Berger • OTC:
- PWC/E&Y • Retail OTC: pot. Co-Inv
- Deloitte • Financial Services Retail
– Banks • Juices/Drinks Financial Services
- Credit Suisse • Investment Criteria • Intercable Consumer Goods
First Boston • Sweetspot debriefing Construction
- Dragon Capital • Exit Focus Materials
- Forum • Investment Thesis
• Valuation
• Company Dealflow • Roadshow regions
• Holding contacts
1) Subject to investment committee, advisory board, due dilligence process (market, company, deal attractiveness)
2) Subject to further due dilligence SC_MASTER_GALT&TAGGART 24
25. 1 2 3
Transaction Focus: Investee Company Selection Criteria
• Experienced, committed management team with proven track record in its sector
• Evidence of company’s potential to become a market leader
• Growth dynamics and strong potential for expansion
• Privately owned and unlisted
• Cash positive or break-even, with clear revenue models
• Clear exit strategy within 3-5 years
• Committed to financial transparency
• Low political risk and no affiliation with shadowy business structures
• Average equity investment required: $15-25m
• Geographical location: Ukraine
• Cut-off project IRR level – 35%
Source: Johan Werbrouck, Chairman Steinberg Capital SC_MASTER_GALT&TAGGART 25
26. Exits can be multiple
Exit Routes
• Strategic Investors: Multinational companies from Western Europe, USA, Asia
and Latin America
• Russian and former Soviet block businesses, which are expanding in the region
• Local business people
• Management buyouts
• Secondary Buyouts
• IPO’s in the West or in the region
• Additional factors aiding exits in the next 5 years:
o ocal pension fund industry is developing fast
L
o ocal mutual fund industry is being born
L
o everaged buyouts will be coming
L
Source: UNECE, Economic Survey of Europe, 2005; CIA World Factbook 2005 SC_MASTER_GALT&TAGGART 26
28. CV – Partners Steinberg Capital
Werner Claes
Mr. Claes was the former Executive Director Global Private Equity Fortis Bank with
the following responsibilities:
- Mezzanine Finance
- Private Equity in Central and Eastern Europe
- Membership of all important investment committees of Fortis Bank
- Director of various investee companies.
Prior to this role he was Director Central Risk Management, Fortis Group, and Director
International Credits.
Other responsibilities included:
- resident of Credit Council of ALCO-FUIB (First Ukrainian International Bank)
P
- oard Member of Fortis Bank Polska
B
-Board member of Czech Ventures
-Due Diligence Team leader in all emerging market exercises Fortis Bank.
Werner has university degrees in interpreting Dutch-French-Russian, has a Post-
Universitary Degree in Business Economics (Vlekho), and two Masters in Financial
Management and Accountancy.
SC_MASTER_GALT&TAGGART 28
29. CV – Partners Steinberg Capital
Hans M.C. Vanoorbeek
Mr. Vanoorbeek has more than 10 years in the private equity industry and a strong
direct track record in private equity and buyouts as former Partner at Industrikapital
Ltd and BC partners since 1995.
At Industri Kapital Ltd he established a large network of investment bankers, M&A
intermediaries, accountants, consultants and lawyers in London and the Benelux. This
combined with an already existing network has ledto the generation of a proprietary
deal flow (approximately generated 35 proprietary deals in the Benelux and eight outside
the Benelux). He participated in approximately 50 auctions (whereof approx. 25 second
rounds) and 12 exclusive deals (whereof 6 very intensive). Prior working experience can be
found at Goldman Sachs and KPMG.
He is co-investor and entrepreneur in two companies in Belgium.
Mr. Vanoorbeek is a MBA graduate of Harvard Business School, and has earned a
masters in law and economics of the Catholic University of Leuven.
SC_MASTER_GALT&TAGGART 29
30. CV – Partners Steinberg Capital
Johan J.G. Werbrouck: Founder & Managing Partner
Mr. Werbrouck started his corporate career at BASF AG and rotated into international business development and
corporate development functions in Germany (HQ), France and Belgium. Afterwards he joined Roland Berger in
Duesseldorf and advised german clients out of the Group Wide Chemical Competence Center
He joined BAIN&Company to work on private equity related advisory and bancinsurance related strategic
assignments. Overall, he worked mainly in the areas of commercial due Diligence, valuation and full potential plans.
Afterwards he joined GE in Italy at Executive level to spearhead the European Services Council. This was done
through selection of best practices across the 12 industrial business units of GE, both in long and short cycle
businesses. He rotated as Vice President Europe to GE Capital Commercial Finance (Asset Based Lending) out of
the UK, where he headed a pan-European team of 8 professionals in 6 countries
From 2001 to 2003 he was a Group Director at Viterra Energy Services, a division of E-On AG, and was responsible
for the restructuring of the Six Sigma program in 28 countries, whilst trimming the company and designing the growth
story with the Board to a successful exit at the end of 2003 to CVC Germany. The division was sold at a 10 X EBITDA
multiple for 1 Billion Euro.
In the beginning of 2004 he created Mercurius Group Ltd as platform to position Steinberg Capital and was the only
financier in setting up the operations of Steinberg Capital. He is trained as Commercial Engineer at the Catholic
University Leuven and has obtained a MBA at the Vlerick School for Management in 1991-1992.
SC_MASTER_GALT&TAGGART 30
31. The Investment process/Post Acquisition Value add
Full Potential Program
Financial Full Potential Operational Potential Organizational Full Potential Strategic Full Potential
• Manage Balance Sheet • Manage Assets • Build processes • Define visions and missions
- Sell non-required assets - Utilize capacities - Identify core processes • Inject growth initiatives
- Use off-balance sheet financing - Focus/consolidate operations - Define process owner - Core (products, regions,
channels, Customers)
- Outsource non-core activities - Redesign processes
- adjacencies
• Optimize financial structure
- Find the optimal mix • Manage Costs • Build structure
debt/mezzanine/equity • Make add-on acquisitions
- Optimize purchasing - Form homogenous operating units
short-/long-term
- screening
- Increase effiency of direct labor - Define corporate center and corporate
- Reduce working capital
services - Evaluation of targets
- Optimize sales force efficieny and
- Optimize cash management
G&A efficiency - Transaction support
- Streamline/consolidate R&D • Build systems
• Review tax/legal strucure
- Integrate planning, reporting • Build exit story
• Manage Sales - Develop new incentive schemes - Develop and communicate
„success story“
- Identify areas of under-penetration, - Establish performance standards
cross selling opportunities - Prepare business plan
- Compare internally, external
- Conduct sales emergency programm
- Perform sales enhencement
• Build Management Team
programs
- Shared vision, values of core
management
- Develop high potentials
31
32. Additional PE track record
Introduction to the Advisory Board
The management team’s expertise will be further supported by an active, fi rst class
Advisory Board created within Steinberg Capital Management, whose members have
significant experience in building shareholder value in both Ukrainian and interna-
tional companies.
In addition, each international Board member has a first-hand experience in the private
equity field. Board members are asked to contribute actively across the
Steinberg Capital value chain, utilizing their core strengths and in-depth
knowledge to help the Company realize successful investments. The Advisory Board
meets formally 4 times per year and will be contacted on an ad-hoc basis deal-by-
deal.
The following individuals have agreed and already participate on the Advisory Board:
SC_MASTER_GALT&TAGGART 32
33. 1 2 3
Investment Process: Role Advisory Board
Advisory Board:
• Industry Know How Pre-Investment Check- Due DilligenceReport
Due Dilligence
• Networks list & Risk ratings Report
• Business Judgment
Deal Origination Initial Screening
Detailed Due Investment
Deal Origination Pre-Investment
Dilligence Committee Approval
Committee
Investment
Execution of
Reallisation and
Transaction
Management
Exit
Exit
The Advisory Board meets formally 4 times per year. In addition, on a ad-hoc basis, they are send an investment
summary of the deals at the pre-Investment committee stage. Leveraging networks, industry know how and/or deal
attractiveness judgment are part of their role.
SC_MASTER_GALT&TAGGART 33
34. CV – Advisory Board Partners
Jean Cristophe Laloux: Luxemburg
Mr. Laloux is a Director of Private Equity for Southeast Europe at European Investment Bank, based in
Luxemburg. Prior to this responsibility, he was the direct advisor of the EIB President, Mr. Maystadt.
He was a former Boston Consulting Group consultant.
His contribution to Steinberg Capital is defined at fund level where corporate governance best
practices will be exchanged.
At present, his director assignment at the European investment Bank, based out of Luxemburg brings
him in the Board Seat positions of EIB backed private equity funds.
Mr. Laloux has obtained his MBA at Kellog/Chicago. Prior to this, he earned a masters degree in
Commercial engineering at the Catholic University Leuven and a postgraduate management at the
Vlerick School of Management.
SC_MASTER_GALT&TAGGART 34
35. Steinberg Capital in Ukraine: constant presence and international
structure of investment teams
The only private equity fund solely focussed among the
current players on buyouts
Team of partners with a local operational
experience, contacts and infrastructure
A team of international partners with top track record
In private equity and active value creation for
investee companies and portfolio management
Target net IRR per year of 30-35% for investors.
SC_MASTER_GALT&TAGGART 35
36. Private Equity - Appendix –
- Market Size in Ukraine: Private Equity Committed Capital
- Multiples versus Local Multiples (proprietary dealflow SC)
- Best performing Asset Class
37. Private Equity Landscape in Ukraine
In the course of the next years, private equity will increase its total committed
capital. Current committed capital as % of GDP is still in the initial stage as opposed
to CEE.
[Mio $]
SC_MASTER_GALT&TAGGART 37
38. U.S. buy-out industry
Increasing amount of ... chasing fewer deals... ... means higher purchase
investment capital ... multiples
LBO Dollars Raised Number of LBO/Merchant Bank Purchase Multiples
Deals
$28,987M
277
$30,000 300 10.0
275
270
$22,600M
255
8.6
248
245
$25,000 250
$18,431M
8.0
7.0 7.1
Number of Deals Closed
6.5
$20,000 200
EBIT Multiples
6.0 5.4
$11,612M
$15,000 150
4.0
$5,905M
$5,174M
$10,000 100
2.0
$5,000 50
$0 0 0.0
1992 1993 1994 1995 1996 1997 1992 1993 1994 1995 1996 1997 1993 '2/95 '2/96 '2/97 2/98
Sources: BUYOUTS Newsletter; 1997 Buyouts Yearbook
SC_MASTER_GALT&TAGGART 38
39. Industries with high growth rates (e.g. telecom) will command
higher purchase multiples relative to mature or volatile industries
Purchase Multiples by Industry (1997)
Buyout Purchase EBITDA Multiples (1997)
13
10.9
10
8.1
7.4 7.5
7.1
Buyout Purchase Price
8 7.0 6.9 7.0 6.8
(EBITDA Multiples)
6.5
5.9 6.0
5.4
5
3
0
Auto- Chemi-
Tech- Food & Forest General Health- Home Publi- Retailing Services Telecom Textiles
motive cals
nology Beverage Products Indus- care Furni- shing
tries shing
Sources: BancAmerica Robertson Stephens, Portfolio Management Data LLC
SC_MASTER_GALT&TAGGART 39
40. Private Equity at 14% of total portfolio among UHNWI and
HNWI’s (Source Merrill Lynch)
SC_MASTER_GALT&TAGGART 40
41. C. Development perspectives of Ukrainian economy – between European Union
and Russia
SC_MASTER_GALT&TAGGART 41
42. Economy of the country attracts investors, but a range of measures on
macro- and micro- levels is necessary
Attractiveness of Ukraine for investors: brief overview
•
1 Ukraine – economics with investment 2• A rangeof economical industries will attract
potential for EU and Russia: particular attention of the investors:
- High speed of economical growth - Ferrous metallurgy
- Capacious internal market - Banking sector
- Position between EU and Russia - Retail
- Low production costs
•
3 For increasing the attractiveness of the 4• For
increasing attractiveness of business, a
country, a range of state measures is range of measures in the 5 key spheres is
necessary in the 5 key spheres: necessary:
- Power sector - Transparency
- Liberalization - Clear development strategy
- Taxation - Investments
- External-economic policy - Personnel
- Privatization - Innovations
Source: Steinberg Capital SC_MASTER_GALT&TAGGART 42
43. 1 INVESTMENT POTENTIAL
Ukraine offers a range of advantages to the investors – speedy
growth, capacious market, low costs, etc.
Ukrainian GDP pro capita in the context of developing countries
Forecast of average annual GDP growth for 2007-2011 for some growing
economies [%] Comments
• Ukraine has one of the quickest
China growing economies in the world, and
Ukraine is one of the largest countries in
Europe. This combination tells about
Тurkey economical potential
• Capacious internal market for ЕU
Russia and Russia
• Advantageous capacities for locating
Romania a range of industries (raw materials,
Тhailand low costs)
Mexico
Brasil
Sources:: EIU, Steinberg Capital SC_MASTER_GALT&TAGGART 43
44. 1 INVESTMENT POTENTIAL
Ukrainian economics will be particularly attractive for the investors
from EU and Russia
Ukraine: location between Russia and European Union
Attractiveness for EU Attractiveness for Russia
• Capacious sales market, • Capacious sales market,
geographic nearness geographic nearness
• Comparatively stable • Historical and cultural
macroeconomic Russia closeness
development • Existing links between
• Low costs of inputs (e.g. capital and external
EU
raw materials, personnel) relations
• Political course oriented • Relative confidence in
for European Union political system
Source: Roland Berger SC_MASTER_GALT&TAGGART 44
45. EUROPEAN UNION
Membership in the EU – priorities in external politics. The EU is still the
major economical partner
Relationship EU-Ukraine
Major tendencies Trade ЕU-Ukraine, 2005
1 High probability of achieving the Free Trade Agreement after Ukraine joins USD 13,2 bn USD 10,2 bn
WTO
2 High probability of improving visa regime for the Ukrainians Other goods
Other goods
3 Ukrainian lobby in the EU (Poland, Sweden, Great Britain)
Investments
Plans of accepting the EU standards and laws in Ukraine Paper
4 Textiles
Services
Transportation
Autos services
Share in FDI 1) 47% 50% 43% 52% 54% 72% Products of
chemical industry Minerals
Raw materials
Machines and
The EU facilities Metals
investments in
Ukraine
[bn USD] Import into Export to
2000 2001 2002 2003 2004 2005 Ukraine from Ukraine from
the EU the ЕU
1) Direct foreign investments
Source: State committee of statistics of Ukraine, Steinberg Capital SC_MASTER_GALT&TAGGART 45
46. RUSSIA
Russia is the largest sales market for Ukrainian goods and also a
considerable investor
Relations Ukraine-Russia
% from the total Tendencies
24% 42% 19% 38% 18% 42% 22% 36%
amount
• Decrease in the share of the Russian capital in FDI
• Legal obstacles for some Ukrainian goods exported
to Russia force the Ukrainians to search for new
sales markets
• Tensions in relations (e.g. gas crisis in 2005)
Ukrainian-
Russian trade
[bn USD]
- Import of Russian goods and services - Export of Ukrainian goods and services
Comments
Share in FDI 7% 7% 6% 6% 8% 5%
• Russian businessmen have been recently exploring
the following industries in Ukraine:
- consumer goods
Russian - trade
investments in - banking
Ukraine, - non-ferrous metallurgy
2000-2005
[bn USD]
2000 2001 2002 2003 2004 2005
Source: State committee of statistics, Steinberg Capital SC_MASTER_GALT&TAGGART 46
47. 2 ATTRACTIVE INDUSTRIES
Investments from the EU come to the consumer goods industry and services,
from Russia – to the heavy industry
Overview of the shares of foreign investors in the industries of Ukraine1)
Investments from the EU:
The EU investors control over 80%
• Consumer goods – know-how of work with the consumer
• Tabacco industry • Household chemicals and cosmetics
• Industries with the high penetration rate – resources
• Beer manufacture
Investments from Russia:
The EU investors control from 20% to 80% Russia and the EU control • Heavy industry – the investors are
• Ferrous metallurgy • Construction materials • Oil manufacture from 20% to 80%: the leaders of the world market
• Fertilizers industry production • Fixed telephony • Communications – work experience
• Banking sector • Dairy products
• Retail within the industry in Russia
• Automotive • Engineered products
• Building
Control over Ukrainian capital more than 80% Investors from Russia control Russian investors control over
from 20% to 80% 80%
State property Private property
• Power production • Ironstone extraction • Grains • TV and the press • non-ferrous metallurgy
• Coal extraction • Pharmaceutics • Confectionary industry • Petroleum refining
• Oil and gas extraction • Sugar industry • Мeat industry • Mobile telephony
• Post • Paper industry • Industry alcoholic products
• Railway
1) Based on the costs of the produced goods, or on the market share of the services of the company with the foreign investments more than 50% from the capital
Source: Steinberg Capital SC_MASTER_GALT&TAGGART 47
48. 2 ATTRACTIVE INDUSTRIES
Investors are mostly interested in the industries with the highest market
capacity and growth
Growth speed and market capacities of the industries of Ukraine
Market capacity
in 2006 Ferrous metallurgy Retail
from 10, very
[USD bn] (Power industry)1) Banking sector
attractive
Grains Construction, Pharmaceutics Engineered goods
Dairy industry Мeat industry Automotive
Fertilizers industry Railway transportations Sugar manufacture
from 1 to 10,
attractive
Fixed communication Ore, oil, and gas extraction Industry of alcoholic products
Confectionary industry Construction material Oils manufacture
Coil extraction Paper industry
Non-attractive
Textile industry Juices manufacture Cable TV
Before 1,
Market turnover
Bun goods manufacture Woodwork industry Internet-providers growth in
Post 2006 [%]
Up to 5%, non-attractive from 5 tо 20%, attractive from 20%, very attractive
1) Current state monopoly, privatization is possible in the medium term perspective
Source: State committee of statistics of Ukraine, Steinberg Capital SC_MASTER_GALT&TAGGART 48
49. 2 ATTRACTIVE INDUSTRIES
Therefore, the investments in the following industries are the most
probable
The most attractive industries for FDI1)
Very attractive industries
Investors • Ferrous
I • Banking sector
II III Retail
• Investors
metallurgy
from EU from
Russia
Attractive industries
Industries with the • Power production • Sugar manufacture Industries with the high
high participation level participation level of
of European investors
• Аutomotive • Oil manufacture Russian investors
• Engineered products
• Household chemicals and • Non-ferrous metallurgy
cosmetics • Petroleum refining
• Тobacco industry • Mobile telephony
1) Alcohol beverages production is not considered due to the strong position of Ukrainian producers, including Russian and world markets. These companies invest into business already now.
Source: Roland Berger SC_MASTER_GALT&TAGGART 49
50. 2 ATTRACTIVE INDUSTRIES: II. BANKING SECTOR
Banks are rapidly growing. High fragmentation level serves as a
precondition for consolidation processes in the future
Major actors of the banking sector
General cost of the bank assets [USD bn] Assets of the Top-10 banks, 2006(3 Q) [USD bn]
Assets share
Bank assets as 25% 30% 46% 34% 45% 77%.
% of GDP 10%
CEE1) Ø 78% 79%
9%
6%
CAGR +31% +26%
6%
130
6%
5%
3%
42 3%
23 21 3%
14 16
2%
46%
Forecast - banks with Ukrainian capital
1) Central and Eastern Europe - banks with the share of foreign capital
Source: National Bank of Ukraine SC_MASTER_GALT&TAGGART 50
51. 2 ATTRACTIVE INDUSTRIES: III. RETAIL
Sales networks demonstrate quick growth; 2 Western networks on the
market; new actors are expected
The rating of the retail networks in Ukraine and the possible new actors
The networks, entering the
market
Growth 71% 75% 78% 45% 106% 50% 54% 38% 48% 50%
speed,
2005-20
06. [%]
Networks considering
entering the market
Metro C&C BILLA
2005 2006
Metro C&C
- Networks with the foreign capital
BILLA
Source: the press, companies’ information, estimations by Steinberg Capital SC_MASTER_GALT&TAGGART 51
52. 3 MEASURES ON STATE LEVEL
To improve investment attractiveness of the country the government should
work in the following 5 spheres
Major aspects on macro level (state)
Attention focus Directions
Power saving, exploration of the alternative power sources, search
1 Power policy
for alternative power suppliers
Cutting-off bureaucracy, simplifying the relationship processes with
2 Liberalization business, removing contradictions in the laws
Stimulation of the internal investments, solving the problems with
3 Taxation
VAT compensations, decreasing taxes
Solving the problems with the quotes and antidumping, getting closer
4 External economical policy
to the European markets
Preparation of the enterprises to privatization (restructuring, etc.),
5 Privatization transparency of the tenders, fulfilling plans by the investors
Source: Steinberg Capital SC_MASTER_GALT&TAGGART 52
53. 4 MEASURES ON THE BUSINESS LEVEL
The enterprises aiming at attracting the investors should be prepared to the
changes
Major aspects on micro-level (enterprises)
Attention focus Directions
Ownership structure, organizational structure, reporting procedure
1 Transparency
and the system of informing the management
Clear strategy of business development, implementation of the
2 Development strategy modern management methods
3 Investments Readiness to invest own assets into business development
Development of the employees motivation methods, development and
4 Personnel
learning, options of carrer growth
Openness to innovations, orientation to the consumer, development
5 Innovations of new products, entering the new markets
Source: Steinberg Capital SC_MASTER_GALT&TAGGART 53